Chapter 4 - Key ethical issues

Question 1

Name the five fundamental principles

Answer 1

Integrity - straight forward and honest

Objectivity - not allow bias, conflict of interest or undue influence to override judgement

Professional competence and due care - IP has duty to maintain professional knowledge

Confidentiality - should not disclose information unless legal or professional duty to disclose

Professional behaviour - IP should comply with relevant laws and regulations and should avoid any action that discredits the profession

Question 2

Name the five threats to fundamental principles

Answer 2

Self-review threat
Self- interest threat
Advocacy threat
Familiarity threat
Intimidation threat

Question 3

Explain self review threat

Answer 3

When a previous judgement made by an individual in the practice needs to be re-evaluated by IP. Eg they were an audit client, or individual of firm used to be employed by that company

Question 4

Explain advocacy threat

Answer 4

When an individual within practice promotes a position or option to the point that subsequent objectivity may be compromised.
eg acting in an advisory capacity for a credit of an entity prior to insolvency appointment of that entity
eg acting as an advocate for a client in litigation prior to insolvency appointment in respect of that client.

Question 4

Explain self interest threat

Answer 4

Result of financial interest or other interest, eg interest in major creditor, concern about damaging business relationship, concerns about future employment, personal connection with entity or principle of entity

Question 5

Explain intimidation threat

Answer 5

IP deterred from acting objectively by threats.
eg being threatened to be replaced, pressure to not follow regulation
where IP is an employee rather than a principle of practice and has insufficient control over insolvency appointment

Question 5

Explain familiarity threat

Answer 5

Close relationships or too sympathetic
eg an individual within practice has a close family relationship with an entity or principle of entity
eg services provided by a regular source

Question 5

Name some safeguards that can be used to mitigate threats to fundamental principles

Answer 5

Other IP in firm to review

Speak to RPB

Joint appointment with another firm

Change members of the team

Barriers of information

Phone R3

Policies and procedures to implement and monitor quality control of appointment

Seek direction from court

Use experts and assign staff with necessary competencies

Question 6

Name some examples of conflicts of interest and what safeguards can be put in place if any are identified

Answer 6

Succession appointments

Significant relationship has existed with the entity or someone connected with entity.

An IP has to deal with claims between separate and conflicting interests of entities over whom he is appointed

Safeguards:
Use of separate IPS/staff
Procedures to prevent access to information
Clear guidance for individuals within practice
Use of confidentiality agreements signed by individuals in practice
Seek direction of court
Regular reviews of applications of safeguards.

Question 7

Can referral fees or commissions be accepted?

Answer 7

No

Question 8

What threat arising from Marketing an insolvency firm?

Answer 8

Self-interest threat to the compliance with the principle of professional behaviour if services are marketed in a way that are inconsistent with that principle.

Question 9

Examples of significant professional relationship

Answer 9

Audit work carried out in previous 3 years is considered significant

Whether the fee for the work by the practice is or was significant to the practice

Perception of the relationship - what a reasonable and informed 3rd party would reasonably conclude to be acceptable.

Question 10

What values is the security/bond that an IP must have?

Answer 10

General bond of £250,000

and

Specific penalty bond based on assets of company, min £5,000 up to maximum of £5,000,000

Question 11

What are the three main laws/regulations that relate to money laundering?

Answer 11

Money Laundering Regulations 2017

Part 7 Proceeds of Crime Act 2002

S18 and S21A Terrorism Act 2000

Question 12

Money laundering is conventionally described as being a three stage process, name the three stages:

Answer 12

Placement - where cash is deposited into bank system eg potential purchaser of business wants to pay in cash

Layering - series of transactions designed to disguise the audit trail eg criminal sends cheque to liquidator, its cashed, then turns out wasn;t due so liquidator sends it back, funds now appear to be from legit source.

Integration - whereby the now apparently cleaned funds are invested into a legitimate economy eg criminal acquires a business through office holder using funds that have been laundered

Question 13

How long should an IP maintain records of client identification and of business relationships?

Answer 13

5 years

Question 14

When is identification procedures required?

Answer 14

• Entering a business relationship
• Carrying out an occasional transaction
• Where there is suspicion of money laundering or terrorist financing.
• Where there are doubts concerning the validity of previous identification evidence

Question 15

What is the value for an occasional transaction that required identification procedures?

Answer 15

a transaction amounting to Euro 15,000 or more

Question 16

What is the value for transactions to be a ‘High Value Dealer’

Answer 16

Activity of dealing with goods whenever a transaction involves accepting a total cash payment of EURO 10,000 in more than one operation or several if they are linked.

Question 17

Can an appointment be accepted if there has been a significant professional relationship or the IP or firm has carried out audit work in the previous 3 years?

Answer 17

No

Question 18

Does appointment as investigating account preclude a later appointment as an administrative receiver?

Answer 18

Not usually

Question 19

Can a receiver accept an appointment as liquidator of a company?

Answer 19

No

Question 20

Can supervisors and administrators usually accept appointments as liquidation of an insolvent company?

Answer 20

Yes, usually

Question 21

Can holders of insolvency appointments also act as an auditor of a company/business?

Answer 21

No

Question 22

Can appointment as liquidator in a MVL be accepted where there accepts a significant professional relationship?

Answer 22

Yes, however must review position as liquidator where MVL is likely to be converted into a CVL.

Question 23

Can an office holder usually accept an appointment as liquidator if he acted previously as an AR (administrative receiver) or a LPA?

Answer 23

No

Question 24

Is appointment as a liquidator following a court appointed receivership acceptable

Answer 24

Yes, usually

Question 25

Is appointment as liquidator in a compulsory winding up acceptable if they have previously acted as administrator or supervisor of CVA

Answer 25

Yes, usually

Question 26

Can the IP be liquidator following on from appointment as administrator?

Answer 26

Yes, if there is agreement of the creditors prior to appointment

Question 27

Can payments be made to secure an appointment of liquidator?

Answer 27

No - S164

Question 28

Bankruptcy and voluntary arrangements - can a supervisor of a voluntary arrangement act as a trustee in relation to the debtor?

Answer 28

Yes, usually

Question 29

Bankruptcy and voluntary arrangements - can an appointment be accepted where there is a close personal relationship with an individual

Answer 29

No

Question 30

Bankruptcy and voluntary arrangements - can an appointment be accepted in relation to a company which has a close connection to an individual in respect of whom the office holder is acting?

Answer 30

Yes

Question 31

Is it acceptable for office holders or staff to acquire directly or indirectly any assets of a company or debtor in relation to which he holds an insolvency appointment?

Answer 31

No