Insolvency Oracle

Developments in UK insolvency by Michelle Butler


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InsS Annual Review, part 2: IP number is down but complaints are up

The number of IPs just keeps on falling, but complaints have increased.  What is going on?

In this blog, I explore whether the Insolvency Service’s 2018 report on IP regulation provides the answer.  Also, is it just a blip?  And could this analysis help with the Service’s recently-issued call for evidence on IP regulation?

The Insolvency Service’s report can be found at: https://www.gov.uk/government/publications/insolvency-practitioner-regulation-process-review-2018

In brief, the report indicates that, in 2018:

  • Despite insolvency case numbers increasing, IPs continued to leave the profession
  • Actions that most often appeared in RPB sanctions were: poor case progression/closure; faults in administering IVAs; and breaches of statutory filing/reporting requirements
  • Only two complaints (of the 381 referred to the RPBs) had been received from creditors! As usual, debtors were the most frequent complainers, but complaints lodged by directors and IPs showed quite an increase
  • Over 50% of the complaints lodged at the Gateway did not make it through to the RPBs
  • On average, one in three IPs received a complaint, but this figure jumped to more than one in every two for IPA-licensed IPs
  • Could this be because the IPA licenses all the IPs in the top six volume IVA provider firms (who registered over 75% of all new IVAs last year)..?
  • Over 50% of all complaints referred to the RPBs related to IVAs

 

Case numbers go up but IP numbers keep on going down

There has been a significant increase in insolvency case numbers over the past 3 years.  There were 20% more corporate insolvencies and over 40% more personal insolvencies started in 2018 than the numbers started in 2015.  Isn’t now a good time to be in insolvency..?

These statistics reflect my personal experience: over the past year, I have known of IPs who have left the profession and they’ve not all been of retiring age.  What is happening?

There’s no doubt in my mind that competition has become fiercer.  I have seen more occasions of IPs being toppled from offices and the ORs seem all the more reluctant to allow cases to leave their hands.  I have also seen some new ambulance-chasers on the field.

I think that small firms are struggling in this market.  It seems to me that larger firms seem hungrier to fight for smaller cases than they used to be.  In addition, 2018 was not a regulation-light year: it seemed that simply getting GDPR-ready was someone’s full-time job for several months, which was not at all easy for smaller firms to stomach.  Recruitment and retention are also difficult for smaller firms: new talent is attracted to big names, big cities, meaty cases and varied portfolios.

Fewer IPs and more cases mean that each IP has on average a larger caseload (or it could be that the IPs are closing them quicker, but from my personal experience, I don’t think this is happening).  If insolvency cases continue to increase, which I think is generally expected, then I think case progression is going to become a bigger concern.  Of course, IPs can always look to surround themselves with a larger team to deal with their larger caseloads, but we all know that this tends not to happen: in times of plenty, old cases tend to be shelved while people concentrate on the new excitements.

 

Is case progression already an issue?

The Insolvency Service’s report gives brief descriptions of every RPB sanction issued (including a couple that weren’t even published on .gov.uk – not sure how that happened!).  On categorising these summaries, I have come up with the following failures that appear most frequently in the disciplinary sanctions reported:

  • 7 case progression / closure issues (including one failure to realise assets and two failures to pay a dividend – not sure if these were delays or entirely overlooked)
  • 6 IVA-related faults (not including case progression / closure)
  • 6 statutory filing/reporting breaches
  • 3 SIP16 breaches
  • 3 faults in relation to directors’ RPO claims
  • 3 fee-related errors
  • 3 confidentiality breaches (perhaps related?)
  • 2 PTD-related faults
  • 2 SIP2 failures to investigate or to secure books and records

This shows that failing to progress cases promptly or appropriately can get you into hot water.  So too can failing to meet the rules on filing and reporting: four of the six instances listed arose because progress reports were not filed on time (or at all).

 

What are people complaining about?

The Top 3 topics continue to be ethics, poor communication and SIP3 issues, with the latter now counting for 34% of all complaints recorded by subject, up from 25% last year:

(Note: a complaint may appear in more than one category.  There were a total of 381 complaints referred in 2018 – see further below.)

Ok, that’s not a surprise.  We all know that the Insolvency Service’s report in September 2018 pulled no punches when it came to the RPB-monitoring of volume IVA providers.  It is also unsurprising that people are not directly complaining about late or missing progress reports, but as the sanctions demonstrate, if a statutory filing/reporting breach is identified in the course of the RPB’s investigations into a complaint, don’t be surprised if this is added to your charge sheet.

What we should perhaps be a little concerned about is that complaints on areas that attract a lot of negative press and criticism – SIP16/pre-packs and remuneration – have increased.  True, they still pale into insignificance when compared with the total number of complaints (they account for only 16 of the 429 complaints recorded by subject), but this is quite a jump from the one complaint in 2017.

 

Who is complaining?

I think this shows an interesting shift:

With IVAs featuring so heavily in complaints, it is not surprising that debtors are the most frequent complainant.  More bankruptcies were complained about in 2018 too (up from 31 to 75), which no doubt contributed to the increase in complaining debtors.

What I found interesting was that very few creditors complained last year – only two!  Even if we add in complaints from employees, this only comes to seven.  However, the number of complaints lodged by IPs more than trebled to 38.  Ok, this is still a relatively small number, but I think it hints at an interesting development in self-regulation: RPB monitors may only visit you once every 3 years or so, but your peers are watching you all the time!

 

How many complaints get through the Gateway?

(Note: the Gateway started in June 2014, so I have pro rated the partial 2014 figure to estimate for a full year.)

Complaint numbers are back up to the 2016 level: in 2016, 847 complaints were lodged and in 2018 the number was 830.  However, many more complaints fail to make it through the Gateway.  In fact, every year, the number rejected/referred has increased, even though the trend in complaint numbers shows an overall decrease.  In 2017, 48% of complaints were rejected or closed and this percentage increased to 52% last year.

 

Why are complaints not making it through the Gateway?

In their 2018 report, the Insolvency Service added a number of new reasons for rejection/closure, which personally has helped me to understand the operation of the Gateway better.  For example, I hadn’t appreciated that complaints about conduct that happened over 3 years ago are rejected.

This graph also demonstrates that a large number of complaints (145) – and a great deal more than in 2017 – are rejected because the complaint is about the insolvency process.  Again, given that most complaints are lodged by debtors and directors, this perhaps indicates that in many cases IPs may be upsetting the right people.  But it might also suggest that some IPs could do a better job of explaining the consequences of insolvency.

 

What are an IP’s chances of receiving a complaint?

Yes I know that some IPs work in a field that is more likely to attract criticism, but on average how many IPs received a complaint last year and does this average change much depending on one’s licensing body?

This shows that, generally speaking, one out of every three IPs receives a complaint.  Of course, this assumes that complaints are only about appointment-takers and that complaints are evenly spread about.

However, it also shows a large range in averages across the RPBs, with less than one in five IPs for all except the IPA, which shows an average of over one complaint for every two IPs.

The IPA has publicised that “the majority of IPs who work on IVAs are regulated by the IPA” (IPA press release 29/11/2018)… although, as the IPA does not license the majority of all IPs, a large proportion of which will have at least one IVA, presumably they’re meaning those who do IVAs in volume.  Does this, along with the graph above, mean that volume IVA providers disproportionately feature in complaints?

 

How many Volume IVA IPs does the IPA license?

The Insolvency Service now publishes data on new IVAs per firm: https://www.gov.uk/government/statistics/individual-voluntary-arrangement-outcomes-and-providers-2018, which helped me out with this question.

An analysis of this list shows that the IPA licenses all the IPs registered at the Top 6 firms.  These firms alone account for over 75% of all IVAs registered in 2018.  Even if we look at the whole list of Top 14 firms (two of which no longer exist!), the IPA licenses 25 of the 33 IPs registered at these firms (with the ICAEW licensing 3 and ICAS the remaining 5, all 5 of which are located at the one firm).

So clearly then, the IPA’s complaints figures are bound to be affected by the number of IVA complaints lodged.  But this assumes that IVAs count for a large proportion of complaints.  Is this true?

 

How many IVAs are being complained about?

The following graph compares the number of IVA complaints with those about other matters:

(Note: the Gateway started in June 2014.  The way complaint numbers were published by case type then changed from those recorded by the RPBs to those referred to the RPBs from the Gateway.)

So for the first time, last year there were more IVA complaints than there were complaints about all other matters/case-types combined.  It’s no wonder therefore that the IPA has recorded many more complaints per IP than any other RPB and it’s not surprising that the IPA has sought to recruit more regulatory staff… and that they have warned IPA members that fees may be increasing this year!

I appreciate that the Insolvency Service did (finally!) wake up to some of the issues around regulating volume IVA providers last year and I accept that the IPA has made some public announcements about how they have been working towards changing their monitoring regime for the IPs in these firms.  However, as someone who has spent the last few years almost exclusively helping IPs in “traditional” insolvency practices, I do wonder if a disproportionate amount of time has been spent by the regulators (and government and the press) in criticising, legislating and threatening to legislate to remedy other apparent ills of the insolvency profession.

 

Is the solution a change in regulatory approach?

Interestingly, the Service’s just-released call for evidence on IP regulation (pg 15 of the doc at https://www.gov.uk/government/consultations/call-for-evidence-regulation-of-insolvency-practitioners-review-of-current-regulatory-landscape) focuses in on the different firm structure that exists in some IVA specialists where the IP is an employee.  This leads them to ask the question of whether firm-regulation, rather than individual IP-regulation, may be more appropriate in some sectors.  While I think that the Service definitely has a point, I do think that there are other fundamental differences in “volume IVA providers” – the hint is in the name – that also demand a fundamentally different regulatory approach.

 

In my next blog post, I’ll look more closely at complaint – and monitoring – sanctions.

 


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The Insolvency Service’s To-Do List: Going Nowhere Fast?

I’ll start my review of the Insolvency Service’s Annual Review of IP Regulation in reverse order this year.  Let’s first look at the progress made on the InsS’ 2017 to-do list.

Here’s a comparison of items listed in their 2017 Report with their 2018 Report, which has just been published (at https://www.gov.uk/government/publications/insolvency-practitioner-regulation-process-review-2018):

Of course, Ministers have had a few other things on their mind over the past year… but the landscape has not changed much since May 2018 when the 2017 report was published, so I would have hoped that the Insolvency Service would have anticipated realistic timescales back then.

 

So, if the above projects have not progressed as anticipated last year, what has the InsS achieved in 2018 and are they proposing any other outputs in the year ahead?

  • Taking on the role of a direct regulator?

It all sounds a bit secret squirrel, but the report’s overview emphasises the Service’s investigatory work.  It seems that their staff have identified and been referring “potential criminal offences by insolvency practitioners”, they “have been making effective use of information gathering powers to investigate areas of concern leading to a number of referrals to appropriate bodies” and they have “used our powers to undertake our own enquiries on a number of occasions”.  They expect to “report on what we have found when we are able to, given the progress of the investigation”.

  • The Single Regulator question

Of course, this is going to be the focus of a lot of the Service’s efforts.  I found the report alarming: it states both that they are considering “whether or not to consult on a single regulator” and that they are hoping to reach a position on “a recommendation on whether or not to exercise the power” to create a single regulator.  So… could they decide on the single regulator question without consultation?!

In any event, however, they are expecting “to publish shortly” a “formal call for evidence”, so at least we may have an opportunity to contribute something.

  • Last year’s report on RPB monitoring

I didn’t have a chance to blog on the subject, but I’m sure the Service’s September 2018 report on RPB monitoring did not pass you by.  The report was pretty scathing about much of the monitoring of volume IVA providers and included many recommendations, largely focusing on the extents to which they felt RPBs should be investigating, and taking to task, IPs who appear to be failing: to provide appropriate advice; to pay fees and expenses from estates that are fair and reasonable; and to manage the ethical threats arising from relationships with introducers and service-providers.

The Service’s 2018 Annual Report states that they are in the process of reviewing how the recommendations from the earlier review are being implemented by the RPBs and that this would inform their Single Regulator work – no threat there, then!

  • SIP revisions

So… no sign of a revised Ethics Code, but we do learn about the JIC’s work on revising SIPs.  In their in-box at the moment are:

    • SIP3.2, which is expected to be out for consultation “later this year”. Apparently, the revision work has come about “due to concerns about certain types of large CVAs where better and timelier information could be given to creditors”.  Interesting… but don’t we have the Act and Rules to tell us what IPs must send to creditors and by when?
    • SIP7 – a consultation on this is also expected “later this year”.
    • SIP9 – on the back of the concerns arising from the review of RPB monitoring of volume IVA providers and the “industry concerns over the charging of certain expenses and disbursements, primarily in the volume IVA sector” (so not just IVAs then..?), there has been ongoing work “to consider if a review of SIP9 is necessary”. The report also states that there has been work with the RPBs and R3 “to obtain data in order to assess the impact that possible changes to the way some charges ought to be applied would have on smaller firms”.  Debates over what are valid expenses/disbursements and what should be treated as an overhead have been rumbling for several years now and if the question is still “if” SIP9 should be changed, then it seems to me that an outcome could still be a long way from emerging.

 

So, the Service’s to-do list never gets any shorter, does it?  And it seems to me that the usual project-management rule applies to insolvency projects: estimate the timescale and then double it!

In my next blog, I’ll look at the complaints and monitoring stats… or I may get back to my 50 Things list…

 

 


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50 Things I Hate about the Rules – Part 3: Closures… and a bit more Fees

In this post, I add to my previous list of fees-related gripes and cover some issues with the new closure processes… and, as the end of the list is nearing, if anyone has any other gripes they want me to add to the list, please do drop me a line (because, between you and me, I’m struggling to come up with 50!)

On the topic of fees, I think that my last list and these additions demonstrate how madly intricate the statutory requirements are, especially for fees in Administrations and for fees based on time costs.  Is it any wonder that so many fee non-compliances arise?  And more than a few are treated by the RPBs as “unauthorised fees” issues, thus attracting the risks of fines and other sanctions.  This seems unfair as many trip-ups only occur because the Rules are such a jungle.  There must be a simpler way, mustn’t there?

 

A Few More Fees-Related Gripes

  1. Capturing Past Work

I appreciate that the fees Rules were drafted in the expectation that office holders would seek approval for the fee basis up-front (although how the drafters believed that IPs would be able to put together a realistic, case-specific, fees estimate on Day 1, I don’t know).  However, I think the Rules should have been designed to accommodate the possibility that fee-approval would be sought after an IP has been on the case for some time.  After all, the fact that Administrators’ Proposals must address how the company’s affairs have been managed since appointment and the proposed fee basis indicates that even the drafters envisaged some occasions when work will have been done before approval is sought, not to mention all the tasks demanded of every office holder swiftly on appointment.

My problem is that the Rules’ language is all prospective: the fees estimate/proposal must provide “details of the work the IP and the IP’s staff propose to undertake” (Rs1.2 and 18.16(7)) and the IP must provide “details of the expenses the office-holder considers will be, or are likely to be incurred” (Rs18.16(4) and (7)).  I think that we’ve all interpreted this to mean that, if time or expenses have already been incurred, these need to be explained also – and indeed SIP9 has plugged this statutory gap – but it is a shame that the Service did not see the 2016 Rules as an opportunity to fix the flaws in the 2015 fees Rules, which had been so hastily pushed out.

 

  1. Capping a Fees Estimate

The Rules don’t seem to have been written with any expectation that creditors will want to agree fees on a time costs basis subject to a cap different from that set by the fees estimate.

Firstly, although the Oct-15 Rules changed the fee basis to “by reference to the time… as set out in the fees estimate” (e.g. old R4.127(2)(b)), those final words were omitted from new R18.16(2)(b), so now creditors are asked simply to approve a decision that fees be based on time costs.

Thus, if creditors want to cap those fees at anything other than the fees estimate, they have to modify the proposed decision unilaterally… which isn’t really catered for in decisions by correspondence. In effect, the creditor is proposing their own decision, which the Rules strictly provide for as a “requisitioned decision” (R15.18), but of course office holders cut to the chase by accepting the creditor’s cap if their vote is conclusive.  The alternative is to count their vote as a rejection of the office holder’s proposed decision and start again with a new decision procedure.

But then how do you frame a request to creditors to increase this kind of cap?  The process for “exceeding the fees estimate” is set down in R18.30.  Let’s say that your original fees estimate was £50,000 and the creditors agreed a cap of £30,000.  If you want to ask them to reconsider whether you can take up to £40,000, R18.30 doesn’t work.  You’re not asking to exceed the fees estimate, you’re still looking to be within your original fees estimate.

R18.29 also doesn’t work here: the fee basis has been agreed as time costs, so you’re not asking creditors to change the basis (and there may be no “material and substantial change in circumstances” from that which you’d originally estimated when you’d quoted £50,000).  It seems to me that you’re asking creditors a whole different kind of question – to lift their arbitrary cap – which is not provided for at all in the Rules.

 

  1. Trying Again for Fee Approval

Commonly, IPs will propose a fees decision to creditors and receive no response at all.  Invariably, they will try again, often emphasising to creditors that, if no one votes, they may take it to court, thus increasing the costs demanded of the insolvent estate quite substantially.

But what if your original fees estimate was for £30,000 and then, when you go back for a second attempt some time later, you think that £50,000 is more realistic?  Or maybe your first fees estimate was proposed on a milestone basis, say £30,000 for year 1, and then you go to creditors at the start of year 2 with a fees estimate for £50,000 for two years?

Do you look to R18.30 on the basis that this is an excess fee request?  After all, you are looking to exceed your original estimate, so the scenario seems to fit R18.30(1).  However, read on to R18.30(2) and a different picture emerges: R18.30(2) instructs office holders to seek approval from the party that “fixed the basis”, so if no basis has been fixed, then R18.30 cannot be the solution.

So is your original fees estimate completely irrelevant then?  Do you simply start again with a new fees estimate?  Well, if you’re issuing a progress report before the creditors agree the basis, the original fees estimate is not completely irrelevant: R18.4(1)(e)(i) states that you must report whether you are “likely to exceed the fees estimate under R18.16(4)”.  That Rule refers simply to providing the information to creditors.  It does not say that that fees estimate must have been approved.  So at the very least, you would explain in your progress report why your original £30,000 was inadequate, even though you might also be providing a new fees estimate for £50,000.

 

  1. When Administration Outcomes Change (1): Disappearing Para 52(1)(b) Statements

This question proved contentious long before the 2016 Rules: if an Administrator has achieved fee approval under R18.18(4) (as it is now), where they have issued Proposals with a Para 52(1)(b) statement, is this approval still sufficient if the circumstances of the case change and it transpires that the Para 52(1)(b) statement is no longer appropriate? And conversely, if an Administrator issued Proposals with no Para 52(1)(b) statement, is the unsecured creditors’ approval of fees still sufficient in the event that it now appears that there will not be a dividend to unsecureds (except by means of the prescribed part)?

Personally, I believe that technically the approvals are still valid.  R18.18(4) refers specifically to making a Para 52(1)(b) statement: if that statement has been made, it’s been made; the fact that the statement may no longer be appropriate does not change the fact that it was made (although issuing revised Proposals may overcome this… but how many Administrators ever issue revised Proposals..?).  Also, R18.33 provides that, if the Administrator asks to change the fee basis, amount etc. or for approval to fees in excess of an estimate, the Administrator must go to the unsecureds if the Para 52(1)(b) statement is no longer relevant.  Surely, if it were the case that Administrators needed to go to unsecureds (or indeed issue revised Proposals) every time a Para 52(1)(b) statement were no longer relevant, i.e. to ratify a fees decision previously made by secureds/prefs, the Rules would similarly demand this.

However, while I think that this is the technical position, I have sympathy with IPs who decide to go to other creditors for fee approval even though strictly-speaking it does not seem as though this is required by the Rules.  Although clearly it costs money to seek decisions from creditors, I don’t think anyone will challenge an IP who has chosen to ensure that all relevant creditor classes are in agreement.  This would also help counteract any challenge that the Proposals had made a Para 52(1)(b) statement inappropriately, thus disenfranchising the unsecureds from having a say on the Administrators’ fees.

 

  1. When Administration Outcomes Change (2): Appearing Preferential Distributions

But what is the technical position for an Administrator who has made a Para 52(1)(b) statement, thought that they would not be making a distribution to prefs, but then the outcome changed so that a distribution became likely?

I think the technical position for this scenario does create a problem.  R18.18(4) states that the basis is fixed: (i) by the secured creditors and (ii) if the Administrator has made or intends to make a distribution to prefs, then also by the prefs (via a decision procedure).  It seems to me that overnight the question of whether the Administrator’s fees have been approved or not changes.  Originally, the Administrator thought that they only needed secured creditors’ approval, so they drew fees on that basis.  But then, as soon as they intend to make a distribution to prefs, they have no longer complied with R18.18(4).  Although it would seem mighty unfair for anyone to view the Administrator’s fees drawn up to that point as unauthorised, it certainly seems to me that the Administrator must take immediate steps to seek preferential creditors’ approval.

 

Closure Processes

  1. Inconsistent Closure Processes

There is a distinct difference between the MVL closure process and those for CVLs, BKYs and compulsory liquidations (“WUCs”).  In an MVL, the liquidator issues a “proposed final account” (R5.9) and then, often 8 weeks’ later, the “final account” is issued along with a notice that the company’s affairs are fully wound up (R5.10).  However, in a CVL, before the 8-week period begins the liquidator issues a final account with a notice that the company’s affairs are fully wound up (R6.28).  BKYs and WUCs follow this CVL model.

I have no idea why there should be these differences in the two main processes.  But what I do know is that it causes confusion on what a final account should look like… even for Companies House staff.

R6.28(1) states that the CVL final account delivered to creditors at the start of the 8-week process is the one required under S106(1) – not a draft or a proposed version of the final account – and it must be accompanied by the notice confirming that the affairs are fully wound up.  Therefore, it is clear to me that this final account is pretty-much set in stone at this point.  The final account date is fixed as at the date it is issued to creditors and it does not get changed when the time comes to deliver a copy of the final account to the Registrar of Companies at the end of the 8 weeks (S106(3)).

I don’t think that this is a misinterpretation… but I have doubted myself, not least as some IPs have complained to me over the last couple of years that Companies House has rejected their final accounts, requiring them to be re-dated to the “final meeting” or “closure” date.  I have asked Companies House twice to explain to me why they believe the final account should be re-dated… and both times Companies House conceded that there is no such requirement.  Thank you, Companies House, but would it be possible for you to avoid reverting to 1986 habits again so that, over time, we might all settle into a routine of complying with the Rules?!

 

  1. Closing Bankruptcies

I explained in Gripe no. 4 that R10.87(3)(f) seems to contain an anomaly.  It states that the final notice to creditors should state that the trustee will vacate office (and (g) be released, if no creditors have objected) when the trustee files the requisite notice with the court, but there seems to be no Section/Rule that actually requires a notice to be filed with the court.

I’m repeating this gripe here because others have been puzzled over the filing requirements when closing BKYs, especially in debtor-application cases where of course there is no court file.  Quite frankly, I don’t think any of us would care, if it were not for the fact that the trustee’s release is dependent on filing a final notice with “the prescribed person” (S298(8), S299(3)(d)).  As I mentioned previously, the person at the Insolvency Service with whom I’d been communicating seemed to express the view that “the prescribed person” is the court in creditor-petition (and old debtor-petition) cases and is the OR in debtor-application cases, but my attempts to get them to be more categoric in their response (and to explain with reference to the Rules how they reach this conclusion) have been unsuccessful to date.

It is unfair that the Act/Rules deal so unsatisfactorily with the trustee’s release and it makes me wonder if, to be certain, it would be beneficial to ask the Secretary of State to confirm one’s release in debtor-application cases where filing a notice at the court seems insensible.

 

  1. Closing Fees

When I explain to clients how I see the closure process for CVLs, BKYs and WUCs working, I sometimes hear the retort: so, you’re telling to me that I have to get everything finished before I issue my final account/report at the start of the 8 weeks, are you?  But how do I get paid for being in office over that period?

It is true that, under the old Rules, it was possible for IPs to factor the costs to close into their draft final report so that they could incur the time costs during that 8-week period and draw the fees (and deal with the final VAT reclaim) before vacating office and finalising their final report.  Under the new process, this looks impossible: in order to issue a notice confirming that the affairs have been fully wound up, it seems to me that at that point the affairs must have been fully wound up 😉

Most IPs are prepared to forgo the final costs to close a case.  Let’s face it, how many cases have enough funds to pay IPs anywhere near full recovery of their costs anyway?  But, I had to agree with my client who was disgruntled at the prospect of having to work for free from the point of issuing the final report: it does seem unfair.  But there is a simple solution: why not ask creditors to consider approving your fees to close a case as a set amount?  You could propose this at the same time as seeking approval for fees on a time costs basis for all other aspects of the case.  If your closing fees were approved as a set amount, you could invoice and draw those fees long before issuing your final account/report… and this way you could also get the VAT all wrapped up in good time as well.

 

  1. Stopping a Closure

Over the years, there have been occasions when an IP has wanted to stop a closure process.  It’s true that, under the old Rules, there were no provisions cancelling a final meeting.  But under the old Rules, it was possible to re-start the closure process for example if your draft final report turned out to be flawed; in fact, the old Rules required you to re-issue a draft final report and re-advertise for a new final meeting.

But as the 2016 Rules for CVLs, BKYs and WUCs only require you to issue a final account/report and then wait 8 weeks for creditors to take any action they see fit, there seems to be no way to stop this process once it has begun.  In fact, even if a creditor objects to the office holder’s release, this does not stop the IP vacating office at the 8 weeks; it simply means that, after vacating office, the IP needs to apply to the Secretary of State for release.  The only actions that stop (or rather postpone) a closure process are a creditor exercising their statutory rights to request information or challenge fees or expenses.

 


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50 Things I Hate about the Rules – Part 2: Fees

New Rules, Old Problems

Regrettably, most of the things I hate in this category are the Rules’ ambiguities, so I apologise in advance for failing to provide you with answers.  Nothing is as licence-threatening as fees failures, so it is particularly unfair that the Rules aren’t written in a way that helps us to comply.

In addition, most of these bug-bears were issues under the 1986 Rules.  What a missed opportunity the InsS had to fix them in 2017!  Jo and I had met with InsS staff and tried to attract their attention to many of these issues.  Their answer was that the 2016 Rules were not intended to change the status quo and that, as IPs had evidently coped with the 1986 Rules, surely they could continue to cope!

 

  1. Fee Approval at S100 Meetings

In December last year, out of the blue, I heard an ICAEW webinar raise questions about the validity of fee resolutions passed at S100 virtual meetings.  The speaker said that she was “flag[ging] the risks” only – and, to be fair, it did seem that she was highlighting that most of the risks lay in seeking fee approval via S100-concurrent decision procedures other than at a meeting (about which I have blogged before) – but it worried us enough to alert our clients to the voiced concern.

The speaker’s concern related to the absence of any Rule empowering the director/convener of a S100 meeting to propose a fee-related resolution.  Indeed, such an explicit power is absent, and the drafters of the 2016 Rules saw fit not to reproduce Rs4.51(1) and 4.53, which had set out the resolutions that could be passed at first liquidation meetings – thanks guys!  Presumably, they believed that it was unnecessary to define what resolutions could be proposed at meetings, because I cannot believe that the Insolvency Service wished S100 meetings to be handled any differently from S98s (other than the obvious shift from physical to virtual meetings), especially in light of the fact that they introduced the ability for proposed liquidators to issue fee-related information pre-appointment (R18.16(10)) – why would they do that if the fees could not be approved at the S100 meeting?

In light of the webinar speaker’s observations, if the Rules are considered inadequate to allow a director’s notice of S100 meeting to set out a proposed resolution on the liquidator’s fees, then it seems to me that the argument applies equally to resolutions seeking approval of a pre-CVL fee… and I suspect there may be hundreds of IPs who have drawn fees, either pre or post, on the basis of a S100 meeting resolution.

 

  1. Pre-CVL Fees

Over the last couple of years, RPB monitors have been taking issue with pre-CVL fees that have included payment for work that does not strictly meet the Rules’ definition, where those fees are paid for out of the liquidation estate after appointment.

I think it is generally accepted now that, ok, R6.7 does not provide that the costs relating to advising the company and dealing with the members’ resolutions can be paid from the estate after appointment.  In practice, most IPs have reacted to this by, in effect, doing these tasks for free or by seeking up-front fees from the company/directors.

But the Rules’ restriction seems unnecessarily restrictive: why should these tasks, especially dealing with the members’ winding-up resolution, not be paid for from the estate?  After all, it’s not as if a S100 CVL can be started without a members’ resolution.  Why couldn’t R6.7 mirror the pre-Administration costs’ definition, which refers to work carried on “with a view to” the company entering Administration?

 

  1. The 18-month Rule

The long-running debate over the 1986 Rule has continued, albeit with a subtle change.  The question has always been: if fees are not fixed by creditors in the first 18 months of an appointment, can they be fixed by creditors thereafter?

Firstly, in relation to ADM, CVL and MVL, those in the “no” camp point to R18.23(1), which states that, if the basis of fees is not fixed by creditors (etc.), then the office holder “must” apply to court for it to be fixed… and, as the office holder can only make such application within 18 months, then this time limit applies similarly to creditors’ approval, because it would be impossible to deal with the consequences of a creditors’ failure to fix fees after 18 months.

However, those in the “yes” camp (in which I sit) do not see this as an issue: true, if creditors do not approve fees in month 19, then the office holder cannot go to court, but why does this somehow invalidate a creditors’ decision to fix fees in month 19?  In my view, R18.23(1) is not offended, because the scenario does not arise.  The “must” in R18.23(1) is clearly not mandatory, because, for instance, surely no one is suggesting that an office holder who decides to vacate office without drawing any fees “must” first go to court to seek fee approval.  Similarly, R18.23(1) seems to be triggered as soon as an IP takes office: on Day 1, the basis of their fees is usually not fixed, but surely no one is suggesting that this means the IP “must” go to court.

I think that another reason for sitting in the “yes” camp goes to the heart of creditor engagement in insolvency processes: why should creditors lose the power to decide the basis of fees after 18 months?

Also compare the position for compulsory liquidators and trustees in bankruptcy: R18.22 means that, if the creditors do not approve the basis of fees within 18 months, the office holder is entitled to Schedule 11 scale rate fees.  So does this mean that the office holder has no choice but to rely on Scale Rate fees after 18 months?  I think (but I could be wrong) that, as R18.29(2)(e) specifically refers to fees “determined under R18.22”, this enables the office holder to seek a review of that fee basis after 18 months, provided there is “a material and substantial change in circumstances which were taken into account when fixing” the fees under R18.22 (which perhaps can be met, because the only factor taken into account in the statutory fixing of R18.22 fees was the creditors’ silence, which hopefully can be changed by proposing a new decision procedure).

Thus, in bankruptcies and compulsories, there seems to be a fairly simple way to seek creditors’ approval to decide on the basis of fees after 18 months, but the “no” camp does not think this works for other case types… but why as a matter of principle there should be this difference, I do not understand.

 

  1. Changing the Fee Basis… or Quantum..?

We all know that the Rules allow fees in excess of a time costs fees estimate to be approved.  But what do you do if you want creditors to revisit fees based on a set amount or percentage?  It would seem that the fixed/% equivalent of “exceeding the fee estimate” is at R18.29.  As mentioned above, this enables an office holder to ask creditors to “review” the fee basis where there is a material and substantial change.  However, it may not be as useful as it at first appears.

R18.29(1) states that the office holder “may request that the basis be changed”.  The bases are set out in R18.16(2), i.e. time costs, percentage and/or a set amount.  R18.29(1) does not state that the rate or amount of the fee may be changed.

But surely that’s what it means, doesn’t it?  Not necessarily.  Compare, for example, R18.25, which refers to an office holder asking “for an increase in the rate or amount of remuneration or a change in the basis”.  If R18.29 were intended to encompass also rate and amount changes, wouldn’t it have simply repeated this phrase?

Ok, so if we can’t use R18.29, then can we use any of the other Rules, e.g. R18.25?  There are a number of Rules providing for a variety of routes to amending the fee in a variety of situations… but none (except for the time costs excess Rule) deal with the most common scenario where the general body of creditors has approved the fee and you want to be able to ask the same body to approve a revised fee.

This does seem nonsensical, especially if you want to propose fees on a “milestone” fixed fee basis.  Surely you should simply be able to tell creditors, say, what you’re going to do for Year 1 and how much it will cost and then revert later regarding Year 2.  After all, isn’t that what the Oct-15 Rule changes were all about?

It may be for this reason that I understand some RPB monitors (and InsS staff) see no issue with using R18.29 to change the rate or amount of a fixed/% fee… but I wish the Rules would help us out!

 

  1. Excess Fee Requests

R18.30 sets out what must be done to seek approval for fees in excess of an approved fee estimate.  Well, sort of…  What I have trouble with is the vague “…and rules 18.16 to 18.23 apply as appropriate” (R18.30(2)).

For example, do you need to provide refreshed details of expenses to be incurred (R18.16(4)(b)), even though it would seem sensible to have listed this requirement in R18.30 along with the menu of other items listed?  It seems to me unlikely to have been the intention, as a refreshed list of expenses does not fit with R18.4(1)(e)(ii), which requires progress reports to relate back to the original expenses estimate.

And does R18.16(6) mean that the “excess fee” information needs to be issued to all creditors prior to the decision in the same way that the initial fees estimate was, even if there is a Committee?  (See Gripe 21 below.)

And trying to capture Rs18.22 and 18.23 with this vague reference seems to me particularly lazy, given that those Rules require fairly substantial distorting to get them to squeeze into an excess fee request scenario, if R18.22 has any application to excess fee requests at all.

 

  1. Who gets the information?

So yes: R18.16(6) requires the office holder to “deliver to the creditors the [fee-related information] before the determination of” the fee basis is fixed.  Who are “the creditors”?  Are they all the creditors or did the drafter mean: the creditors who have the responsibility under the Rules to decide on the fees?

Here are a couple of scenarios where it matters:

  1. Administrators’ Proposals contain a Para 52(1)(b) statement and so the fees are to be approved by the secured creditors… and perhaps also the prefs
  2. A Creditors’/Liquidation Committee is in operation

If the purpose of R18.16(6) was to enable all creditors who may be able to interject in the approval process to have the information, then I can understand why it may mean all creditors in scenario (a), because unsecured creditors may be able to form a Committee (although it seems to me that the non-prefs would need to requisition a decision procedure in order to form one) and then the Committee would take the decision away from the secureds/prefs.

However, what purpose is served by all creditors receiving the information where there is a Committee?  The time for creditors to express dissatisfaction over fees in this scenario is within 8 weeks of receiving a progress report, not before the Committee decides on the fees.

But, setting logical arguments aside, it seems that R18.16(6) requires all creditors to receive the information before the fee decision is made, whether or not they have any power over the decision.

 

  1. All secured creditors?

I had understood that the Enterprise Act’s design for an Administrator’s fee-approval was to ensure that the creditors whose recovery prospects were eaten away by the fees were the creditors who had the power to decide on the Administrator’s fees.

Clearly, a Committee’s veto power crushes that idea for a start, especially in Para 52(1)(b) cases.  Also, in those cases, I confess that I have struggled to understand why all secured creditors must approve the fees.  Where there are subordinate floating charge creditors with absolutely zero chance of seeing any recovery from the assets even if the Administrator were to work for free, why do they need to approve the fees?  And try getting those creditors to engage!

 

  1. What about paid creditors?

This question has been rumbling on for many years: if a creditor’s claim is discharged post-appointment, should they continue to be treated as a creditor?

I understand the general “yes” answer: a creditor is treated as someone with a debt as at the relevant date and a post-appointment payment does not change the fact that the creditor had a debt at the relevant date, so the creditor remains a creditor even if their claim is settled

In view of the apparent objective of the fee-approval process (and a great deal of case law), it does seem inappropriate to enable a “creditor” who no longer has an interest in the process to influence it.  In addition, I am not persuaded that the technical argument stacks up.

Firstly, let’s look at the Act’s definition of creditor for personal insolvencies: S383(1) defines a creditor as someone “to whom any of the bankruptcy debts is owed”, so this seems to apply only as long as the debt is owed, not after it has been settled.

It would be odd if a creditor were defined differently in corporate insolvency, but unfortunately we don’t have such a tidy definition.  There is a definition of “secured creditor” in S248, which also seems temporary: it defines them as a creditor “who holds in respect of his debt a security…”.  Thus, again, it seems to me that this criterion is only met as long as the security is held.

But, over the years, my conversations with various RPB and InsS people have led me to believe that, even if a creditor – especially a secured creditor in a Para 52(1)(b) Administration – is paid out in full post-appointment, IPs would do well to track down their approval for fees… just in case.  But also on the flip-side, I suspect that it would be frowned upon (if not seriously questioned) if an office holder relied on a creditor’s approval where they were not a creditor at the time of their decision.  You’re damned if you do, damned if you don’t.

 

  1. What about paid preferential creditors?

I know of one compliance manager (and I’m sure there are others) who strongly maintains that pref creditors must still be invited to vote on decisions put to pref creditors even when their pref elements have been paid in full.

In addition to the points made above, we have R15.11, which states in the table that creditors whose claims “have subsequently been paid in full” do not receive notice of decision procedures in Administrations.  You might think: ah, but usually pref creditors also have non-pref claims, so they won’t have been “paid in full”.  Ok, but R15.31(1)(a) states that creditors’ values for voting purposes in Administrations are their claims less any payments made to them after the Administration began.  I think it is generally accepted (although admittedly the Rules don’t actually say so) that, to determine a decision put to pref creditors, their value for voting purposes should be only their pref element… so, if prefs have been paid in full, their voting value would be nil… so how would you achieve a decision put to paid pref creditors?

But if you take it that the intention of Rs15.11 and 15.31(1)(a) was to eliminate the need to canvass paid pref creditors in Para 52(1)(b) Administrations (which is certainly how the InsS answered on their pre-Rules blog), it gets a bit tricky when looking at excess fee requests…

 

  1. What about paid pref creditors and excess fee requests?

R18.30(2)(b) states that excess fee requests must be directed to the class of creditors that originally fixed the fee basis.  For Para 52(1)(b) cases, this is varied by R18.33, which states that, if, at the time of the request, a non-prescribed part dividend is now likely to be paid, effectively the Para 52(1)(b) route is closed off so that unsecured creditors get to decide.

But what if you still think it is a Para 52(1)(b) case and the prefs have been paid in full?  It is impossible to follow R18.30(2)(b) and achieve a pref decision, isn’t it?

The moral of the story, I think, is to make sure that you don’t pay creditors in full until you have dealt with all your fee requests, which to be fair is what many Trustees in Bankruptcy have been accustomed to observing for years.

 

  1. Fee Bases for Para 83 Liquidators

R18.20(4) states that the fee basis fixed for the Administrator “is treated as having been fixed” for the Para 83 Liquidator, provided that they are the same person.  This seems fairly straightforward for fees fixed on time costs and it can work for percentage fees, but what about fees as a set amount?

Is it the case, as per Gripe 19, that the basis has been fixed as a set amount, but the quantum isn’t treated as having been fixed?  First, let me take the approach mentioned at Gripe 19 that I understand is fairly widely-held amongst regulator staff, which is that “basis” should be read as meaning the basis and the quantum.  This would lead to a conclusion that, say, creditors approved the Administrator’s fees at £50K all-in, then the subsequent Liquidator’s fees would also be fixed at another £50K.  This cannot be right, can it?

The alternative is that “basis” means basis, so the Liquidator’s fees would be fixed as a set amount (which they could always ask to be changed under R18.29), but the quantum of that set amount would not.  In this case, presumably there would be no problem in the liquidator reverting to creditors to fix the quantum of their set-amount fee.  This would be similar to the position of a liquidator on a time costs basis where the Administrator had not factored in any fee estimate for the liquidation: in my view, the liquidator effectively begins life with a time costs basis with a nil fee estimate, so the next step would be to ask creditors to approve an “excess” fee request.

 

  1. What to do if Creditors won’t Engage

Up and down the country, I understand that IPs are having problems extracting votes from creditors.  The consequence is that more and more applications are being made to court for fee approvals.  This should not be the direction of travel.

This problem cannot be put entirely at the new Rules’ door, but I think that the 2016 Rules have not helped.  The plethora of documents and forms that accompany a fees-related decision procedure must be seriously off-putting for creditors (after all, it’s off-putting for all of us to have to produce this stuff!).  Also, this world’s climate of making every second count does not encourage creditors to engage, especially if their prospects of recovery are nil or close to it.

Of course, not every case of silence leads to a court application.  Applications can be relatively costly animals and so where funds are thin on the ground, I’m seeing IPs simply foregoing all hope of a fee and deciding to Bona Vacantia small balances and close the case.

When the Oct-15 Rules were being considered, many people suggested a de minimis process for fees.  Much like the OR’s £6,000 fee, could there not simply be a modest flat fee for IP office holders that requires no creditor approval?  Most IPs would dance a jig if they could rely on a statutory fee of £6,000, like the OR can!  It wouldn’t even need to be £6,000 to help despatch a great deal of small-value insolvencies… and the costs of conducting the decision process could be saved.  We all know the work that an IP has to put in to administer even the simplest of cases, including D-reports, progress and final reporting, not to mention the host of regulatory work keeping records and conducting reviews.  If IPs cannot rely on being remunerated for this work in a large proportion of their cases without having to resort to court, then we will see more IPs leaving the profession.

 


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50 Things I Hate About the Rules – Part 1: Notices

As we approach the second anniversary of the 2016 Rules – and as Scotland gears up to take a similar plunge – I thought I’d list my pet hates.  I don’t mean this to be just a whinge (no, honestly!), but rather I hope that some readers may find some nuggets in here of rules they’ve overlooked.  Who knows whether I’ll reach 50… or perhaps 150!

In no particular order, here is my first batch: what I hate about statutory notices…

 

  1. Standard contents

The Standard Contents Rules are a real faff.  I appreciate that one or two readers may find it useful to see the company number, court reference, or debtor’s address (which address: the one where they lived at the start of the proceedings or their current one..?), but is it really worth the time spent on getting these details on every notice?  It may be relatively straightforward if you’re on IPS/Visionblue, but I pity IPs who aren’t.

And what about stating: “the section… the paragraph… or the rule under which the notice is given” (R1.29(d))?  Does anyone really want to see this?

 

  1. Notices where simple letters previously did the job

Under the 1986 Rules, we were quite happy to include in letters information such as how to access statutory docs online, confirmation of our appointment, and dividend declarations.  Now we need to issue statutory notices… of course, including all the standard contents.

One important notice that I find sometimes overlooked is the need to issue a notice proposing a decision by correspondence vote.  In the old days, we simply issued a voting form.  Now it needs to be accompanied by a R15.8 notice… and if it is not, could it be challenged as a fatally flawed process..?

 

  1. Notices where none were needed before

Why did the InsS see the need to introduce a new requirement that the Nominee’s consent to act (which is now a “notice”) must be sent to all creditors in a proposed IVA (R8.19(4)(d)), especially when there is no equivalent rule for CVAs?

 

  1. Notices requiring statements that just aren’t true

I have two rules in this category:

  • R15.8(3)(k) requires notices of decision procedures to include a statement that creditors may, within 5 business days of delivery of the notice, request a physical meeting. This is clearly incorrect when the notice is for a S100 deemed consent process or virtual meeting, as R6.14(6)(a) gives creditors up to the decision date to request a physical meeting (subject to however you choose to interpret “between”!)
  • R10.87(3)(f) states that the final notice to creditors in a bankruptcy should state that the trustee will vacate office (and (g) be released, if no creditors have objected) when the trustee files the requisite notice with the court… but there is no Section/Rule that actually requires the trustee to file such a notice at court. And, according to someone at the Insolvency Service with whom I have been corresponding, in debtor-application cases the trustee does not need to send anything to court (as you would expect) and they believe that the trustee’s office-vacation and release are effective when the requisite notice is sent to the OR (provided there are no creditor objections).  So… why does the trustee need to put in the notice that it all happens when the notice is filed with the court..?

 

  1. Notices requiring nonsensical statements

What is the point of including in a pre-liquidation S100 notice that creditors who have opted out may vote or that creditors with small debts need to deliver a proof in order to vote?  Such creditors can only have opted out or be counted as small debts after the insolvency process has begun.  Common sense would dictate that we could eliminate such statements… but then the notice would not be compliant with the Rules!

It’s not all the IR16’s fault, though.  After all, how many of us were in breach of the IR86, which had similarly required that a Notice of No (Further) Dividend include a statement that “claims against the assets [must] be established by a date set out in the notice” (now at R14.36(2))?

 

  1. Authenticating documents on behalf of companies

I find R1.5(3)(b) odd: if someone signs a document on behalf of a body corporate and that person is the sole member of the company, the document must state that fact.  So for example, proofs of debt need to include a statement that the person is signing as the sole member of the company (if they are such).  That is such a vital piece of information to us, isn’t it?

 

  1. Changes in Supervisor on a CVA

There is still no way of giving notice to Companies House either that an IP has ceased to act as Supervisor or that an IP has taken a new position as Supervisor of an ongoing CVA!

 

  1. Different notices for different decision processes

I still cannot fathom the logic in the Rules requiring a Gazette notice for virtual and physical meetings of creditors, but not for the other decision processes.  If the objective is to give notice to unknown creditors, then surely the determining factor should not be the medium that is used to propose a decision.

Another bewildering outcome of the Rules is that you need to give notice to bankrupts of meetings (R15.14(2)), but again no notice to the bankrupt is required if you are seeking decisions by another route.

 

  1. Delivering statutory documents by email

R1.45 explains that electronic delivery can be achieved where the recipient has given actual or deemed consent.  Deemed consent occurs where the recipient “and the subject of the insolvency proceedings had customarily communicated with each other by electronic means before the proceedings commenced”.  So… how did a company customarily communicate with its director before insolvency?  If an office holder wants to rely on email delivery for statutory documents such as notice for submitting a SoA in an Administration, it seems to me likely that they need to get actual consent.

And I suspect it is only a matter of time before a creditor relies on the requirement that the “electronic address [be provided] for the delivery of the document” (R1.45(2)(c)) to support a claim that e-delivery under deemed consent to an address used by the insolvent before the insolvency proceedings does not constitute delivery, as such an email address was only meant for receipt of the company’s sales invoices etc.

 

  1. Postal delivery to overseas persons

As acknowledged by the Insolvency Service in Dear IP 76, the Rules are silent on when delivery occurs using overseas post.  Dear IP 76 is helpful in flagging up the Interpretation Act’s direction, which leads us to calculate timelines by looking up when delivery would occur “in the ordinary course of post”.  But is it really robust guidance for the InsS to write effectively: do your best to extend timelines “if at all possible”?  Granted, some of the Rules’ timelines can become impossible (even for delivery within the UK), especially when meetings are adjourned, leaving us to contemplate the consequences of such breaches: are they simply technical breaches with no real consequences or do they threaten the validity of the proceedings?

 

  1. R1.50 delivery by website

Please don’t get me wrong, I love R1.50 delivery.  At a sweep of the hand, it eliminates enormous amounts of time and money posting documents that no one reads… although I think it is anti micro-business as some IPs don’t have the capacity to upload docs to a website.  However, it is clearly open to abuse: what is to stop an IP uploading a decision process on their website… say on approval of fees… and then, in light of the inevitable silence from creditors, giving a nudge to one or two (selected) creditors to lodge votes?

 

  1. Notices of Appointment of Administrators

Re NJM Clothing Limited, The Towcester Racecourse Company Limited, Spaces London Bridge Limited – need I say more..?

 

  1. Repeatedly inviting a committee… except in compulsory liquidations

It makes no sense to me to invite creditors to decide on forming a committee every time you propose a decision and it makes even less sense to exclude compulsory liquidations from this requirement.  And it makes still less sense to invite creditors to consider forming a committee when you’re seeking a decision to extend an Administration, which is a decision that is never in the gift of a creditors’ committee.

 

  1. The OR’s duty to send notices

Is it any wonder that the InsS/OR keep telling everyone how much cheaper they are than IPs?  ORs have to comply with few notice (or reporting) requirements.  And the response-deadline of the only material notice that ORs do issue – on the nomination of IPs to be appointed as liquidator or trustee (R7.52 and R10.67) – is measured from the date of the notice (and is only 5 business days!), not from the date of delivery of the notice, which is the complication that all IPs live with.

 

  1. But don’t worry, as we can overlook “immaterial” departures, can’t we?

Oh I wish!  Yes, indeed we do have R1.9(1)(a), which states that a document may depart from the required contents where the departure is immaterial… and interestingly this works even where such a departure is intentional!  This rule could be handy when, say, trying to deal pragmatically with creditors’ proofs of debt.  Otherwise, I wonder how many PoDs would fail to hit the prescribed contents (see, for example, gripe no. 6).  But I don’t know how it would go down if you quoted this rule to an RPB monitor who considered your notices to be flawed!

So too, from my compliance consultant’s perspective, I have to remember that IPs instruct me to tell them about statutory breaches, so regrettably where I see them – even the immaterial departures – I have to list them.  But believe me, it pains me as much as it pains you!


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Is the Pre-Pack’s Sun Setting?

As HMV has demonstrated, buying a business out of an administration does not guarantee its survival.  But the sale of the HMV business 5 years’ ago was not a pre-pack – the Company had traded for several months in administration before the deal was done.  Does the pre-pack deserve to be demonised?  In view of the SBEE Act’s sunset clause deadline of May 2020, what are the pre-pack’s chances of survival?

As promised way back in July, this is my third article looking at the Insolvency Service’s 2017 review of regulation.  My sincere apologies to regular readers.  I have soooo wanted to blog, I have had articles aplenty in my head, but I’ve simply not had the time to get them out.  I will try harder in 2019!

The Insolvency Service’s 2017 Review of IP Regulation can be found at:  https://tinyurl.com/ycndjuxz

The Pre Pack Pool’s 2017 Review is at: https://tinyurl.com/y92fvvqf

 

SIP16 Compliance Rate Flatlines

Of course, we all know that compliance with the SIP16 disclosure requirements has no real relevance to whether a pre-pack is “good” or “bad”.  Personally, I’d also argue that strict compliance with the disclosure requirements does little to improve perceptions… not when compliance is measured on whether or not the IP has ticked every last little disclosure box.  However, this is what the RPBs are measuring us on, so it can only be to our advantage to try to meet the mark.The analysis of this rate by each RPB shows an intriguing effect:Last year, the stats for the two largest RPBs appeared poles apart: the IPA’s compliance rate was 91% but the ICAEW’s was less than half this figure, at 39%.  But now look at those two RPBs’ rates: they have converged on 59%.  How odd.

I very much doubt that the IPA’s IPs have got decidedly worse at SIP16 compliance over the year.  I wonder if it has more to do with RPB staff changes – perhaps it is more than coincidental that an ICAEW monitoring staff member moved to take up a senior role within the IPA in late 2016.

What about the change in the ICAEW’s IPs’ fortunes last year?  It is more difficult to identify a trend in the ICAEW’s figures, as they reviewed only 23% of all SIP16 statements received in 2017 – they were the only RPB to have reviewed only a sample, which they chose on a risk-assessment basis.  The ICAEW had focused on SIP16 statements submitted by IPs for the first time, or for the first time in a long time, or by IPs whose previous statements had fallen short of compliance.  On this basis, it is encouraging to see such an improved compliance rate emerging from what might seem to be the high risk cases.  It makes me wonder what the compliance rate would have been, had the ICAEW reviewed all their SIP16 statements: rather than the flatline, would we have seen an overall strong improvement in the compliance rate?

From my personal reviewing experience, I am finding that many SIP16 statements are still missing the 100% compliant ideal, but the errors and omissions are far more trivial than they were years’ ago.  I suspect that few of the 38% non-compliant statements spotted by the RPBs contained serious errors.  Having said that, earlier this year the IPA published two disciplinary consent orders for SIP16 breaches, so we should not become complacent about compliance, especially as pre-packs continue to be a political hot potato and now that the RPBs have been persuaded by the Insolvency Service to publicise IPs’ firms’ names along with their own names when disciplinary sanctions are issued. 

 

A Resurgence of Connected Party Sales

Regrettably, the Insolvency Service’s 2017 review provided less information on pre-packs than previous reviews.  No longer are we able to examine how many pre-packs involved marketing or deferred consideration, but we can still look at the number of sales to connected parties:

Last year, I pondered whether the pressure on IPs to promote the Pre Pack Pool may have deterred some connected party sales.  I was therefore interested to see that, not only had the percentage of connected party sales increased for 2017, but the percentage of referrals to the Pool has decreased – coincidence?

Personally, now I wonder whether the presence of the Pool has any material influence on pre-pack sales at all.  I suspect that the increased percentage of connected party sales may have more to do with the economic climate: who would want to take on an insolvent business with such economic uncertainties around us?  I suspect that now it is more and more often the case that connected parties are the only bidders in town.

 

Insights of the Pre Pack Pool

With such a tiny referral rate – the Pool reviewed only 23 proposed sales over the whole of 2017 (there were 53 referrals in the previous 14 months, since the Pool began) – does the Pool have any real visibility on pre-packs?

The Pre Pack Pool issued its own annual review in May this year.  Here is an analysis of the opinions delivered by the Pool:

This seems to suggest that the quality of applications being received by the Pool is deteriorating.  But, as the Pool gives nothing much away about how they measure applications, I am not surprised.

The Pool’s review states that: “Although the referral rate is much lower than expected, the Pool does perform a useful function where it has been approached.  Feedback from both connected party purchasers and creditors has been positive where we have received it.”

But what exactly are the benefits of using the Pool?

The Pool suggests that creditors/suppliers could put more pressure on Newcos to make use of the Pool, but it also notes that less than 1% of all complaints to the InsS in 2016 were about pre-packs (shame the Pool’s report did not refer to the number of pre-pack complaints in 2017: zero).  Maybe there is little pressure put on purchasers to approach the Pool, because the reasonableness or not of the pre-pack doesn’t really come into it when creditors are deciding to supply to Newcos.  The Pool review suggests that major stakeholders such as lenders and HMRC could insist on a Pool referral, but why should they when the Pool has yet to prove its value?

 

What makes a Bad Pre-Pack?

Stuart Hopewell, director of the Pool, has been quoted as stating that he “has seen cases where the objective [of the pre-pack] was avoidance of liabilities”, which led to the tagline that “businesses are sidestepping tax bills amounting to tens of millions of pounds using an insolvency procedure that the government is considering banning” (Financial Times, 26/11/2018).

How does Hopewell spot these abuses?  The Pool itself is not at all transparent about what, in its eyes, results in a “case not made” opinion, but the same article referred to the Pool giving “a red card, based on the tax situation”.  This suggests to me that their focus may be more on how the company became insolvent, rather than whether the pre-pack sale is the best outcome for the creditors at that point in time.  It seems to me that the Pool may be deciding that the pre-pack is the final step in a director’s long-term plan to rack up liabilities and walk away from them, whereas I suspect that most IPs first see a director who – as a result of wrong decisions or for reasons outside their control – is at the end of the road, having racked up liabilities they can no longer manage.  What should happen?  If the pre-pack were refused, the likely outcome would be liquidation with strong chances that the director would, via a S216 notice, start up again, possibly with a cluster of the original workforce and assets purchased at liquidation prices.  On the other hand, if the pre-pack were completed, it would most certainly generate more sales consideration and would be less disruptive for the employees, customers and suppliers.  But wouldn’t refusing a pre-pack result instead in a business sale to someone else, an unconnected party, even if at a reduced price?  I think that this is doubtful in the vast majority of cases.

 

It’s not all about the Pool

The Insolvency Service’s annual review lists some questions that its pre-Sunset Clause pre-pack review will seek to answer:

  • “Has the Pool increased transparency and public confidence in connected party pre-pack administrations?
  • “What numbers of connected party purchasers have chosen not to approach the Pool and why?
  • “What is the success rate of the new company where purchasers approached the Pool between 1 January 2016 and 31 December 2016?”

While these are all valid questions, I do hope the questions won’t stop there.

Ever since Teresa Graham’s recommendations in 2015, the Pre Pack Pool has occupied the limelight.  I think that’s a real shame, as I believe that other things are responsible for the improvements to the pre-pack process that we have seen over time.  Although I complain about the micro-monitoring that the Insolvency Service has inflicted on SIP16 compliance, it cannot be denied that the regulators’ emphasis on SIP16 compliance has improved the amount of detail provided.  More importantly perhaps, the RPBs’ emphasis on documenting decisions has helped some IPs question why certain strategies are pursued – most IPs do this anyway, but I think that some need to challenge their habitual reactions and sometimes exercise a bit more professional scepticism at what they’re being told.

The mood music around the pre-pack review seems to be about increasing the Pool’s reach, potentially making a referral to the Pool mandatory (for example, see R3’s May 2018 submission: https://tinyurl.com/y7kf22ul).  However, as with all proposed reforms, the first steps are to identify the problem and to define what one wants to achieve.  I would question whether the problem is still a lack of public confidence in pre-packs – it seems to be more about a lack of confidence in dealing justly with directors who ignore their fiduciary duties in a host of different ways – and, even if it were about confidence in pre-packs, we’re a long way from determining whether the Pool is the best tool to fix this.

 

Slow Progress

Finally, here is a summary of other items that were on the Insolvency Service’s to-do list at the time of publication of their 2017 annual review.  Of course, to be fair the government has kept the Insolvency Service otherwise occupied over the year.  You might be forgiven for having a sense of deja-vu – it looks frighteningly similar to 2017’s list and I assume that the tasks will now be carried over to 2019:

  • Replacement of the IS/RPB Memorandum of Understanding with “Guidance” – their initial draft required “a number of changes” and, as at May 2018, was being run past the “DfE” (Department for Education?). Nevertheless, the Service had anticipated that the guidance would “come into effect during the course of 2018”.
  •  A solution to the bonding “problem”? – the Insolvency Service’s call for evidence closed in December 2016 and they expected a follow-on consultation “soon”. A Claims Management Protocol, i.e. to set out how bond claims should proceed, is being developed: “possible publication, later this year”.  The Service is also looking at the bond wording.
  • Cash for complainants? – the early message that the Service was exploring with the RPBs if a redress mechanism for complainants could work seems to have evolved into work to determine how redress will be incorporated. “Once agreement has been reached”, the Service plans to include information on the Complaints Gateway website “to ensure complainants are aware of this recent development”.  Oh well, that’s one way to reverse the trend in falling complaint numbers!
  •  Revised IVA Protocol – although .gov.uk holds minutes of the IVA Standing Committee only up to July 2017, the Service reported that the Committee anticipated that we could look forward to a revised IVA Protocol likely later in 2018.
  • Revised Ethics Code – this was also expected later in 2018. I understand that accountancy bodies’ ethics code is currently being revised and therefore the JIC has decided to wait and see what emerges from this before finalising a revised insolvency code.

 


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The stats of IP Regulation – Part 2: Monitoring

 

As promised, here are my thoughts on the RPBs’ 2017 monitoring activities, as reported by the Insolvency Service:

  • The InsS goes quiet on RPBs’ individual performances
  • Two RPBs appear to have drifted away from 3-yearly visits
  • The RPBs diverge in their use of different monitoring tools
  • On average, ICAEW visits were over three times more likely to result in a negative outcome than IPA visits
  • On average, every fourth visit resulted in one negative outcome
  • But averages can be deceptive…

As a reminder, the Insolvency Service’s report on 2017 monitoring can be found at: https://tinyurl.com/ycndjuxz

The picture becomes cloudy

As can be seen on the Insolvency Service’s dedicated RPB-monitoring web-page – https://www.gov.uk/government/collections/monitoring-activity-reports-of-insolvency-practitioner-authorising-bodies – their efforts to review systematically each RPB’s regulatory activities seemed to grind to a halt a year ago.  The Service did report last year that their “future monitoring schedule” would be “determined by risk assessment and desktop monitoring” and they gave the impression that their focus would shift from on-site visits to “themed reviews”.  Although their annual report indicates that such reviews have not always been confined to the desk-top, their comments are much more generic with no explanation as to how specific RPBs are performing – a step backwards, I think.

 

Themed review on fees

An example of this opacity is the Service’s account of their themed review “into the activities, and effectiveness, of the regulatory regime in monitoring fees charged by IPs”.

After gathering and reviewing information from the RPBs, the InsS reports: “RPBs responses indicate that they have provided guidance to members on fee matters and that through their regulatory monitoring; fee-related misconduct has been identified and reported for further consideration”.

For this project, the InsS also gathered information from the Complaints Gateway and has reported: “Initial findings indicate that fee related matters are being reported to the IP Complaints Gateway and, where appropriate, being referred to the RPBs”.

Ohhhkay, so that describes the “activities” of the regulatory regime (tell us something we don’t know!), but how exactly does the Service expect to review their effectiveness?  The report states that their work is ongoing.

Don’t get me wrong, it’s not that I necessarily want the Service to dig deeper.  For example, if the Service’s view is that successful regulation of pre-packs is achieved by scrutinising SIP16 Statements for technical compliance with the minutiae of the disclosure checklist, I dread to think how they envisage tackling any abusive fee-charging.  It’s just that, if the Service thinks that they are really getting under the skin of issues, personally I hope they are doing far more behind the scenes… especially as the Service is surely beginning to gather threads on the question of whether the world would be a better place with a single regulator.

So let’s look at the stats…

 

How frequently are you receiving monitoring visits?

There is a general feeling that every IP will receive a monitoring visit every three years.  But is this the reality?

This shows quite a variation, doesn’t it?  For two years in a row, significantly less than one third of all IPs were visited in the year.  Does this mean the RPBs have been slipping from the Principles for Monitoring’s 3-year norm?

The spiky CAI line in particular demonstrates how an RPB’s visiting cycle may mean that the number of visits per year can fluctuate wildly, but how nevertheless the CAI’s routine 3-yearly peaks and troughs suggest that in general that RPB is following a 3-yearly schedule.  So what picture do we see, if we iron out the annual fluctuations?

This looks more reasonable, doesn’t it?  As we would expect, most RPBs are visiting not-far-off 100% of their IPs over three years… with the clear exceptions of CAI, which seems to be oddly enthusiastic, and the ICAEW, which seems to be consistently ploughing its own furrow.  This may be the result of the ICAEW’s style of monitoring large firms with many IPs, where each year some IPs are the subject of a visit, but this may not mean that all IPs receive a visit in three years.  Alternatively, could it mean they are following a risk-based monitoring programme..?

There are benefits to routine, regular and relatively frequent monitoring visits for everyone, almost irrespective of the firm’s risk profile: it reduces the risk that a serious error may be repeated unwittingly (or even deliberately).  However, this model isn’t an indicator of Better Regulation (see, for example, the Regulators’ Compliance Code at https://www.gov.uk/government/publications/regulators-compliance-code-for-insolvency-practitioners).  With the InsS revisiting their MoU (and presumably also the Principles for Monitoring) with the RPBs, I wonder if we will see a change.

 

Focussing on the Low-Achievers?

The alternative to the one-visit-every-three-years-irrespective-of-your-risk-profile model is to take a more risk-based approach, to spend one’s monitoring efforts on those that appear to be the highest risk.  This makes sense to me: if a firm/IP has proven that they are more than capable of self-regulation – they keep up with legislative changes, keep informed even of the non-legislative twists and turns, and don’t leave it solely to the RPBs to examine whether their systems and processes are working, but they take steps quickly to resolve issues on specific cases and across entire portfolios and systems – why should licence fees be spent on 3-yearly RPB monitoring visits, which pick up non-material non-compliances at best?  Should not more effort go towards monitoring those who seem consistently and materially to fail to meet required standards or to adapt to new ones?

But perhaps that’s what being done already.  Are many targeted visits being carried out?

It seems that for several years few targeted visits have been conducted, although perhaps the tide is turning in Scotland and Ireland.  The ACCA also performed a number, although now that the IPA team is carrying out monitoring visits on ACCA-licensed IPs, I’m not surprised to see the number drop.

It seems that targeted visits have never really been the ICAEW’s weapon of choice.  At first glance, I was a little surprised at this, considering that their monitoring schedule seems less 3-yearly rigid than the other RPBs.  Aren’t targeted visits a good way to monitor progress outside the routine visit schedule?  Evidently, the ICAEW is not using targeted visits to focus effort on low-achievers.  Perhaps they are tackling them in another way…

 

Wielding Different Sticks

I think this demonstrates that the ICAEW isn’t lightening up: they may be carrying out less frequent monitoring visits on some IPs, but their post-visit actions are by no means infrequent.  So perhaps this indicates that the ICAEW is focusing its efforts on those seriously missing the mark.

The ICAEW’s preference seems to be in requiring their IPs to carry out ICRs.  Jo’s and my experiences are that the ICAEW often requires those ICRs to be carried out by an external reviewer and they require a copy of the reviewer’s report to be sent to the ICAEW.  They also make more use than the other RPBs of requiring IPs to undertake/confirm that action will be taken.  I suspect that these are often required in combination with ICR requests so that the ICAEW can monitor how the IP is measuring up to their commitments.

And in case you’re wondering, external ICRs cost less than an IPA targeted visit (well, the Compliance Alliance’s do, anyway) and I like to think that we hold generally to the same standards, so external ICRs are better for everyone.

In contrast, the IPA appears to prefer referring IPs for disciplinary consideration or for further investigation (the IPA’s constitution means that technically no penalties can arise from monitoring visits unless they are first referred to the IPA’s Investigation Committee).  However, the IPA makes comparatively fewer post-visit demands of its IPs.  But isn’t that an unfair comparison, because of course the ICAEW carried out more monitoring visits in 2017?  What’s the picture per visit?

 

No better and no worse?

Hmm… I’m not sure this graph helps us much.  Inevitably, the negative outcomes from monitoring visits are spiky.  We’re not talking about vast numbers of RPB slaps here (that’s why I’ve excluded the smaller RPBs – sorry guys, nothing personal!) and the “All” line (which does include the other RPBs) does illustrate a smoother line overall.   But the graph does suggest that ICAEW-licensed IPs are over three times as likely to receive a negative outcome from a monitoring visit than IPA-licensed IPs. 

Before you all get worried about your impending or just-gone RPB visit, you should remember that a single monitoring visit can lead to more than one negative outcome.  For example, as I mentioned above, the RPB could instruct an ICR or targeted visit as well as requiring the IP to make certain undertakings.  One would hope that much less than 25% of all IPs visited last year had a clean outcome!

This doubling-up of outcomes may be behind the disparity between the RPBs: perhaps the ICAEW is using multiple tools to address a single IP’s problems more often than the other two RPBs… although why should this be?  Alternatively, perhaps the ICAEW’s record again suggests that the ICAEW is focusing their efforts on the most wayward IPs.

 

Choose Your Poison

I observed in my last blog (https://tinyurl.com/y8b4cgp7) that the complaints outcomes indicated that the IPA was far more likely to sanction its IPs over complaints than the ICAEW was.  I suggested that maybe this was because the IPA licenses more than its fair share of IVA specialists.  Nevertheless, I find it interesting that the monitoring outcomes indicate the opposite: that the ICAEW is far more likely to sanction on the back of a visit than the IPA is.

Personally, I prefer a regime that focuses more heavily on monitoring than on complaints.  Complaints are too capricious: to a large extent, it is pot luck whether someone (a) spots misconduct and (b) takes the effort to complain.  As I mentioned in the previous blog, the subjects of some complaints decisions are technical breaches… and which IP can say hand-on-heart that they’ve never committed similar?

Also by their nature, complaints are historic – sometimes very historic – but it might not matter if an IP has since changed their ways or whether the issue was a one-off: if the complaint is founded, the decision will be made; the IP’s later actions may just help to reduce the penalty.

In my view, the monitoring regime is far more forward-looking and much fairer.  Monitors look at fresh material, they consider whether the problem was a one-off incident or systemic and whether the IP has since made changes.  The monitoring process also generally doesn’t penalise IPs for past actions, but rather what’s important are the steps an IP takes to rectify issues and to reduce the risks of recurrence.  The process enables the RPBs to keep an eye on if, when and how an IP makes systems- or culture-based changes, interests that are usually absent from the complaints process.

 

Next blog: SIP16, pre-packs and other RPB pointers.

 


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The stats of IP Regulation – Part 1: Complaints

My annual review of the Insolvency Service’s 2017 IP regulation report has thrown up the following:

  • The number of IPs drops again – the third year in a row
  • Good news: 2017 saw half as many complaints referred through the Gateway as 2015
  • This may be partly due to the Insolvency Service’s sifting process: almost half of all complaints put to the Gateway in 2017 were sifted out
  • Sadly, despite the overall reduction, there were more sifted-in complaints from creditors in 2017 than in the previous year
  • The RPBs seem to be generating more complaints sanctions: 10 years’ ago, 1 IP in 100 could receive a complaints sanction; now it is c.1 in 20

The Insolvency Service’s report can be found at: https://tinyurl.com/ycndjuxz

 

IPs leaving the profession

As the following graph shows, the number of appointment-taking IPs has fallen for the third year in a row:In ICAS’ 2017 monitoring report (https://www.icas.com/regulation/insolvency-monitoring-annual-reports), that RPB puts the decrease down to the number of IPs who have retired, which I suspect is probably the case across the board.  And we’re not seeing their number being replaced by new appointment-takers.  I can’t say I’m surprised at that either: regulatory burdens and personal risks continue to mushroom, formal insolvency cases (especially those with assets) appear more sparse and the media has nothing good to say about the profession.  Why would anyone starting out choose formal insolvency as their career choice?

Admittedly, it’s not an alarming fall… not yet… but one has to wonder how the Insolvency Service proposes to address this trend, given that one of their regulatory objectives introduced in 2015 was to encourage an independent and competitive profession.

But what is life like for current IPs?  Is there no good news?

 

Another dramatic fall in complaints

Much more striking is the fall in the numbers of complaints referred to the RPBs:No one – the Insolvency Service, RPBs or R3 – is shouting about this good news: the fact that the complaint number has halved since 2015, the first full year of the Complaints Gateway’s operation?  I would have thought that the InsS could have easily spun it into a story about the success of the Gateway or of their policing of insolvency regulation generally, no? 😉

 

Where are the rem and pre-pack complaints?

I wonder if the subject matter of the complaints is one reason why the InsS may not be keen to draw attention to complaints trends.

The following analyses the complaints put through the Gateway:If we were asked what areas of apparent misconduct we thought were the top of the InsS’s hit-list, I suspect most of us would answer: IP fees and pre-packs.  But, as you can see, these two topics have never featured large in complaints.

Despite the fees regime becoming more and more complex and involving the delivery of more information and rights to creditors to question or challenge fees, you can see that the complaints about fees have dropped: there were 19 in 2014 and only one last year.  And last year, there were no complaints about pre-packs.

This graph demonstrates what might be behind the drop in complaint numbers: there is a marked decrease in complaints about SIP3 and communication breakdowns.  I think that’s certainly good news to shout about.

So in what areas could we perhaps try harder to avoid attracting complaints?

 

Complaint danger zones?

The following analysis supports the perception that IVAs are attracting fewer complaints than in recent years, although IVAs are still number one.  In fact, it demonstrates that all insolvency proceedings are attracting fewer complaints.However, when looked at as a percentage of complaints received…… it would seem that complaints about ADMs and PTDs aren’t dropping quite as quickly as those for other processes.  Putting the two analyses together leads me to wonder whether ethics-related complaints involving ADMs now form a disproportionately large category of complaints, particularly in view of the relatively small number of ADMs compared with IVAs and LIQs.  Press coverage would also appear to support this area as a growing concern.

 

Creditors are lodging more complaints

The following graph gives us a little more insight into the origin of complaints:This shows that creditors are the only category of complainant that has seen an increase in the number of complaints lodged over the past year.  Could the profession do more to help creditors understand insolvency processes and especially ethics?

The Insolvency Service has reported for a few years now that the Insolvency Code of Ethics has been under review.  As we know, the JIC/RPBs launched a consultation on a draft Code last year – the consultation closure date has almost hit its anniversary!  The InsS 2017 review reported that a revised Insolvency Code of Ethics “is expected to be issued later this year”.  It seems to me that a fresh and clear revised Code could help us address the number of complaints lodged.

 

Not every complaint is a complaint

I highlighted last year that it seemed the InsS had been sifting out a greater number of complaints as not meeting the criteria for referring over to the relevant RPB.  This shows how that trend has developed:Wow!  So for the first time, the InsS rejected more complaints that it referred: almost half of all complaints were rejected (48%) and only 41% were referred.  Compare this to the first few months of the Gateway’s operation when only 25% were rejected and 72% were referred.  Nevertheless, setting aside the number of rejected complaints, it is good to see that even the trend for the number of complaints received is a nice downwards slope.  And in case you’re wondering, I suspect that the remaining 11% of complaints received are still being processed by the IS – a fair old number, but pleasingly a lot less than existed at the end of 2016.

Of course, the Gateway is still relatively young and it is good to read that the InsS is continually refining its sifting processes, as can be seen from the following graph:This indicates that a large part of the increase in rejected complaints is because more complainants have not responded to the Insolvency Service’s requests for further information.

For 2017, the Insolvency Service added a new category of rejections: complaints that were about the effect of an insolvency procedure.  Although there will always be some creditors and debtors who complain about the fairness of insolvency processes, perhaps an unintended benefit of the Complaints Gateway is that the InsS receives first-hand expressions of dissatisfaction about the design of the insolvency process… although let’s hope the InsS considers using such intelligence to amend legislation where sensible, rather than try to force IPs to fudge legislative flaws via Dear IPs and the like.

You might expect that, as the Insolvency Service rejects more complaints, so the percentage of sanctions arising from complaints that make it past the sifting process should increase.

 

Roughly one complaint out of every five results in a sanction

Well, you’d be right.The trendline here suggests that a complaint was twice as likely to end up in a sanction in 2017 as it was 10 years’ ago.

You might be wondering what is going on with ACCA-licensed IPs: how can over half of their complaints result in a sanction compared to an average elsewhere of around 10-20%?!

I agree that the figures are odd.  However, it should be remembered that complaints are not always closed in the year that they are opened.  And in this respect, the ACCA’s stats appear particularly odd.  For example, in last year’s InsS report, it was stated that the ACCA had only one 2013 complaint remaining open, but in this year’s report, apparently there are now thirteen 2013 open complaints against ACCA-licensed IPs!  The ACCA went through some enormous changes last year, as their complaints-handling and monitoring functions were taken over by the IPA with effect from 1 January 2017.  Could this structural change be behind the unusual stats?  Or perhaps the ACCA had been handling some particularly sticky complaints in 2014 and 2015, when their sanctions were low, and those investigations have now come to fruition.

The same effect of sanction clustering could be operating within the other RPBs in view of the spiky lines above.  Therefore, perhaps it would be wise to avoid drawing conclusions about apparent inconsistencies between RPBs’ complaints processes based on 2017’s figures alone.  However, averaging out the figures over the past three years, we can see that 23% of complaints against IPA-licensed IPs resulted in a sanction, whereas only 5% of complaints against ICAEW-licensed IPs did so.  I believe that the IPA licenses more than its fair share of IVA-specialists, so this might account for at least some of the difference.

 

Increased sanctions are not just a Gateway-sifting effect

But what about my suggestion above: that the increased number of sifted-out complaints has led to a larger proportion of complaints allowed through the Gateway leading to a sanction?

That’s not the whole story:This shows that the number of complaints sanctions per IP has also been on an upward trend: around 1 in 100 IPs received a sanction in 2008, whereas this figure was closer to 1 in 20 in 2017.

What is behind this trend?  I really don’t believe that it’s because more IPs now conduct themselves in ways meriting sanctions (or because there are a few IPs who behave badly more often).  And as we’ve seen, the number of complaints lodged doesn’t support a theory that more people complain now.

It must be because expectations have been raised, don’t you think?  Or perhaps because the increased prescription in rules and SIPs has led to more traps?

Hidden measuring-sticks?

For example, the InsS report describes one IP’s disciplinary order, stating that the IP had breached SIP16 “by failing to provide a statement as to whether the connected party had been made aware of their ability to approach the pre-pack pool and/or had approached the pre-pack pool and whether a viability statement had been requested from the connected party but not provided”.  Firstly, SIP16 doesn’t strictly require IPs to state whether connected parties have been made aware of the pool.  Secondly, SIP16 states that the SIP16 Statement should include “one of” two listed statements, only one being whether the pool had been approached.  Yes, I’ll accept that it seems the IP did not provide information on the existence of a viability statement, although I would have thought that, if a copy of a viability statement were not provided with the SIP16 Statement, then surely the likelihood is that the IP was not provided with one.  I appreciate I am splitting hairs here, but if a SIP is not crystal-clear on what is required of IPs, is it any wonder that slip-ups will be made?  And if a disciplinary consent order were generated every time an IP had omitted to meet every last letter of the SIPs and Rules, then I suspect no IP would be found entirely blameless.  Ok yes, there exists a mysterious fanaticism around SIP16 compliance and we would do well to check, check and check again that SIP16 Statements are complete (and hang the cost?).  However, I think this demonstrates how standards have changed: 10 years’ ago, would an IP have been fined £2,500 and have his name in lights for omitting one line from a report (hint: SIP16 began life in 2009)?

 

In my next blog, I’ll explore the RPB statistics on monitoring visits.


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GDPR: Ready or Not!

Compared to the Insolvency Rules, getting to grips with the GDPR has felt a lot more painful.  Personally, I have struggled with the GDPR for two reasons: (i) the position of an IP working within a practice and having control over insolvent entities is so clearly a square peg in the GDPR’s round hole; and (ii) for anyone who has been treating personal data with respect already, it seems to be just lots more hassle, simply more documentation of no interest to anyone except the regulators and those who look for causes to complain.

But, if I have not persuaded you already to go off and do something far more interesting instead, here is a summary of an IP’s GDPR to-do list (or, hopefully, a “done” list).  My special thanks go to Jo Harris, who has endured the pain to get the Compliance Alliance’s packs GDPR-ready and whose webinar has informed most of the content of this blog.

(UPDATE 22/05/2018: far more authoritative than my blog is a fantastic FAQs written by the ICAEW and R3 and released just yesterday: https://bit.ly/2x7HPm2.  I think that this article is pretty-much aligned with the FAQs, but the ICAEW does provide more information on their expectations, particularly when taking on an appointment and in notifying creditors of the necessaries.)

 

Privacy Notices

Privacy Notices are probably the most obvious sign that you have prepared for the GDPR world.

Data controllers must provide privacy information to individuals when they collect personal data from them or, if the data is from another source, no later than one month of receipt.  Although the GDPR prescribes a long list of information that must be given, it also states that privacy notices must be concise and easy to understand – if only the GDPR were written so!

To draft a GDPR-compliant privacy notice, you need to have a clear picture of what personal data you hold and what you do with it… in your role as a data controller.

 

Who is a data controller?

The GDPR defines a data controller as:

“the natural or legal person, public authority, agency or other body which, alone or jointly with others, determines the purposes and means of the processing of personal data; where the purposes and means of such processing are determined by Union or Member State law, the controller or the specific criteria for its nomination may be provided for by Union or Member State law”

Where an IP processes data as an office holder, they are clearly in control.  An IP deals with personal data on creditors, employees, directors, shareholders, debtors (i.e. insolvent ones and those who owe the insolvent), probably also debtors’ family members…  And we’re not just talking about individual creditors etc.: you will also process personal data on staff working within corporate entities, e.g. emails containing names, email addresses and telephone numbers, sufficient to identify the individual.

What about the personal data contained in the insolvent’s books and records?  Does the IP become the data controller for those on appointment?  I have not attended a GDPR-for-IPs event without the case of Re Southern Pacific Personal Loans Limited ([2013] EWHC 2485 (Ch)) being mentioned.  Although of course this was a decision about the application of the Data Protection Act 1998, it has given many people comfort that at least a liquidator is not considered to be the data controller in relation to data processed by the company prior to liquidation.

So, for practical purposes (unless/until it is overturned), it is probably safe to draw a distinction between data processed by the IP and the insolvent’s data that just sits in a storage facility in case it is needed one day.  This fairly clean line probably doesn’t exist however for a trustee in bankruptcy, as the agency relationship is absent.  Also, at what stage does an IP begin “processing” data in their own right: what if you only review some company records in your possession?  What if you hold electronic data on your system, but never use it?

These fuzzy lines aside, how does understanding when we are a data controller help us draft our privacy notices?

 

The legal basis for processing

For the most part, privacy notices are pretty standard text.  But you do need to hang your flag on a mast when it comes to describing your legal basis/bases for processing the data.

Here are the options:

  • the data subject’s consent – not something that we associate with being in office
  • necessary to perform a contract – again, not something for an office holder, but it may be relevant for work we do (i.e. personal data we process) outside a formal appointment
  • necessary for compliance with a legal obligation – yep, this one is clearly relevant to office holders
  • necessary to protect individuals’ vital interests – nope
  • necessary to perform a task in the public interest – I have heard some say this is relevant for office holders, but it seems to have fallen out of favour more recently
  • necessary for legitimate interests – creditors and others have a legitimate interest in keeping informed and engaging in an insolvency process, so this is relevant

So there are at least two legal bases that are relevant to IPs’ work.

 

The purposes of the processing

Your privacy notice also needs to describe the purposes for which you will be processing data.  It is worth remembering that an insolvency practice will process data for a wide range of purposes: not only formal appointments, but also to deliver other services to clients, and you will also hold data for marketing purposes, for running your business…

Therefore, you might want to consider: should you have one privacy notice covering every purpose or do you want several privacy notices?  A third way, which I’ve seen work well for a particularly large accountancy/insolvency practice, is a single privacy notice with links leading to the descriptions of their processing activities relating to different groups of data subjects.

Taking a look at other firms’ privacy notices might also bring to mind other, less obvious, purposes for processing data, such as carrying out AML due diligence, detecting or preventing crime or fraud.

 

What do you do with the privacy notice?

As mentioned at the start, the GDPR puts data controllers under a requirement to provide the privacy information to all data subjects.  This can seem onerous for an IP: do we really need to send a copy of the privacy notice to all individuals whose data we hold and how can we comply with those timescales, especially on existing cases?

There are a couple of ways you can make life much easier for yourself:

  • Put your privacy notice on your website, preferably on a page with a very simple www address, because…
  • Then you can add the link/address to your email footers and letterhead, so that the next time you email or write to an individual, you have brought the privacy notice to their attention.

 

What about existing cases?

Does the GDPR mean that we must have notified every person whose data we hold of our privacy notice by 25 June?  I would like to think that the regulators – the RPBs and the ICO – might be prepared to give us some slack on this requirement.  Would a more manageable approach be to ensure that such notifications are made, say, at the time of the next progress report?

If this is acceptable, then how about the interaction with R1.50?  Where we have already issued to creditors (and members) a notice stating that every other document will be uploaded to our website without further written notice, would this suffice such that we only need to ensure that the website contains the privacy notice or a link to it?  Or, because R1.50 only provides website-only delivery for documents “required to be delivered in the insolvency proceedings”, does this mean that the privacy notice required to be delivered under the GDPR cannot be delivered by website?

Of course, the requirement stretches further than creditors and members.  For some people, you might like to make an extra-special effort to contact them asap to prove compliance with the GDPR, perhaps those who are most likely to complain – bankrupts and other individual debtors, perhaps.

 

What about closed cases?

Under the GDPR, “storage” is a form of processing.  Therefore, IPs will be continuing to “process” personal data long after a case has closed.  Do we need to contact individuals on closed cases?  Isn’t this taking things too far?!

The new Data Protection Act (currently still a Bill) may help us (thanks, JN, for highlighting this).  S93(4)(b) states that we need not notify data subjects where it “would be impossible or involve disproportionate effort”.  This must apply to closed cases, surely!

 

Privacy notices: is there more?

Oh yes, indeed!

Another meaty requirement of the GDPR is that data processors’ work must be governed by a contract with the data controller.  What data processors does an IP instruct?  And if someone is instructing an IP, does this need to be governed by a contract?

 

Who is a data processor?

The GDPR’s definition of a data processor is someone who “processes personal data on behalf of the controller”.  But a data processor’s activities may mean that they become a controller in their own right.  As I set out above, according to the GDPR’s definition, a data controller determines the purposes and means of processing data.  So logically, if someone has no control over either the purposes and/or the means of processing the data, they must be a processor, right?  For example, you instruct a debt collector to use debtors’ personal data solely to pursue debts – this sounds like a data processor, doesn’t it?

So who might an IP instruct that is not a data processor?  Surely every instruction defines at least the purposes of processing data, doesn’t it?

The ICO has provided guidance on the distinction between processors and controllers (https://ico.org.uk/media/for-organisations/documents/1546/data-controllers-and-data-processors-dp-guidance.pdf), which, although it was seemingly published in 2014, we understand is still considered relevant by the ICO for the post-GDPR world.

Paragraph 45 is interesting: “Where specialist service providers are processing data in accordance with their own professional obligations they will always be acting as the data controller”.  This is written in the context of an accountant, who will have obligations on detecting malpractice.  The guidance similarly singles out solicitors who “determine the manner in which the personal data obtained from the [client] will be processed” (paragraph 44).

 

And IPs?

Of course, I wouldn’t expect the ICO to mention IPs in their guidance (they don’t).  But I think the ICO’s guidance leads to the logical conclusion that usually IPs/insolvency practices will become data controllers in their own right when processing data on behalf of a client, e.g. when they’re instructed to help put a company into CVL.

 

Controller-processor contracts

But for anyone whom we instruct who is a data processor, we need to ensure that a GDPR-compliant contract is in place with them.  And even though you may personally be acting as agent of a company that continues to trade post-appointment, you will want to ensure that the company trades in a compliant fashion with appropriate contracts in place with their suppliers/service-providers… although remember that it’s only where the supplier/service-provider is processing personal data.

The GDPR sets out what must be included in such a contract and model clauses are widely available (although of course you may like to engage a solicitor to help).

 

Data sharing agreements

Although not mandatory, you may want to consider entering into data sharing agreements with parties who you instruct who are data controllers in their own right – the ICO guidance recommends this where you are sharing large-scale or particularly risky data.

As an IP receiving instructions, you are unlikely to want to volunteer a data sharing agreement.  However, you should amend your engagement letters, not only to refer to your privacy notice, but also to confirm your position as a data controller and remind the client of the need to comply with the GDPR and DPA.  ICAS has suggested some appropriate wording at: https://www.icas.com/regulation/preparing-for-gdpr

 

Fuzzy lines

I confess to remaining confused about the boundary between controllers and processors.  After all, wouldn’t following the GDPR definitions and ICO guidance lead us to a different conclusion from that arising from Re Southern Pacific Personal Loans Limited?  Doesn’t an IP store company records in accordance with their own obligations and doesn’t the IP decide the purposes and means of processing that data?  If so, why are they considered only a data processor?

In addition, different instructions may lead to different levels of control by the third party.  For example, on one case we may ask an agent simply to help us return items to their owners, but on another case the agent may be managing a marketing and sale process, dealing with RoT claims, wiping hardware clean…

Where these fuzzy lines exist, would it be an idea to engage with third parties via a catch-all controller-processor/data-sharing agreement?

 

Managing instructions

If you haven’t already set up a system, perhaps you might start a central register to help you record who has signed up an agreement.  Then, whenever you come to instruct a third party who will be processing personal data provided by you, you can check whether they have already signed up and, if not, you can set the ball rolling.

 

Ok, is that everything?

Nope.  There’s a whole host of additional items on the to-do list, including:

  • If you haven’t already got them, generate policies and procedures to cover areas such as data security, retention, dealing with breaches and subject access requests;
  • Before processing data on a new engagement/appointment, assess the risks associated with the proposed processing, and keep it under review during the engagement (yep, another checklist!); and
  • For each engagement/appointment, document the data held and the reasons why it is held – the ICO has produced 30-column wide spreadsheet for each data controller (and another one for a processor), so admittedly it is stupidly cumbersome for each case, but once completed for one case, there will be little variation needed for the next. But of course, it is worth giving every case a bit of thought, just in case there are some unusual considerations arising from, e.g., a novel business or an entity holding data in different countries.

Certain other aspects of our insolvency work require careful attention:

  • On (or preferably before) appointment, we will need to gather information on what data the insolvent holds and where/how it is stored and accessed;
  • If we are contemplating trading-on, we will need to review carefully the business’ data processing practices and documentation and identify whether any changes need to be made to bring them into line with the GDPR;
  • We should perhaps take more care in deciding what data we need to collect post-appointment and what happens to any data that we choose not to collect (also having regard, of course, to the recent Dear IP on collecting books and records);
  • Although generally databases and customer lists can continue to be sold in an insolvency process, we can expect to be asked more questions by potential purchasers about the insolvent’s data processing (will sale prices decrease and will sales to unconnected parties be less common as a consequence?) and some additional clauses will be required in agreements; and
  • We will want to have a good understanding – and ensure that staff have also – of our obligations on identifying a data breach.

 

Will it all become second nature?

It is a shame that the regulatory current seems to flow to ever more requirements for documentation and disclosure.  The regulatory burden never seems to lighten up, but personally I struggle to see how business or the economy is any better for it.

There remain a number of unanswered questions, some of which I’ve mentioned above, about how the GDPR works practically for IPs.  I’m sure that over time most of these will be resolved, hopefully with pragmatic solutions acceptable to the regulators.  One day, perhaps GDPR-compliance will become second nature.

 

 

 


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The Insolvency Rules 2016: One Year On

“Please don’t make the 2016 Rules any harder than they have to be.”

Since receiving this feedback on an R3 event last year, I’ve been left feeling nervous about how to present on this topic. I don’t mean to make the Rules complicated and I wish they were simpler. One year on, some fairly common confusing blind spots seem to be emerging. I hope this post helps to clear away some troublesome clouds.

In this post, I’ll be covering issues seen around:

  • the CVL Statement of Affairs
  • if/how/when to deliver the SoA and S100 report
  • incomplete – and sometimes completely missing – notices
  • information to creditors on opting out
  • deemed approval -v- deemed consent of Administrators’ Proposals

 

The S100 Perfect Storm

Many IPs have had to weather the perfect storm affecting their bread-and-butter work, the CVL: the 2016 Rules have clashed noisily against the revised SIP6 as regards information-delivery and against the 2015 Rules as regards fee-approval; and everything needs to be done in a short timescale with directors who, no longer facing the fear of attending a physical meeting, quickly become as disengaged from the process as most creditors. Add to this some surprising pronouncements from RPB monitors on pre-CVL fees, bounce-backs from an overflowing HMRC inbox, and requests from creditors for physical meetings that no one attends (not even the requesting creditor) and it’s no surprise that some cry: there must be an easier way to make a living!

What to deliver when and how?

Old habits die hard, so, because we had been accustomed to sending a S98 pack to creditors post-appointment, I think it has taken some time for the S100 and SIP6 requirements to settle in.

The Statement of Affairs

In brief, regarding the Estimated Statement of Affairs (“SoA”):

  • R6.14(7) states that creditors must receive a copy of the SoA required under S99 – so this must be a full copy of the director’s SoA verified by a statement of truth; a draft will not do
  • as it needs to be verified by the director, it is difficult to see how this can be a prospective SoA – it might be tempting to produce an SoA as it should look on the decision date, but this seems impossible;
  • so don’t produce it too early: R6.3 requires the SoA to show the position not more than 14 days before the winding-up resolution;
  • but it must be sent in sufficient time for creditors to receive it at the latest on the business day before the decision date; and
  • it must be sent to creditors – unless you can send this by email, it must be sent by post.

Pre-appointment deliveries

Why can’t you deliver the SoA by website? Because only an office-holder can make use of the rules on website-delivery (R1.49 and R1.50). Unless you’ve already been appointed liquidator by the members by the time you send the SoA – which of course may be the case in a Centrebind – you won’t be an office-holder… and in fact I still don’t think R1.49 can be used in a Centrebind, because it refers to a document that is required to be delivered by the office-holder but of course the requirement to deliver the SoA is on the directors… but oddly R1.50 is worded differently, so it might be possible for a Centrebind liquidator to help a director to deliver an SoA under R1.50.

So why can docs be delivered by email pre-appointment? R1.45 simply sets out the criteria for delivery by email; there are no restrictions on who may follow the rule or when. There is a the small wrinkle that “deemed consent” to email delivery (R1.45(4)) refers to delivery by an office-holder, but Dear IP 76 states that “the assumed consent provision applies to all senders”.

The SIP6 report

However, as regards the SIP6 information (which is still generally produced as a “report”):

  • this is not a Rules’ requirement, so the statutory delivery provisions do not apply; and
  • as the SIP6 states, this report only needs to be “made available on request… and may be made available via a website”.

This seems very odd to some: why put so much effort into producing the SIP6 report when probably no one is going to ask to see it? Well, if you want to seek a decision from creditors on your pre-CVL fees and/or your post-appointment fees, the SIP6 report may prove valuable in justifying the work done and setting out the work you propose to do, so you may well want to provide it to creditors anyway. I think that a significant proportion of IPs are sending out the SIP6 report, but I am also seeing a growing number deciding not to.

After the S100 decision process

What about after appointment? Should the SoA and the SIP6 report be sent out then? Of course, after appointment you can start using the Rules on website-delivery, so it all gets a lot less burdensome. Again, the SIP6 report may be useful if proposing fee decisions, but there is no strict requirement to deliver it.

The SoA is different: R6.15(1)(a) requires a copy or summary of the SoA to be delivered to “any contributory or creditor to whom the notice under rule 6.14 [i.e. notice of the S100 decision] was not delivered”. In many cases, not all members will have received the S100 decision notice. Therefore, to save you the trouble of having to determine whether you’re circulating to any previously-missed members or creditors and especially if you’re using website-delivery, why not include a copy of the SoA as routine in all cases?

 

A Flood of Notices!

When it comes to the 2016 Rules’ treatment of notices, I think the Insolvency Service have absolutely failed to meet their apparent objectives of creditor-engagement and reducing costs. There are many more notices required under the 2016 Rules and each notice requires more information.

I can truly see no advantage in these new requirements: no one wants to see all this extra gumpf, do they? Apparently not all the RPB monitors agree: we have even heard from one client that an RPB monitor has been asking for more items on certain notices, going over and above the statutory requirements. When will this madness end?!

More standard contents

Far from escaping the shackles of prescription, the 2016 Rules list detailed and sometimes puzzling “standard contents” for notices, some of which we might not have been accustomed to including previously. I have found that the following are sometimes overlooked from notices to creditors etc.:

  • the company number
  • the bankrupt’s address
  • the court reference
  • either an email address or a telephone number “through which the office-holder may be contacted”
  • the relevant section or rule reference

I would also ask that, if you are relying on an external provider’s notices and you wonder what on earth a certain statement is doing in the notice, please resist the urge to delete it. Although of course none of us are perfect, some required contents don’t make any sense – for example, reference in a S100 notice to the fact that opted-out creditors can still vote (i.e. before they’ve even been told about opting out).

Notices where none were needed before

A common notice to omit is a R15.8 Notice of Decision Procedure when proposing a vote by correspondence. In the old days, all we used to issue was a circular explaining the proposed resolution and enclosing a voting form, what could have been simpler? But now the circular needs to include a Notice of Decision Procedure – this isn’t a notice solely for meetings.

Notices Inviting a Committee

Where you are proposing a decision (including where you’re proposing it by deemed consent), you will also need to send a Notice Inviting a Committee in all the following cases:

  • CVLs, including pre-liquidation, when giving notice of the S100 process (R6.19 and as explained on the Insolvency Service’s Rules blog)
  • ADMs – even if your proposed decision cannot be affected by a Committee, e.g. when asking creditors to approve the timing of your discharge (R3.39)
  • BKYs (R10.76)
  • and MVL conversions (R6.19)

However, compulsory liquidations are different. You only need to invite creditors to form a Committee when you’re posing a decision on the appointment of a liquidator (which of course is going to be very rare for IPs already in office). But, where you’re appointed by the SoS, you still need to tell creditors in your first letter to them on appointment that they can form a Committee and how they go about that (S137(5)).

The 2016 Rules mentioned above make clear that you are “inviting [the creditors] to decide whether a [creditors’/liquidation] committee should be established”. Therefore, as a “decision” is mentioned, you need to ensure that you list on the other items in your pack – the R15.8 Notice of Decision Procedure (or R15.7 Notice seeking Deemed Consent) and the voting form or proxy form – a proposed decision on the establishment of a Committee.

You should also make sure that the R15.40 Record of Decision – your statutory internal record of the outcome of the decision process (which will be either minutes of a meeting or some other record in all non-meeting decisions, including decisions sought by deemed consent) – lists the proposed decision on the establishment of a Committee and the outcome.

The Opting-Out Notice?

It seems to have taken some time for the issuing of opting-out information, as required by R1.39, to have become embedded successfully in our practices.

R1.39(1) states that “the office holder must, in the first communication with a creditor, inform the creditor in writing that the creditor may elect to opt out of receiving further documents relating to the proceedings”. A few things are worthy to note:

  • The Rules do not call this a “notice” that we must “deliver”. Therefore, although it means that we don’t need to worry about ensuring the standard contents for notices are covered, it does mean that it is not something we can simply upload to a website and tell creditors where to find it.
  • The Rule states it must be “in the first communication”, so again uploading it to a website will not work.
  • “Communication” does not mean just by letter – if we are emailing a creditor on appointment (e.g. an MVL director owed a DLA balance), we need to ensure the information is “in” the email. Incidentally, personally I think that this Rule must only apply to written communication, not oral, as you cannot provide information “in writing” in your first telephone conversation.
  • The Rule refers to our first communication “with a creditor”, so we need to think wider than just the first on-appointment circular to creditors as a body – if any creditors emerge later, we need to provide the opt-out information in our first communication with each of them (arguably once we have established that they are – or perhaps may be – a creditor).

 

It’s Raining “Deemed”s

Even under the 1986 Rules, the Administration processes caused problems. Now – in a world where we deal both with “deemed consent” and “deemed approval” – confusion truly is raining down.

  1. Deemed Approval

The 1986 Rules’ deemed approval process has continued largely unaltered. Thus, if the Administrator’s Proposals contain a Para 52(1) Statement, you’re still looking at a “deemed approval” process:

  • The Administrator does not ask creditors to approve the Proposals.
  • Creditors are simply provided the Proposals and given 8 business days (from delivery, which is a change from the 1986 Rules) in which to request that a decision process be instigated.
  • If no (or insufficient) creditors respond within the time period, the Proposals are deemed approved.
  • This is not deemed consent.
  1. Deemed Consent

Deemed consent may be relevant where the Proposals do not include a Para 52(1) Statement.

In this case, the Administrator does ask creditors to approve the Proposals. This decision may be posed via a virtual meeting, correspondence (or electronic) vote, or by a Notice seeking Deemed Consent.

If we choose the deemed consent process, then we are asking creditors to make a decision “that the Administrator’s Proposals be approved”. Then, if no (or insufficient) creditors respond, the decision is made, i.e. the Proposals are actually approved – they’re not deemed approved, they are approved.

Does it matter?

Actually, probably not a great deal. A practical consequence is that different forms must be delivered to the Registrar of Companies:

  • If the Proposals have been “deemed approved”, you should use Form AM06, Notice of Approval (yep, that’s right: we were all accustomed to the Notice of Deemed Approval, but this no longer exists)
  • If the Proposals have actually been approved (by deemed consent or another decision process), you should use Form AM07, Notice of Creditor’s Decision (yep, the incorrect placing of the apostrophe gets under my skin too)

Interestingly, the case of Promontoria (Chestnut) Limited v Craig & Harold ([2017] EWHC 2405 (Ch)) (http://www.bailii.org/ew/cases/EWHC/Ch/2017/2405.html) illustrates that the confusion is far wider than just with some IPs. Para 46 of this judgement states that the Administrators’ Proposals in this case were approved by deemed consent. However, the very next para, which refers to proposals containing a Para 52(1) Statement, states that the Proposals were “deemed approved”, but then the rest of para 47 is an argument about the status of proposals approved by deemed consent. What a mess!

 

Eclipsing the 2015 Fees Rules

RPB monitors seem unanimous in their recent messages, with which I concur: all this focus on the 2016 Rules seems to have had a detrimental effect on the general standards of compliance with the fees rules that were introduced in October 2015.

Unfortunately of course, if we don’t meet the fees rules and the decision-making rules, there could be serious consequences. So, while you may discover that an ICR, self cert or monitoring visit reveals 101 things to fix, I think that realistically many of us would do well to prioritise our efforts to fix the fundamentals of fee-approval for some time to come. After all, the 21st century is all about risk management 😉