Insolvency advisors must address conflicts of interest. (Canadian Insert).

Both accounting and legal professionals must always consider possible conflicts of interest before accepting an assignment for a client. However, in insolvency administration, there appears to be a tendency for the financial advisers to ignore the conflict issue.

The Enron era that we are presently in has demonstrated that greed, whether on the part of directors and officers, professional financial and legal advisors, or government regulators, on whom creditors and the investing public rely, is at the root of everything that has gone wrong.

An example of how greed influenced certain happenings is best illustrated by the following events. In 1993 and 1997, politicians persuaded the Securities and Exchange Commission ("SEC") to exempt Enron, and only Enron, from long-standing investor protection laws that would have prevented Enron from setting up the off-balance sheet partnerships that were used to defraud shareholders. If either the politicians or the SEC had denied Enron an exemption from the investor protection laws, the ensuing fraud could have been prevented.

The Big Four accounting firms have already reacted to the call for independence by divesting themselves of their consulting divisions. At the same time, regulatory reforms called for by the American and Canadian accounting and financial oversight bodies are aiming to address transgressions against sound financial practices.

In the U.S., this has occurred most notably through the Sarbanes-Oxley Act, which was enacted on August 29, whereby a company's chief executive officer is now required to attest to the accuracy of corporate financial statements.

In Canada, where the focus has been more on flexible guidelines and self-regulation rather than regulatory control, critics have advocated for a more regulatory and punitive approach consistent with the emerging U.S. rules and regulations.

In Canada, insolvency legislation is creditor-friendly. In a recent Canadian insolvency case, we saw a in which the auditor of the debtor company allowed itself to be appointed a monitor under a Companies' Creditors Arrangement Act ("CCAA") filing, and subsequently a receiver in the same matter, and, for a period of time, the trustee in bankruptcy. I understand that the trustee in bankruptcy arranged for itself to substituted. However, I also understand that a professional staff member from the office of the substituted trustee in bankruptcy firm was seconded to the substitute trustee in bankruptcy to work on the file in question. Let us pause for a moment and ask ourselves--is this really acting in the best interest of the unsecured creditors?