In brief
- Insolvency Practitioners (IPs) purchase insolvency practitioner bonds (IP Bonds) to cover claims arising from the appointments they take on. These IP Bonds specifically cover claims for losses caused by fraud or dishonesty on the part of the IP.
- As the appointments that the IPs take on are not known at the time the bonds are issued, the bonds are issued for the benefit of the IPs' regulating bodies (the Regulators). In Nicholson v Insolvency Practitioners Association the High Court considered the basis on which the Regulators hold these IP Bonds.
- The court concluded that IP Bonds are held on trust for the estates of the insolvent companies that the IPs have been appointed over. Accordingly, these companies are entitled to claim under the IP Bonds assigned to them.
- It also confirmed that these companies' rights under the bonds are "property" for the purposes of section 234 of the Insolvency Act 1986. Therefore, the Regulators can be compelled to transfer them at the request of subsequently appointed IPs (Successor IPs).
- As a result, companies and Successor IPs will now have a clear route to pursuing claims under IP Bonds where previous IPs have acted improperly.
Overview
IPs are entrusted with great responsibility when appointed over an insolvent company. As a result, fraudulent or dishonest conduct on their part can cause significant harm to the companies they are appointed over.
To mitigate this risk, and provide insolvent estates with a route to recover losses caused by such behaviour, IPs are expected to take out IP Bonds. The High Court's judgment in Nicholson v Insolvency Practitioners Association [2026] EWHC 686 (Ch) has resolved an important uncertainty as to who can enforce these bonds and on what basis, with significant practical consequences for insolvent estates and successor office-holders.
The decision in Nicholson strengthens the position of such companies and their Successor IPs. The clarification of their status as the beneficiaries of a bare trust makes clear that they have the authority to direct the way in which the bondholder Regulators pursue and enforce those rights on their behalf.
What is an insolvency practitioner bond and who benefits from it?
What is an IP Bond?
IP Bonds are a statutory protection for insolvent estates against fraud or dishonesty. IPs are required to obtain a bond under the Insolvency Practitioner Regulations 2005.
IP Bonds are effectively insurance bonds. As set out in the Insolvency Service Guidance on IP Bonds:
"The bond makes the surety (the insurer who issued the bond) jointly liable with the insolvency practitioner for losses in relation to the insolvent estate caused by the fraud or dishonesty of the insolvency practitioner (whether acting alone or in collusion), or the fraud or dishonesty of any person committed with the connivance of the insolvency practitioner."
As such, they are different from professional indemnity insurance that IPs may also have, which covers professional negligence on the part of an IP.
Who Benefits from an IP Bond?
However, although IP Bonds protect the companies that IPs are appointed over, they are to the Regulator responsible for the relevant IP. This is because when they are issued it is not known what companies the IP will be appointed over.
As a result of this structure, the following question arises: Who controls the right to claim under an IP Bond?
Because they are held by the Regulators, there has been a degree of uncertainty as to who can enforce claims under IP Bonds, and on what basis. In particular, historically they have not been treated as estate assets for the companies over which an IP is appointed. The accepted position has been that it is for the bondholder (i.e., the relevant Regulator) to decide whether and to what extent to pursue a claim under a bond, or alternatively to assign the claim to a company with a claim against the IP.
This was the approach adopted by the bondholder in Nicholson.
The parties' positions
The Regulator argued that it was entitled to determine how claims under the IP Bonds should be enforced. It submitted that:
"its practice is to encourage [Successor IPs] (in this case the Claimants) and the Surety (in this case Intact) to negotiate and agree a sum of money to be paid by the Surety to the SIPs for the benefit of the creditors claiming in the relevant insolvency estate. Once the sum is agreed a tripartite agreement is entered into between the Surety, the SIPs and the IPA (“Tripartite Agreement”) providing for the agreed sum to be paid by the Surety to the SIPs, which is then distributed by the SIPs to the creditors of the relevant insolvency estate."
However, in this case, settlement discussions between the surety and the Successor IPs reached a stalemate. The Successor IPs argued that they were effectively blocked from pursuing these claims by the Regulator's refusal to either pursue them itself or assign the benefit of the claims under the IP Bonds to them to pursue.
The Successor IPs therefore applied to the court for a declaration that: the IP Bonds were held on trust for the insolvency estates of the companies over which the IPs were appointed; and, as such, they were property of the companies which the Successor IPs were entitled to take possession of. They further argued that an order to that effect could be made under section 234 of the Insolvency Act 1986.
The regulators hold bond rights on trust
The Court agreed with the Successor IPs. It held that IP Bonds are held by the Regulators on trust for the companies over which the IPs are appointed.
The court considered several issues in reaching this conclusion. First, whether the Regulators are fulfilling a public function by holding the bonds. The judge held that the Regulators hold the bonds voluntarily. There is no "direct statutory obligation" on the Regulators requiring them to do so. Further, the judge was not persuaded that the government would have been obliged to undertake this role if the Regulators had declined to do so. Finally, they concluded that the "functions and powers" of the Regulators in respect of the bonds were "not public functions and powers". On this basis, the judge concluded that the regulatory bodies are not fulfilling a public function by holding the bonds.
Having reached this conclusion, the judge considered whether the Regulators hold claim rights under the IP Bonds on trust for the insolvent estates. The judge concluded that the Regulators entered into the bonds "to benefit the insolvency estates which incurred losses as a result of the fraud or dishonesty of its IP members". They also held that the Regulators must "have an implied fiduciary or contractual duty to act in the best interests of the insolvency estates". Finally, they concluded that (in the absence of any public duty) a trust must exist in order to create a legal obligation on the Regulators to ensure that claims under the bonds can be pursued, and compensation obtained, by the relevant insolvent estates. The judge was also satisfied that all the legal requirements for a trust to exist were met. Accordingly, they held that IP Bonds are held by the Regulators on trust for the insolvent estates.
Section 234 of the Insolvency Act 1986 gives office-holders a statutory route to compel transfer
The judge also considered whether claim rights under IP Bonds are "property" of the relevant insolvent estates for the purposes of section 234 of the Insolvency Act 1986.
Section 234 grants IPs statutory rights to compel third parties to deliver up any property of the insolvent entities that they hold. These rights can be enforced by application to the Court if needed. The Regulator sought to argue that the claim rights were not "property" that could be subject to section 234, as they were rights that had to be assigned before they became the property of the insolvent estates.
The judge rejected this argument. They held that, as the insolvent estates are the beneficial owners of the claim rights under trust, the rights were their property. Accordingly, the regulatory body could be compelled to transfer them to the insolvent estates under section 234 of the Insolvency Act 1986.
What this means in practice for office-holders and successor IPs
This judgment has several important practical consequences for Successor IPs and insolvent estates.
Regulators cannot refuse to pursue or assign claim rights under IP Bonds where an insolvent estate has a valid claim. As a result, IPs will be able to drive claims under IP Bonds at their own pace and in the manner they consider appropriate. Where a Regulator refuses to cooperate, section 234 of the Insolvency Act 1986 provides a direct statutory route to compel transfer of the claim rights. The court's jurisdiction under section 234 can be invoked at the Successor IPs' discretion.
This decision establishes a clear legal framework for enforcing IP Bond claims and removes a potential obstacle to recovery for creditors of insolvent estates.