How are we coping in this (new) SIP9 vacuum? Well, nature abhors a vacuum and it seems to me that we’re all plugging the gap in our own ways.
One IP told me that he had incurred time costs of c.£4,000 producing his first fees estimate and I heard another IP say that he was not going to seek fees approval on any case until the new SIP9 is in force. Having raised some questions about the RPBs’ recent announcement on SIP9, I was told that I was reading too much into it, but what do they expect given the dearth of guidance?
We have learnt that the new SIP9 will not contain a suggested format. IPs seem almost unanimous in their belief that this is counter-productive (not to mention costly!). We are led to believe that it’s what the major creditors want, but the comments I have heard and seen from creditors are far from clear: they seem to want simultaneously more information but shorter reports, more prescription (even more legislation? Give me strength!) but also a bespoke approach! It will be interesting to read R3’s promised guidance.
I am sympathetic to the IP who is not even going to propose fees resolutions until he sees the new SIP9. Alternatively, we could gamble on what the final SIP9 will look like or we could just concentrate on making fees estimates rules-compliant for now and live with the prospect of having to revisit systems in November. Both approaches are unattractive and make a mockery of the Insolvency Service’s Impact Assessment that estimated it would take each IP only 1 hour to become rules-ready!
So what are we expected to do now in applying the new rules?
The Consultation Draft SIP9
The draft rules were laid before Parliament on 3 March 2015. The draft SIP9 consultation was issued 5 months later. It is perhaps not surprising therefore that, 2 ½ months further on, we’re still waiting for a SIP9.
Why does it take so long to finalise SIPs? Having sat around the JIC table, I think I know why. But it’s just not acceptable, is it? This is especially so in view of the fact that the consultation draft SIP9 threatened to introduce new standards that would involve fundamental changes to time-recording systems and reporting formats.
I will save further breath on saying any more about the consultation draft, but if you are curious about what I had to say about it, you can see my consultation response here: SIP9 consult response and my mark-up of the draft SIP here: SIP9 markup.
Whilst I don’t have any idea how the final SIP9 will compare with the consultation draft, I do wonder how we are to read the R3’s recently-released Creditors’ Guides to Fees.
New Creditors’ Guides to Fees
R3’s new Creditors’ Guides to Fees were released on its website on 1 October without fanfare. At first glance, it is easy to assume that nothing has changed (I made that mistake and, as a result, asked R3 to return the old Guides to their page and date the Guides clearly, which R3 very swiftly did – thank you).
However, a closer look at the new Guides reveals that, not only do they incorporate the new rules of course, but they include much of the draft SIP9. I am sure that the Guides will attract few (if any!) readers, but isn’t it a nonsense that the Guides are intended to explain to creditors what IPs do, but at present they describe standards that are not even enshrined in the statute or SIPs?!
The Guides include a number of new “should”s that appeared in the draft SIP9 but that IPs are probably not following completely at present. For example, the Guides repeat the draft SIP9’s list of “key issues of concern”, about which office holders should explain “in a way which facilitates clarity of understanding”:
- the work the office holder anticipates will be done, and why that work is necessary;
- the anticipated cost of that work, including any expenses expected to be incurred in connection with it;
- whether it is anticipated that the work will provide a financial benefit to creditors, and if so what benefit (or if the work provided no direct financial benefit, but was required by statute);
- the work actually done and why that work was necessary;
- the actual costs of the work, including any expenses incurred in connection with it, as against any estimate provided; and
- whether the work has provided a financial benefit to creditors, and if so what benefit (or if the work provided no direct financial benefit, but was required by statute).
Other “should”s appearing in the Guides include:
- Where it is practical to do so, the office holder should provide an indication of the likely return to creditors when seeking approval for the basis of his remuneration.
- When approval for a fixed amount or a percentage basis is sought, the office holder should explain why the basis requested is expected to produce a fair and reasonable reflection of the work that the office holder anticipates will be undertaken.
Fortunately, the Guides do not repeat the draft SIP9 in all aspects. For example, they do not repeat para 10 of the draft SIP9, which recommended new divisions of work: Statutory Compliance; Asset Realisation; Distribution and Investigation. They also omit draft SIP9 para 11’s references to the use of blended rates. I suspect these paras have been omitted precisely because they were not “should”s in the draft SIP9 (although the language used in the draft suggests a stick is waving in the shadows).
Thus, the Guides give the creditors the impression that IPs are working in compliance with the draft SIP9’s standards, but what message have we received from the RPBs?
The RPBs’ Announcement
On 30 September, the IPA emailed its members on “SIP9 Transitional Arrangements” and the ICAEW made the same announcement publicly on 9 October (http://goo.gl/MrExtE). I assume that the other RPBs/IS conveyed the same message to their members/IPs.
The key message was that, until the new SIP9 is issued (est. on or before 1 November) and/or it becomes effective (est. 1 December), the “principles” of the current SIP9 should be applied “as these remain ostensibly unchanged in the new SIP”.
However, I have some questions on the announcement:
- “Insolvency Practitioners should apply the principles of the current SIP” – does this mean that IPs will not be taken to task if they do not apply the Key Compliance Standards of the current SIP? Some might argue: if IPs were complying with the letter of SIP9 prior to 1 October, why would they take the time to deviate from the SIP9 detail now? My answer would be: because fixing systems to comply with the new rules is disruptive enough, so much has needed to change. Therefore, if we could remove some of the detail of the old SIP9 – a lot of which doesn’t sit well in our apparent new world of narratives good, numbers bad – life could be so much easier.
- “The existing SIP9 will be withdrawn” – does this mean that the new SIP9 will apply to new and old cases? If so, this is even more reason to try to avoid right now maintaining (and for some IPs, changing) systems to ensure that the letter of the current SIP9 is met.
- “IPs should refer to the new Rules and also to Dear IPs 65 and 68… should they need to issue an estimate of their fees in advance of the implementation of the new SIP” – who needs to issue a fees estimate? Does this mean that IPs are doing the right thing, if they refrain from seeking fee approval at all in this hiatus period? Are the RPBs telling IPs for example to hold S98s, get the jobs in, but wait until December before proposing postal resolutions? This would seem to run contrary to the draft “Explanatory Note” that accompanied the consultation draft SIP9, which stated that fees requests should be considered “at the earliest opportunity”… but then of course that was only draft.
To be fair, I think the Insolvency Service has done a reasonable job with Dear IPs 65 and 68.
Yes, of course, we all knew they would seek to “clarify” the rules’ reference to the “liquidator” providing fees-related information and have stated: “The use of the word ‘liquidator’ is not intended to preclude an insolvency practitioner from providing this information ahead of a s98 meeting at which s/he is subsequently appointed”… but from what I have heard, it seems that this is convincing very few IPs.
Also, whilst I can see what the Service is getting at, I do feel a little nervous about using the ‘unused’ part of an Administrator’s fees estimate to enable the subsequently-appointed Para 83 CVL Liquidator to draw fees. I think it is wonderfully pragmatic of the Insolvency Service and the rules seem to allow it, but I just wonder what the regulators would say if they saw it. I don’t fancy being the first one to debate the subject with a monitor.
I also wish the Service would take greater care when referring to “fees”, because sometimes I think they mean “time costs” (or “remuneration charged”, as the rules put it, although this phrase is behind some of the confusion, I think). For example, Dear IP 68 states “as work cannot stop on a case, there may be instances where an office-holder exceeds the fees estimate before approval is sought/obtained”. Err… I don’t think the Service exactly means this, but rather that the office holder may incur time costs in excess of the fees estimate, don’t you think?
But the Dear IPs have stuck pretty-much to the rules – which is to be expected and for which I am thankful – so, if IPs are hoping to read more about how to put the rules into practice, the Dear IPs probably will leave them wanting.
A Pig’s Ear
In summary, we are currently navigating our way through:
- The Insolvency Rules 2015, which are not without flaws (see my previous posts, http://goo.gl/9mrWl4 and http://goo.gl/inIYEd);
- Dear IPs 65 and 68;
- The existing SIP9, which was drafted a world ago when the focus was on explaining what work you had done, not what work you anticipate doing;
- The RPBs’ announcement, which seems to advise a business-as-usual approach despite the new rules being so different;
- New Creditors’ Guides to Fees that include some requirements of the draft SIP9, which have not yet made their way into a publicly-available final SIP; and
- If you feel like gambling, the consultation draft SIP9 and Explanatory Note.
I understand that some delegates to last week’s R3 SPG Forum were hoping for much more guidance on the new rules, but I am struggling to see what could possibly have been said. R3 has promised additional guidance, but understandably they want to wait to check that this is compatible with the final SIP9.
Personally, I have tried to help spread some knowledge by presenting a free-access webinar for the ICAEW on the detail of the new rules (http://goo.gl/93nDb0) and presenting at other ICAEW and R3 events in an attempt to highlight some practical steps. I have also recorded a webinar for the Compliance Alliance on the practicalities and written much of this down for my clients. I’m sure that other compliance consultants have been doing much the same, but we all have been working with the suspicion that, once we see the final SIP9, we may have to have a rethink. I would also not be surprised if monitors’ “recommendations” evolve over time and we see a further revised SIP9 a year or so down the line.
So much for greater transparency!