Insolvency Oracle

Developments in UK insolvency by Michelle Butler


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Welcome measures to help IPs in these times

In my last blog post, I published a wishlist of measures that would help IPs to do their jobs in these difficult times.  Since then, some extraordinary steps have been taken very quickly to address many of them.  Here, I summarise those actions.

Taking on New Appointments

  • Notices of intention to appoint, and of appointment of, administrators: the Temporary Insolvency Practice Direction (judiciary.uk/publications/temporary-insolvency-practice-direction-approved-and-signed-by-the-lord-chancellor/) came into force on 6 April. Although it states that a statutory declaration by video conference may constitute a formal defect or irregularity, it confirms that this by itself shall not be regarded as causing substantial injustice, provided that the declaration is carried out in the manner specified in the Practice Direction:

“9.2.1. The person making the statutory declaration does so by way of video conference with the person authorised to administer the oath;

9.2.2 The person authorised to administer the oath attests that the statutory declaration was made in the manner referred to in 9.2.1 above; and

9.2.3 The statutory declaration states that it was made in the manner referred to in paragraph 9.2.1 above.”

UPDATE 30/05/2020: Please note that the authority for statutory declarations to be administered virtually in Scotland derives from Schedule 4 para 9 of the Coronavirus (Scotland) (No. 2) Act 2020 (http://www.legislation.gov.uk/asp/2020/10/enacted), which came into force on 27 May 2020.  The provisions are temporary only and have an expiry date of 30 September 2020, although this can be extended by regulations.  UPDATE 27/09/2020: the expiry date has been extended to 31 March 2021 by means of the Coronavirus (Scotland) Acts (Amendment of Expiry Dates) Regulations 2020.

  • There have been no regulatory measures to help directly with posting mailouts, but many IPs have been exploring outsourcing options. Although I’m sure there are many providers, I understand that Postworks is used successfully by several IPs.  Widespread use of delivery by email, I think, is still a work in progress: Turnkey and others are geared up to assist, but I think the issues are in compiling a list of email addresses that can be used.  Many IPs had moved to website delivery via a single R1.50 notice before the lockdown and I suspect that this process has become even more popular.
  • HMRC S100 documents: I have seen nothing to move forward from the Dear IP article (insolvencydirect.bis.gov.uk/insolvencyprofessionandlegislation/dearip/dearipmill/chapter8.htm#26) that stated that the HMRC email address is only to be used for “the initial pre-appointment notifications under the deemed consent or virtual meeting procedures”, so it seems to me that Statements of Affairs and adjournment notices etc. must still be posted.
  • Court activities: as far as I can tell and as set out in the Temporary Insolvency Practice Direction, the courts are doing a phenomenal job in keeping their virtual doors open. Bravo!
  • Physical meetings: the RPBs published guidance that: “where procedural meetings are required, virtual meetings will suffice in order to avoid breaching social distancing requirements.  A reasonable approach will be required to handling any creditor requests for physical meetings” (https://ion.icaew.com/insolvency/b/weblog/posts/joint-statement-by-icaew-and-the-ipa-regarding-measures-to-support-ips-during-the-covid-19-pandemic). Personally, I’m not sure how we’re supposed to take this.  Some may consider it reasonable to convene a physical meeting in a space large enough to accommodate social distancing.  Some others could consider it reasonable to dismiss creditors’ requests for a physical meeting altogether!  In my view, the reasonable approach would be to contact the requesting creditors to explore whether their concerns can be addressed in another way, e.g. an informal discussion or, if there are formal decisions to be made, insist that the “physical” meeting be held entirely remotely, thus requiring just a little departure from R15.6(6).
  • It seems that the Government’s intention to suspend the wrongful trading provisions has been met with some negativity by IPs (e.g. r3.org.uk/press-policy-and-research/news/more/29337/covid-19-corporate-insolvency-framework-changes-r3-response/), whereas the House of Commons’ briefing paper quotes other bodies, including the IoD and ILA, as welcoming the news (https://commonslibrary.parliament.uk/research-briefings/cbp-8877/). Although the change has not yet been made, the Government plans that it will be retrospective from 1 March 2020 and it will continue for 3 months thereafter.

 

Statutory Filings / Deliveries

  • The RPBs’ statement referred to above did not explain their expectations specifically in keeping up with progress reports, but it did acknowledge that the current difficulties could amount to a “reasonable excuse” defence for breaching statutory requirements. The statement highlighted the need to “have followed ethical principles and have justifiable, sound and well documented reasons for making those decisions”, i.e. where “reasonable steps to comply” are not enough to overcome the difficulties caused by the restrictions imposed on us in these extraordinary times.
  • The news on Tuesday that Companies House is now accepting filings by email was extremely welcome (https://content.govdelivery.com/accounts/UKIS/bulletins/28550aa). Understandably, it seems to be taking some time for Companies House to register documents at the moment and, if you physically mailed documents before they opened their doors to emails, you might consider sending them again by email.  I’m sure that Companies House won’t thank me for that though, so only seriously time-critical documents, e.g. ADM-CVL conversions, might merit such a second attempt.  The announcement included several warnings about how a failure to follow the instructions for emailing docs would result in them being rejected and, as Companies House filings by email are excluded from the deemed delivery provisions in R1.45, you would do well to ensure that staff follow the instructions to the letter.
  • I’m a little surprised that the InsS hasn’t sought to extend the deadline for D-reports, especially as they have clearly considered the logistics of collecting books and records. At first glance, Dear IP 95 appeared to concede that IPs didn’t need to take extreme measures to collect books and records, but when I looked closely, it did not such thing.  It replaced the previous instruction that IPs should locate and ensure that books and records are secured and listed as appropriate with a requirement that IPs “should continue to take all possible steps to locate and secure” them (https://content.govdelivery.com/accounts/UKIS/bulletins/284baba).  “All possible steps”?  Well, we weren’t going to be taking impossible ones!  It’s a shame that the InsS hasn’t confirmed that IPs can limit steps to reasonable ones in these times.

 

Case Administration

  • Although communications from the InsS, RPBs and HMRC regarding general case administration have been welcome, there has been little that has helped avoid cumbersome rules and other regulatory requirements. This is understandable, as the rules are the rules until a statutory instrument says otherwise.  However, at least the announcements have given us some comfort that the bodies appreciate some of our difficulties.
  • Included in these are, from the RPBs (https://ion.icaew.com/insolvency/b/weblog/posts/joint-statement-by-icaew-and-the-ipa-regarding-measures-to-support-ips-during-the-covid-19-pandemic):
    • “IPs may defer, on a short-term basis, non-priority work on existing cases (for instance investigatory work) and focus on new/urgent areas. IPs must take all reasonable steps to progress case administration in the longer term and ensure stakeholder financial interests are not prejudiced.” (Jo and I have been debating how, if on the other hand IPs have found that new engagements have taken a dip, now would be a good time to try to clear the decks for the future busy times.)
    • It may be acceptable to allow markets to recover before selling assets.
    • “Where a Notice of Intended Dividend has already been issued, we acknowledge that the payment of the dividend can be postponed and may be unable to be paid within two months”… but you will need to remember that, in these circumstances, the NoID process will need to begin again later (R14.33(3)).
    • “In order to provide flexibility for IPs to focus on new/urgent matters and to allow time for market recovery, we are relaxing the expectation in existing MVLs that creditors will be paid in full within 12 months provided that the IP continues to consider the company will be solvent in the medium term when markets have recovered.”
    • “When considering MVLs moving to a CVL (s.95), IPs may take longer than the deadline of seven days to notify creditors that the company is unable to pay debts in full within 12 months.”
    • “We acknowledge that it is not likely to be possible to comply with the SIP 3.1 requirement to respond to debtor enquiries ‘promptly’ and to close IVAs ‘promptly’ and accept that IPs will need to prioritise their work through the crisis period.”
    • The RPBs have also acknowledged that IPs will exercise their discretion in relation to CVAs and IVAs and they “accept that the discretion afforded to IPs in order to manage cases affected by the current crisis is necessarily wide”. I’m not sure how to take this: if a VA Proposal allows the Supervisor to exercise discretion, they hardly need the RPBs to tell them that they can do so, but if the Proposal does not allow any such discretion, then they cannot.  There seems to be a veiled message here, much like a lot of the revised Ethics Code, which seems to have been written with the practices of volume/consumer IVA providers in mind.
  • HMRC’s guidance (icaew.com/-/media/corporate/files/technical/insolvency/insolvency-news/coronavirus-insolvency-bulletin.ashx?la=en) includes:
    • A similar peculiar statement that they would expect IPs to exercise any VA discretion “to its maximum, with reference to creditors only if essential”. Well yes, that’s how a discretion should be exercised, isn’t it?  Let’s hope that HMRC is now realising how unhelpful it is to IPs to have modified out many of the discretions that originally had been proposed!
    • HMRC confirms that it will support a 3-month contribution break for coronavirus-impacted “customers”, but I think its in-bold confirmation that “there is no need to contact HMRC to request this deferment” risks misleading some, not least debtors who may expect an automatic payment break. If a VA’s terms do not allow the Supervisor to permit such a payment break, then this statement does not overcome this hurdle and creditors’ approval must be sought.
    • More helpfully, the guidance confirms that HMRC will not view post-VA VAT as due where the Government has already arranged for those VAT payments to be deferred. Unfortunately, the link HMRC has provided is already obsolete and the HMRC guidance does not refer also to the deferral of self-assessment income tax, but presumably the same principles apply?
  • The InsS continues to move into the electronic age, arranging for the following (to reduce the risks of fraudulent attempts, I’m not providing links):
    • ISA payment requests to be submitted with an electronic signature;
    • ISA payment requests and other CAU forms to be received by email; and
    • IVA registration fees to be paid by BACS.
  • HMRC has done likewise with its opening the way for all dividends to be paid via BACS. Unfortunately, if you have any dividends to pay to HMRC by cheque, HMRC has asked that you “hold on to them” (9 April release on insolvency-practitioners.org.uk/press-publications/recent-news UPDATE: additional guidance on paying dividends to HMRC by BACS is on this IPA page, dated 22/04/20).

 

And there’s more

Finally, some miscellaneous notifications include:

  • Must IPs complete file reviews in these times? Whilst not an official response, an RPB monitor emailed me swiftly after my last blog post.  She observed that, of course, the objective of a file review is to ensure that the case progresses as it ought to and that a firm’s reviewing policies should be designed to achieve this objective.  Thus, if an IP decides to relax their firm’s policy on file reviews in these extraordinary times, they should be considering how they can still try to achieve this objective and document why the firm’s adjusted policy will not compromise effective and compliant case administration wherever possible in the circumstances.  The monitor expressed the view that some kind of file review surely would still be possible in these times, even if access to the full case files is restricted.
  • Can office holders furlough employees? The ICAEW blogged references from .gov.uk guidance (https://ion.icaew.com/insolvency/b/weblog/posts/the-coronavirus-job-retention-scheme—clarity-for-administrators-and-directors), which describes the ability of Administrators to furlough staff as well as some of the finer points about directors’ positions.  Unfortunately, the .gov.uk guidance is not cut-and-dried and furloughing depends on the “reasonable likelihood of rehiring the workers”, so understandably IPs are exercising a great deal of caution before treading a path that could lead to an expensive challenge down the line.
  • Should IPs furlough their own staff? The ICAEW and the IPA have both issued warnings that they would not expect IPs to furlough to the extent that it compromises their ability to meet regulatory requirements (https://ion.icaew.com/insolvency/b/weblog/posts/business-continuity-for-insolvency-practitioners-during-covid-19).  The IPA has also required its members to keep it informed of the numbers and job titles of all furloughed staff as well as those unable to work through serious Covid-19 illness.
  • Are IPs key workers? R3 blogged (r3.org.uk/technical-library/england-wales/technical-guidance/covid-19-contingency-arrangements/more/29316/page/1/is-the-insolvency-profession-classed-as-a-key-sector-24-march-2020/) that likely they are, especially when administering cases that involve managing businesses that themselves are in the key sectors.  R3 also observed that the InsS considers that certain staff working in the RPS, Estate Accounts and ORs’ offices are delivering “essential public services”.  As much of an IP’s work is necessary to enable such InsS staff to deliver these public services, it would seem to follow that the IPs/staff would also be key workers.  Shortly after this post, however, the IPA emailed its members reminding them that it is a decision for each employer per the guidance at www.gov.uk/government/publications/coronavirus-covid-19-maintaining-educational-provision/guidance-for-schools-colleges-and-local-authorities-on-maintaining-educational-provision.
  • Showing us southerners that it can be done, the Scottish Government brought into force the Coronavirus (Scotland) Act 2020 in a matter of a couple of weeks. Amongst other things, it has extended the pre-insolvency moratorium period for individuals from 6 weeks to 6 months.  More details can be found at aib.gov.uk/news/releases/20202020/0404/coronavirus-scotland-act

 

Stay safe and keep well, everyone.


4 Comments

How can the Insolvency Service and RPBs help in this time?

When the work-place exodus started, I was heartened to read the ICAEW’s acknowledgement that inevitably some statutory deadlines would be missed (although they hoped that remote-working would result in little disruption).  In contrast, the IPA’s two emails to members expressed the expectation that steps would be taken to ensure that statutory compliance continues.

But to be fair, those notices were issued a couple of weeks’ ago when our world looked quite different.  More recently in Dear IP 92, Steve Allinson, Chairman of the Insolvency Service Board, expressed his intention for the Service to do its best to support IPs on their assignments, stressing the need for us all to come together at this time (while keeping our social distance, of course!).

Steps that the InsS has already taken to facilitate the remote-operating of ISAs are very welcome and I hope that these mark just the beginning of changes needed to keep the insolvency wheels moving.

The insolvency technical and compliance community has long practised coming together to resolve difficulties.  Below is a summary of the suggestions of many who are struggling to help insolvency continue to work in these times.  We hold out hope that the InsS and the RPBs will help.

Taking on New Appointments

  • MVL Declarations of Solvency need to be sworn in front of a solicitor/commissioner for oaths. Solicitors are of the view that they must be in the physical presence of the one swearing (although the Law Society guidance is a little woollier).  Could guidance be given to solicitors/IPs on how this could be done virtually?  Better still, could the Act/Rules be temporarily relaxed to allow the author to verify these instead with a Statement of Truth.
  • ADM Notices of Intention to Appoint and Notices of Appointment present the same issue, so similar guidance/relaxation would be invaluable.
  • Posting mailouts is generally problematic – some IPs use commercial mailing providers, but often IPs/staff are simply using their own stash of stamps and making trips to the Post Office/Box, which is not wise – and we cannot be certain that there will be anyone physically present at the recipients’ offices to open the post in any event. The Act/Rules already allow for some mailouts to be dealt with by advertisement notice (e.g. Para 49(6) of Schedule B1 IA86 and R3.38(1) IR16), but not in relation to circulars to creditors (except with court permission).  Could there be a general power for an office holder to publish a notice, say in a Gazette (and such other way if they see fit), informing creditors who to contact/how to access the mailout and that this advertisement would be taken as satisfying the delivery provisions?  Of course, pre-CVL circulars are the responsibility of the director, so any such changes will also need to cover directors’ notifying about the S100 decision process (including any subsequent physical meeting notice) and the Statement of Affairs.
  • If the above is considered a step too far, then it would be useful to be able to write a one-pager to creditors inviting them to access the Statement of Affairs and other pre-S100 decision documents/notices via a website, rather than have to send bulky letters to creditors.
  • Of course, in addition to (or instead of) posting letters, IPs are now endeavouring to email statutory docs to creditors and others as much as possible. 45 states that deemed consent to email delivery occurs when a doc is emailed to the address to which the insolvent “had customarily communicated with” the recipient.  Email delivery is much easier than post in this time, so guidance that what is customary need not be proven would be useful, e.g. to enable directors/debtors simply to provide the IP with an email address for the recipient that the IP can take as valid.
  • HMRC requires notices of S100 decision processes to be sent to their email address, notifihmrccvl@hmrc.gov.uk, but it has not been made clear whether this email address also works for other S100 docs, e.g. the Statement of Affairs – clarification would be useful. An extension of this email address to allow also for post-appointment CVL circulars would also help. 
  • There is some concern that the court filings required in preparation of a CVA will be problematic in light of the courts’ limited activities: the Nominee’s report must be filed in court before the creditors and members can decide on the CVA Proposal.
  • SIP3.2 para 10 requires an IP to meet directors “face to face”. Clarification that this does not have to be a physical meeting would be useful.
  • Where a statutory physical meeting is required (e.g. where a creditor objects to a S100 decision proposed by deemed consent), it should be possible for everyone, including the convener, to attend the meeting virtually. Clarification of this would be valuable.
  • Many IPs are reluctant to consider taking on new appointments that might require them, their staff or agents to attend on-site. However, the business may need to enter an insolvency process and business owners/directors may be nervous to continue to be responsible for the businesses in this period waiting for the coast to clear for an IP to be appointed.  Do they shut up shop now and make everyone redundant?  Or do they furlough employees in the hope that the business might be sold once everyone emerges?  If they choose the latter course, could they be at risk of an allegation of wrongful trading?  Some clarification that business owners/directors would not be penalised for helping employees to continue to be paid via furlough payments in this time would be helpful for IPs advising business owners/directors.
  • On the other hand, some guidance for IPs on how to handle trading-on appointments would also be valuable.

Statutory Filings / Deliveries

  • Of course, some relaxation to statutory deadlines would be invaluable.
  • Some IPs are moving hell and high water to try to get progress reports issued, which can include asking one member of staff to attend premises to print docs, deal with mailouts etc. Personally, I would hope that the RPBs/IS would prefer IPs and their staff to stay at home even if this means that progress report (and other?) deadlines are missed.  In line with the Government’s key messages, some clarification from the RPBs/IS as to the importance (or not) of travelling to work simply to avoid certain breaches of statute/SIPs in these times would seem urgently required.
  • In particular, Para 107 only allows the 8-week timescale to deliver Administrators’ Proposals (and the 10-week timescale for any decision on those Proposals) to be extended by court order. Confirmation that Administrators need not apply to court to extend these timescales would be very welcome. 
  • If shifting deadlines is considered a step too far and the RPBs/IS wish for IPs to meet statutory deadlines wherever humanly possible, perhaps they could confirm that at least they, as regulators, will not look too unkindly on docs that are technically deficient as regards the disclosure requirements of statute & SIPs.
  • As above, it would be good to be able to notify creditors of statutory deliveries, e.g. Administrators’ Proposals, by public advertisement to avoid the problems with posting out packs.
  • At present, all filings to Companies House must be delivered by IPs in hard copy form. In addition to the logistical problems of posting letters mentioned above, IPs are also concerned at the potential for delays by Royal Mail etc. or Companies House such that time-critical dates are missed.  In particular, Form AM22 (notice of move from Administration to CVL) must be received by Companies House before the Administration ends automatically.  Therefore, a mechanism to enable all insolvency forms to be sent to Companies House by email would be valuable.
  • Another issue is extending Administrations by court order. These are always time-pressured at the best of times, but with the courts’ limited activity, there is real risk of Administrations ending automatically before a court order extending them can be granted.  Ideally, a temporary halt of the automatic ending provision (Para 76) and of any subsequent end-date consented to by creditors or the court would be valuable.  If this is a step too far, then perhaps Administrators could be allowed to seek a second extension by creditor consent, rather than having to resort to court.
  • It is now usually impractical for staff/IPs to review company records with a view to submitting CDDA D-reports. Of course they could submit an inconclusive D-report in the 3 month timescale and then, when they are able to review the records, they could submit “new information”.  However, this probably will be unhelpful to the DCRS staff, as in the future they may get a great number of “new information” submissions, which cannot be processed automatically by their rules engine.  Therefore, it is probably in everyone’s interests to extend the 3-month deadline for D-reports.

Case Administration

  • An email address for HMRC forms, e.g. VAT769s, VAT100s, VAT7s, VAT426/427s, would be valuable. Of course, this would involve a number of HMRC departments, but VAT769s and VAT426/427s are particularly needed to be dealt with by email.
  • In light of limited court activity, there is a risk that Trustees in Bankruptcy will not be able to make appropriate applications to avoid bankrupts’ homes revesting under S283A IA86. A pause in the 3-year timescale would help.  Failing this, could S283A(3) be flexed to allow a Trustee to have “applied” for a relevant order by simply posting a skeleton application to the court?
  • Consultations with employees of insolvent entities to comply with TULRCA (and TUPE) have previously been achieved usually by getting all employees together. This should now be avoided, but it does leave office holders with logistical difficulties in complying with TULRCA.  Presumably Job Centre Plus attendance has also ended.  Some guidance on how IPs should approach TULRCA and employee interaction generally would be valuable.
  • It is not clear how furlough payments will work for employees of a business already in an insolvency process. For example, if the office holder retains staff on furlough payments in the hope that they might be able to sell the business (and TUPE transfer all staff) in the future, how will those furlough payments be treated?  Confirmation that these will not be sought back either from the insolvent estate as an expense or from the purchaser would be welcome.
  • Some IPs are office holders of nursing homes and they require regular, usually daily, on-site attendance by them or their staff. Some confirmation that they would be viewed as key-workers might assist.
  • On some cases, office holders had already issued notices of intended dividend before the lock-down, but they will have problems issuing cheques for some time. 34(1) requires the office holder to declare the dividend within 2 months of the last date for proving.  It is possible for the IP to declare the dividend, but not pay cheques out until later, but in the past this has been frowned upon by the RPBs.  Some guidance that this is acceptable in these circumstances would be helpful.
  • In other cases, an office holder would like to extend an already-notified last date for proving in recognition of creditors’ difficulties in submitting proofs and therefore also extend the 2-month timescale for declaring the dividend (as well as the 14 days to adjudicate all claims – R14.32(1)), but there is no way to do this under the rules. The ability to do so would be useful, otherwise the whole process would need to be started again once we all emerge.
  • Dear IP 92 urged IPs to show forbearance “where possible” to individuals who are finding it difficult to meet financial commitments. Although many IVA Proposals will provide capacity for payment breaks/reductions, many will not.   In some cases, the debtors will already have used up their payment break quota.  In other cases, the flexibility simply will not be there in the Proposals.  Of course, variations can be sought but these are cumbersome especially in these times when mailouts are difficult.  It is difficult to see what can be done about IVA terms, but we would welcome some guidance.
  • The same will apply to CVAs based on regular contributions.
  • On many IVAs (involving tax debts) and CVAs, HMRC has modified Proposals to restrict the Supervisor’s ability to propose a variation, e.g. variations may not be allowed in the first year. HMRC has also modified many VAs by including more stringent clauses where the insolvent fails to pay contributions on time.  Perhaps HMRC could notify IPs that, during this time, all such modifications may be considered waived.
  • The AiB has issued a Dear Trustee letter (https://www.aib.gov.uk/sites/default/files/dear_trustee_-_covid-19_-_expanded_ptd_contingency_arrangements.pdf) stating that he believes it would be reasonable for IPs not to extend the period of the Protected Trust Deed in order to ingather contributions that failed to be paid in this period. Personally, I do not believe that the same automatically applies in IVAs (as the Supervisor may be required to take specific action in line with the IVA terms), but the AiB’s letter may create confusion for IVA debtors and IPs in this situation.  Therefore, some guidance may be useful.
  • File reviews are pretty-much impossible for anyone who does not administer electronic case files. Confirmation from the RPBs that IPs are not expected to carry out regular formal file reviews during this period would help.