Many of us have been on tenterhooks, waiting to see the detail of the new D-reporting process… which comes into effect in two days!
I lost patience and got in direct contact with the Insolvency Service, who graciously allowed me an audience to convey many of my concerns and to learn more about how it is all intended to work.
We have been promised a Dear IP imminently, but here are the Service’s answers to my questions.
I’m sure we’ve all learned the basics by now:
- D-reporting for new appointments on or after 6 April 2016 will be carried out online via a .gov.uk portal and will need to be completed within 3 months.
- IPs will have access to an online “dashboard” listing all their post-6 April (CDDA-relevant) appointments with the due dates for D-submissions using a traffic light system of flags.
- The Service’s plan is that the system will allow IPs to delegate cases to staff to complete the D-report, although these will still be subject to approval by the IP. Staff access is hoped to be functional by mid/late April.
- Submitted D-reports will remain accessible by the IP, fellow office-holders (only one submission is expected on joint appointments) and any subsequent office-holders.
- Liquidators of Para 83 CVLs following from post-6 April Administrations will not be required to submit D-reports.
- D-reporting for appointments prior to 6 April 2016 will continue under the old system.
The Question Bank
The new process has been “sold” to us on the basis that it will be so much simpler to complete as IPs will no longer need to decide whether, in their opinion, the directors’ conduct renders them unfit. Consequently, the Question Bank for the new D-report seeks to convey facts. The questions are all multiple choice, the majority “simple” Yes/No, although some involve selecting from a range, e.g. regarding the number of creditors. This is so that the answers can be processed through a rules engine to sift cases not requiring a human review.
In his webinar for the ICAEW last month, Mark Danks of the Insolvency Service did reveal some valuable information about the Question Bank, but I was left with the impression that the Service’s target was to have the process settled in June 2016, so that it is ready for receipt of the first online D-reports.
I expressed my concern to the Service that this is just not good enough. IPs would get criticised if they did not put their minds to the D-reporting task until the deadline was almost upon them and in any event it is not efficient to do so, not least because crunch-time falls in the middle of the summer holidays, so it would be ideal if IPs could get ahead of D-reporting deadlines. How are IPs and staff supposed to prepare for the changes, if the Question Bank is not fixed and made available now? There are checklists to amend and there is training to organise.
I was assured that the Service’s work with their IP panel indicates that the Question Bank is on the lines of current CDDA checklists and so they did not envisage (many) changes would be necessary. Now that I have seen the Question Bank, I regret to say that this is patently not the case.
If you want to revisit checklists to mirror the questions – which is how The Compliance Alliance’s revised checklist is being structured and which would be my recommendation so that you make sure that staff do the leg-work to get ready all answers before logging in – beware the following.
How can I access the Question Bank?
Unless the Service makes the Question Bank widely available, you will only be able to see it when you get a post-6 April appointment added to your dashboard. You should then be able to start the D-reporting process and click through the pages of questions. Of course, this is not user-friendly for anyone trying to manage the work within the practice.
The Service has made available its current Question Bank to its test panel of IPs (and to others, like me, who asked). I am reluctant to provide the link here (it’s a bit too public!), but if you would like a copy of the questions, please drop me a line (email@example.com).
I do fear, however, that the Service’s current Question Bank is not as valuable as we would hope in any event. The Service expects these questions to change, not only before July but also thereafter, particularly when they start to see how IPs answer and react to the questions on live cases.
As Gareth Allen stated in the R3 magazine article (spring 2016): “this development is an ongoing process and we continue to refine and develop the system in response to continuous user input”. In other words, if you create a checklist to mirror the questions today, it seems to me that the chances are very high that the questions will have changed by the time your staff log in to complete the form! I tried to stress to the Service person that I spoke to how unhelpful this would be. I don’t want to be negative about the Service’s drive for continual improvement, but please do warn us all when/what changes are planned so that we can make appropriate changes internally in good time. My personal preference would be that all of us on the Dear IP list (i.e. not just IPs) are given at least 3 months warning of any changes.
I know that my job is to pick at details, but I am surprised at quite how many issues I have with the current questions – some are poorly worded (e.g. “does the company appear to have ever kept records sufficient to show and explain its transactions..?” Ever? Well, yes, probably immediately on incorporation…); some are impossible for IPs to answer unless they undertake unnecessary investigation; I think that there’s a risk that some might generate false positives (e.g. “is there evidence that not all creditors have been treated equally?” Probably yes, but maybe for good reasons); and some items that I would expect to see (e.g. general misfeasance) are not covered at all.
Is the D-report just a string of multiple choice questions?
The prototype that has been made available is just this. The Service is keen to ensure that the Question Bank remains this way as far as possible so that their evaluation can be an automatic process. If your answers hit their rules engine’s target, it will trigger a human review of the information and likely will involve an Insolvency Service staff member contacting you to ask further questions in order to decide whether it is a case worthy of taking forward.
At present, the prototype does not allow IPs to inform the Service online of any recovery actions that they intend to take/are taking, although the Service is very keen to receive this information. I understand that the ability for IPs to provide such information will form part of the online form (eventually).
What do we do if misconduct is discovered after the D-report has been submitted?
Personally, I think this is a serious disadvantage of the new process over the old. Firstly, I think that the need to submit D-reports in 3 months instead of 6 greatly increases the chances that you will discover or learn new information that would have affected your report.
However more importantly I think, the removal of the IP’s decision about unfitness removes the IP’s ability to act as any kind of filter: if you learn “new information”, you have to report it, whether or not you think it is material. Therefore, it doesn’t mean you need only consider newly-identified “misconduct” – it goes much further than this.
What is “new information”?
The new rules define “new information” as “information which an office-holder considers should have been included in a conduct report prepared in relation to the company, or would have been so included had it been available before the report was sent”. If new information comes to the IP’s attention, he must provide this to the Insolvency Service as soon as reasonably practicable. A failure to do so constitutes an offence.
I pointed out to the Service that, technically, “new information” could involve a wide range of immaterial changes to an IP’s original report. For example, the current questions include “what is the value of the likely dividend?” If you answer “not known at this stage”, do the rules mean that you need to submit “new information” when this changes?
That may be an extreme example, but many other director-related questions may lead to “new information”. For example: “can all the company’s transactions with directors and any associated parties be identified?” Just because your original “no” can later be changed to “yes”, does that mean you need to report it to the Service? One would hope that IPs could exercise discretion in deciding whether technically “new information” is of any interest to the Service, but I do wonder if the rules prohibit this.
I am not certain how this issue can be overcome – the rules are the rules. The Service person gave me the impression that the process for delivering “new information” has not yet been formulated. However, I hope that the Service sees – and will somehow deal with – the need to avoid burdening IPs (and Service staff) with a requirement to inform them of all “new information”.
What practically can we do to prepare for the new process?
Your to-do list might include these:
- amend diaries for new appointments to reflect the 3-month timescale.
- consider changing internal checklists. I guess that you don’t have to, but in my view it would be best to structure internal checklists so that every online question (and preferably no others) is addressed in turn. Certainly, this is how we at The Compliance Alliance are revising our CDDA checklists. Then the IP could review the staff’s completion of the checklist, agree the results and leave the staff member to upload the results into the online form. Ensuring that checklists mirror the online D-report will also help you make revisions whenever the Service makes changes.
- consider staff resources. D-reporting on pre 6 April 2016 cases will continue as previously. Therefore, you are likely to see roughly double the number of D-reports falling due during July to September 2016, as you will have both 6-month deadlines on old cases and 3-month deadlines on new cases falling simultaneously. I recommend that you consider the effect on your staff resources, particularly as there will be a learning curve associated with the new process… and not to mention that most staff will want summer holidays!
- ensure that staff are trained. Staff will need to be confident in dealing with the new process, but also important is embedding an awareness of the need to submit “new information” as and when it is discovered.
- consider also adding a prompt to case review templates to reflect on whether all “new information” has been sent to the Service
I believe that the “new information” provisions present a particular challenge. You will need to ensure that “new information” is identified and reported as soon as reasonably practicable (even if, somehow, it is accepted by the Service and the RPBs that we need not report immaterial “new information”). Being alert to report new information would seem to be particularly important where you have submitted a D-report before getting access to company records and where your later efforts identified misconduct. It would also be relevant where you suspected misconduct – and answered “uncertain” or “no” where questions asked about the existence of evidence – and only later did you discover evidence.
Some other consequences of the new statutory provisions
The main statutory provisions are located in:
- Section 107 of the Small Business Enterprise and Employment Act 2015 (http://goo.gl/NmcRlp);
- The Insolvent Companies (Reports on Conduct of Directors) (England and Wales) Rules 2016 (http://goo.gl/6OORQn); and
- The Insolvent Companies (Reports on Conduct of Directors) (Scotland) Rules 2016 (http://goo.gl/wZUj1K)
The Service has widely reported that old-style D-reports will continue to be received until October 2016, but in my view this overlooks the fact that there will be old-style D-reports due later than this. For one thing, CVLs following from pre 6 April 2016 Administrations are subject to the old regime. This will also affect old cases where you have submitted an interim D-return with the expectation of submitting a full D1 or final D2 after 6 October 2016. Therefore, don’t delete all your old templates until you’re sure that you have reported every last old-style D-report.
From my reading of the rules, it seems to me that they provide a transitional period only up to 6 October 2016, but after this date the old D-forms will not be acceptable under the rules. Presumably, the Service will devise a solution by October!
UPDATE 03/08/2016: I understand that the Insolvency Service would like IPs appointed on Para 83 CVLs after 6 April 2016 either (i) to send a copy of the D1/D2 submitted in the prior Administration with a letter confirming that this form presents the picture also for the CVL; or (ii) to notify the Service of developments since the Admin D1/D2 via the online DCRS system, as they would for “new information” under the new regime – a bit of a fudge, but what can one do if the legislation does not work?! My thanks for Victoria L for sending me this information.
Liquidators following from post 6 April 2016 Administrations will not be required to submit a D-report. Whilst this will be good news to any Administrators who keep hold of their Para 83 CVLs, I don’t think it is great for Liquidators who are new to the case. From my reading of the legislation, it seems to me that these liquidators will be subject to the “new information” requirements and therefore will need to review what the Administrators had reported earlier.
The old rules are revoked in full (apart from the transitional provisions covering old appointments). As far as I can see, this means that there is no longer a 14-day timescale for IPs to submit a report on vacating office. Presumably, this is because it was felt unlikely that an IP would vacate office before the 3-month deadline.
“Quicker and easier” for whom?
In theory, the move to a simple online form should be quicker and easier for everyone: IPs, their staff and the Insolvency Service alike. However, completing a D-report is more like filling in a self-assessment tax return than completing a passport application: you won’t have all the information at your finger-tips unless you do the prep work.
Most practices have their own tried-and-tested ways of gathering information, following trails, and reaching conclusions on CDDA and SIP2 matters. Structuring a D-report on a string of questions forces our hands. To reach 4 April and not to have given all IPs access to the detail is, in my view, irresponsible. Either it shows how little understanding the Service has of IPs’ work or it indicates that the Service has been chasing its tail with a near-impossible deadline. Personally, I think that it’s a bit of both.
April 4, 2016 at 12:30 pm
Mark Dank did a IP presentation at the OR’s in Southampton at the request of the OR Soton/Reading (great idea, I think all OR’s should have taken the opportunity to roll it out for the IP’s on their rota). At that presentation not only did I seek to strip down what they are seeking from us on conduct reporting, but to also better understand the changes that are afoot internally in DU to achieve quicker disqualifications in crown retention and books and records cases (a subject in its own rights) and to understand their approach to recovery in Antecedent transactions and how that impacts on anything started/intended for the IP. The chances of this being communicated to us in full at a future date being slim.
Clearly (and by their own admittance) they are not nearly ready roll this ALL out in time and it will require subsequent changes. The menu systems appears useful (whilst repeating our internal processes) but is more a tool for them to see where we on the case, but they are selling it as a one stop shop for reporting status (clearly not identifying that we have 20 other key dates to consider on a job!) So another burden for IP’s.
The yes/no option for questions is a pending nightmare and does not cater for ‘not sure/known’. I could go on for pages about the pros and cons but in short it is a complete departure from what we have been used to. We have to detach ourselves from the decision process (tough for an old hand like me!).
In the background their programme addresses our answer to each question and it gives points, the more adverse our answer, the more points give. It then has 3 thresholds. 1. No further action; 2. to be vetted and 3. Straight to investigation. It appears to work much the same as the points system for (non insolvency) job redundancies. Based on this I can see how it can work. But is does create a greater and earlier burden to the IP.
Mark stated at our meeting that it was not to replace our checklist. He is wrong. For the greater part it will replace the checklist for all the reasons you have stated.
The change is not to the benefit of IP’s on any level. But it is a necessary change since the old system had inadequacies (which we have all become immune to). It will create better information going into DU AND IP’s HAVE to demonstrate what they have considered. For firms with proper checklists it is a matter of reordering it to reflect the new procedure. However it is clear it will be problematic for those IP’s who just issue clean reports as a matter of course and don’t really investigate.
The statistics for D1/D2 submissions for the last 9 months provided at our meeting did not reflect the same proportions as I and other practitioners, at that meeting, were experiencing, i.e., we were doing significantly more adverse reports. My clients are not exceptionally naughty and this serves to expose one of the real reasons behind the change.
The missing link in this whole shake up is the penalty that Directors get. It remain inadequate across all levels and I always liken it to hit someone with a feather duster!
To Marks credit he gave direct answers to everything I bought up and felt that the transparent approach taken was refreshing and should be rolled out by BIS when such technical changes take place.
I appreciate all the effort you put into your blog. as a small practitioner it is vital ingredient to ensuing I take the right approach and I often find myself willing you comment on a technical point! Thank you, long may you continue.
April 4, 2016 at 3:59 pm
Thank you, Debi, for your detailed thoughts and for providing more information on the new process.
I have to say that I have seen few IPs fail to conduct appropriate levels of SIP2/CDDA work (and thankfully none since I left the IPA). I suspect that, if there has been under-reporting, it is more likely to be because some IPs might have allowed themselves to be influenced by the not insignificant likelihood that the Service may respond with a “not in the public interest to take action”. In other words: why take the time and effort to submit a full D-report when (in their experience) the Service is unlikely to take action anyway? I don’t endorse such a reaction, but I suspect it goes on.
I agree that forcing IPs to answer set questions will mean more work in some cases… perhaps even for those that already conduct thorough investigations. For example, I doubt that we hunt down an answer to the question “Was a business plan ever prepared?” in every case. I would prefer it if the emphasis were on completing SIP2 investigations, which are important for establishing whether any actions could enhance the insolvent estate. As SIP4 states, CDDA work should rest only on information coming to light in an IP’s ordinary course of work, it should not add to an IP’s burden. As you say, Debi, it’s going to be grim unless the questions allow for “uncertain” or “unknown” answers.
I do agree, though, that the people at the Insolvency Service, Mark Danks included, have welcomed feedback and do seem sympathetic to many of our concerns. The best we can do is continue to feed back our concerns and maintain a constructive dialogue. Hopefully my whinges haven’t jeopardised that!