Bonding reforms coming into force 1 December 2024

IPA Insolvency Practitioner newsletter, November 2024

As part of the response to the consultation on the future of insolvency regulation, the Insolvency Service have made some amendments to the bonding framework. In summary, the bonding reforms are incorporated into Schedule 2 to the Insolvency Practitioners Regulations 2005 as follows:

General Penalty Sum (GPS) to be increased from £250,000 to £750,000, and to apply across all cases where the Specific Penalty Sum (SPS) is insufficient, including those where no SPS cover is in place (paragraph 3(2)(b))
Minimum statutory requirements for bonds to include provisions for the payment of costs and expenses reasonably incurred or charged by the successor insolvency practitioner, including parallel costs (reg 3(2)(f))
Bonds to include a clause on calculation of interest from the date of relevant loss to the date of claim for that loss, with Sterling Overnight Index Average (SONIA) as the benchmark (paragraphs 3(2)(a) and 8ZB)
Bonds to include a run-off period of at least 2 years from release or discharge from office (paragraph 8ZA)
Where a maximum indemnity period is provided for, this should be no less than 6 years, with the ability to extend with the agreement of the bond provider (paragraph 8ZC)
Surety or cautioner to give at least 60 days’ notice to the IP and authorising body before a bond expires or is cancelled due to non-payment of a premium (paragraph 8ZD)

The reforms come into force on 1 December 2024, with transitional arrangements in place until 31 December 2025:

Existing bonds issued on the old approved wording will remain valid until the bond expires
From 1 December 2024, bonds may either be issued with the new provisions (once approved by the Secretary of State), or on the old approved wording
From 1 January 2026, all bonds will need to have their wording approved by the Secretary of State in line with the new provisions of the amended Insolvency Practitioners Regulations 2005

The Insolvency Service is aware that bond providers have been working on the amendment of bond clauses in anticipation of the changes.