During the late 1980s Mr. and Mrs. Preen built up a reasonably successful business from leased premises with an annual turnover of £250,000 (Hansard, 23 October 1996, cols. 112-120.. In the course of their business, a dispute arose with the landlord over the repairs, dilapidations and structural refurbishments covenants in the lease. In December 1992, the landlord issued an invoice of £12,000, subsequently withdrawn, to levy charges. Indeed, on 18th December 1992, the bailiffs arrived demanding immediate payment of £12,000.
The dispute was complex. Mr. and Mrs. Preen were advised that they could either sue the landlord with all the risks involved in that, or place their business into administration i.e. place it under the protection of the courts. On 21st December 1992, they approached Friar & Co., a Luton based firm of chartered accountants and a Mr. A.G. Aiyer was appointed as an administrator. At this point the business was solvent with a bank balance of £7,475.83. the only creditors were the landlord for £7,000 and Mr. and Mrs. Preen for £130,000 representing their investment and life savings into the business. The Preens asked the insolvency practitioner for an indication of his likely fees, but received no definitive answer. Mr. and Mrs. Preen understood that they would continue to work in the business and save it, but the insolvency practitioner soon sacked them. The insolvency practitioner took complete control of the business, but the Creditors’ Committee considered his conduct to be lacking in efficiency and competence. Papers for the court were not properly drawn up. A genuine approach from the assistant manager of the business to buy it was turned down. Subsequently, the assistant manager was also sacked by the insolvency practitioner.
By summer 1993, a friend of the insolvency practitioner was appointed manager. It was thought that he would buy the business, but tan early bid did not materialise. By July 1993, the Preens felt that their £130,000 investment is likely to be lost. By the summer of 1993, the insolvency practitioner decided to close down the business. He had already sacked employees and removed some of the fixtures and fittings of the business and placed them into storage with another company with which he had a business relationship. This company raised invoices for the storage fees which the Preens considered to be inflated. The insolvency practitioner then intended to secure the transfer of the company in its entirety to yet another company. It was believed that he also had a continuing business relationship. Around the same time he sent forms to Companies House purporting to be the resignations of Mr. and Mr. Preen as directors of the company. Eventually, the insolvency practitioner’s friend acquired the business at much lower rent and assets were sold at knock-down prices. He recommenced trading. Most of the original staff lost their jobs. The unsecured creditors did not receive even 1p in the pound. Mr. and Mrs. Preen lost their life savings.
On 13th July 1993, Mr. and Mrs. Preen reported the conduct of the insolvency practitioner to the Institute of Chartered Accountants in England & Wales (ICAEW). One might have expected the ICAEW to act swiftly, especially as recent as October 1992, it had found the same insolvency practitioner guilty of professional misconduct in that he had passed client’s monies through his own bank account. The practitioner’s past misconduct was not communicated to the Preens at the time of his appointment. Given the previous record of the practitioner, one might have expected the ICAEW to act swiftly and as a regulator help Mr. and Mrs. Preen. It only sent a routine note acknowledging receipt of their letter. In December 1993, Peter Butler MP took up the Preen’s case. But still no reply or action from the ICAEW. The Institute finally responded in February 1994 to say that it is looking into the matter. On 22 June 1994, the ICAEW Director of Professional Regulation stated that the matter is “under active consideration, but I regret I am unable to predict with confidence when a decision will be reached”. Despite further letters, no more information could be secured. Finally, Peter Butler MP secures a reply from the ICAEW (letter dated 18 August 1994).
In September 1994, an Industrial Tribunal concluded that the insolvency practitioner had breached Section 53 of the Employment Protection (Consolidation) Act 1978 by unfairly dismissing staff and was ordered to pay costs of £381.30. In Autumn 1994, it is learnt that Mr Aiyer had pleaded guilty at the Luton Magistrates Court for breaching Section 389 of the Insolvency Act 1986. Between December 1986 and March 1993, he practised as an insolvency practitioner whilst not qualified to do so. He was given a conditional discharge for two years. Did the ICAEW not check whether the complaint was against someone who might have been acting as an insolvency practitioner whilst not qualified to do so? Perhaps, it did not really care much about complaints from one of the little people. After all, the ICAEW does not owe a ‘duty of care’ to anyone.
By November 1994, still nothing further was heard from the ICAEW. After further letters, the ICAEW officials stated that “the investigation committee decided not to prefer a formal complaint to the Disciplinary Committee. Mr. Aiyer has, however, had his licence withdrawn. That was done last autumn administratively not by disciplinary action. Arrangements have been put in hand for him to be given assistance in dismantling that part of his practise, and, of course, for the procedures to be monitored” (letter dated 22 February 1995). Subsequently, Preens were informed that “You were not told of the withdrawal Mr. Aiyer’s licence at the time because the practice is not to make such information publicly available until after the decision has taken final effect” (letter dated 17 March 1995). On 15 July 1996, bankruptcy proceedings were launched against Mr Aiyer in Luton County Court. Luton & Dunstable Herald and Post reported (29 August 1996) that Mr. Aiyer was bankrupted by litigation claims of around £150,000 against him.
So the ICAEW has mechanisms for quickly responding to stakeholder concerns.
It does not have systems for knowing whether its members are authorised
to conduct insolvency work. How does the ICAEW monitor the work of insolvency
practitioners? In response to a Parliamentary debate, the Minister for
Corporate Affairs acknowledged that
|“the manner in which [Mr. and Mrs. Preen’s] complaints were dealt with
by the Institute of Chartered Accountants was not all that it should have
been. There were delays in the investigation into the complaint, and delays
in communicating its progress and its outcome to Mr. and Mrs. Preen”
Source: Hansard, House of Commons Debates, 23 October 1996, col. 118.
Despite such statements, the ICAEW has not been obliged to compensate
the Preens for any of the losses that they might have suffered because
of the shortcomings in its administrative procedures. Mr. and Mrs.
Preen lost assets estimated to be around £130,000. There is no independent
ombudsman to examine their case. The best the DTI could advise was that
|“the position remains that the government has no power to make the
ICAEW compensate him. However it is open to Mr. Preen to take legal advice
as to whether any remedies under law are available to him and to proceed
on the basis of that advice”.
Source: Letter from the Minister for Competition and Consumer
Affairs to Austin Mitchell MP, dated 31 July 1998.
At the very least there should be an independent Ombudsman. The Minister's advice requires the Preens to spend even more money to correct a wrong doing.