The risk of indemnities from related parties

ARITA has become aware of a concerning trend of insolvency practitioners accepting indemnities for their remuneration and expenses from:

  • a related party of the company, or 

  • a party that is involved in a transaction with the company

they have been requested to take an appointment to.

Notwithstanding that the Code does not specifically exclude indemnities in these circumstances, it does require Members to both be, and be seen to be, independent, when accepting or retaining an appointment. 

The acceptance of an indemnity may, depending on the circumstances, result in the appointee no longer being seen to be independent.

Where the provider of the indemnity is involved in a transaction that the appointee would need to investigate, the indemnity would create a perception of a lack of independence - even if the indemnity is unconditional.

In ARITA's view, indemnities from related parties, or parties involved in transactions with the company, create a risk to independence due to the reliance of the practitioner on the future satisfaction of the indemnity and the perception that the practitioner may not take action which would put that future payment at risk.

Upfront payments do not, in ARITA's view, generally hold the same independence risks, as payment is not at risk if the appointee's actions do not align with the provider's expectations.

Any questions from an ARITA Member about independence can be directed to ARITA's Specialist Team .

ARITA takes seriously any complaints or concerns received regarding allegations of a lack of independence and will investigate all complaints and concerns against our Members in accordance with our procedures .

Note: This issue is not applicable to indemnities from the appointing secured creditor in receiverships.