4. Bonding
Source: gov.uk (2025-04-02)

Bonding

This section contains content published after 1 January 2020. Articles published before this date can be found on the National Archives here (https://webarchive.nationalarchives.gov.uk/ukgwa/20230306163448/https:/www.insolvencydirect.bis.gov.uk/insolvencyprofessionandlegislation/dearip/dearipindex.htm)

7. Bonding (security) arrangements for Insolvency Practitioners – Consultation proposals

The Government has published a consultation, The Future of Insolvency Regulation – proposals to strengthen the insolvency regulatory framework, (see Dear IP chapter 13 article 113). The consultation includes proposals on amendments to the bonding (security) arrangements for Insolvency Practitioners.

In their responses to a previous call for evidence on bonding, stakeholders told us that the current arrangements are inflexible, prescriptive and fail to protect creditors. We have worked with stakeholders since then and Government is of the view that the current regime requires reform. The monetary limits for security bonds have not been updated since 1986, and the General Penalty Sum (GPS) element of the bond is inadequate. In addition, much of the proceeds of a successful bond claim is eaten up by investigation costs, leaving little return for creditors. Changes to the bonding arrangements are therefore proposed and can be found at Part C of the consultation document.

Summary of proposed changes to the bonding arrangements
- Increasing the GPS element of the bond from £250,000 to £750,000.
- Increasing the minimum Specific Penalty Sum (SPS) cover from £5,000 to £20,000.
- Removal of the requirement for Secretary of State to approve bond wording.
- A period of run-off cover of at least 2 years so that claims can be made after the term of the bond ends.
- Maximum indemnity period of at least 6 years from date of appointment with any cases going beyond this subject to a separate agreement between the Insolvency Practitioner and the bond provider.
The consultation is also seeking input from stakeholders on the potential use of the bond to cover investigation costs either by:
- Amending the purpose of the GPS element of the bond.
- Requiring the value of per-case SPS bonds to be higher, for example 125% of the value of the assets.
The consultation also asks some broad questions around potential future developments of the bonding regime, should the proposed single Government regulator be introduced.

You can read the consultation proposals in full and find details of how to respond by clicking on the following link: The future of insolvency regulation - GOV.UK (www.gov.uk) (https://www.gov.uk/government/consultations/the-future-of-insolvency-regulation). The consultation ends on 25 March 2022.

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8. Reform of the framework for Insolvency Practitioner bonding

The government has published The Insolvency Practitioners (Amendment and Transitional Provisions) Regulations 2024, which come into force on 1 December 2024 and which follow a consultation on reform of insolvency regulation (https://www.gov.uk/government/consultations/the-future-of-insolvency-regulation). Stakeholders advocated for reforms to the bonding framework, which has not been substantively updated in almost 40 years. A bond is made up of two parts: a Specific Penalty Sum (SPS), which provides separate cover for each insolvency case, and a General Penalty Sum (GPS), which provides general cover for any cases where the SPS cover is insufficient.

The bonding reforms will be incorporated into Schedule 2 to the Insolvency Practitioners Regulations 2005 (https://www.legislation.gov.uk/uksi/2005/524/schedule/2) as follows:
- GPS to be increased from £250,000 to £750,000, and to apply across all cases where the 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.

Any enquiries regarding this article may be sent to:

xxx@xxx.xx (mailto:xxx@xxx.xx)