Insolvency Oracle

Developments in UK insolvency by Michelle Butler


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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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SIP9 – Reading Between the Lines

Peru573 colourfix

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.

Dear IPs

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!


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Digging deeper into the new Acts & Rules

0605 Scene

I am delighted to say that I’ve had some productive exchanges with people at the Insolvency Service on the practical applications of parts of the SBEE Act, the Deregulation Act and the new fees Rules.  I have found them generally very reasonable and pragmatic.  That’s not to say, however, that it’s all good news!

Small Business Enterprise and Employment Act 2015

I’ve not covered the Small Business Enterprise and Employment Act 2015 since it was just a draft in autumn 2014.  Even now, considering that several provisions take effect from 26 May 2015, I don’t see the need to repeat the detail here.  Most of you will have received R3’s Technical Alert by email on 17 April 2015, which I think did a pretty good job of telling us all what we need to know right now.  However, there is one item that I think deserves more explanation.

CVLs – Progress Reports

As you know, the words “continuing/continues for more than one year” will be removed from S92A and S104A.  This means that, where a liquidator ceases to act at any time during a liquidation, he/she will need to issue a progress report in compliance of R2.47(3A) (for E&W only; I can see no equivalent in the Scottish Rules).

Although this may seem fairly innocuous, it now encompasses one circumstance that occurs quite frequently: the replacement of the members’ liquidator with the creditors’ choice at the S98 meeting.  The Insolvency Service has confirmed to me that this change does indeed mean that any members’ liquidator who leaves office at the S98 meeting will need to issue a progress report on his/her term in office.  There is no reason why this will not apply where the company general meeting immediately precedes the S98 meeting, although it is very difficult to see what the members’ liquidator will have to report other than an hour or so of time costs!

If the company general meeting is held on a different day to the S98 meeting, the creditors’ liquidator will also need to remember that R2.47(3A) resets the progress reporting clock and so, rather than issue a progress report for the first 12 months of the liquidation (i.e. from the date of the members’ meeting), the creditors’ liquidator will need to report every 12 months from the date of his/her appointment.

Although this seems a bit of a nonsense, I am optimistic that the progress reporting rules will become much simpler when the new Insolvency Rules come into force, which is the plan for April 2016.  Although there is still much work to be done on the draft Rules, the ones that are currently on the .gov.uk website (https://goo.gl/kr1CSR) hint that progress reports on office-holder switches will be far more flexible.  See, for example, draft Rule 18.8(4).

Deregulation Act 2015

This is an odd Act: it began life far earlier than the SBEE Act, but its progress seemed to stall when all eyes turned to the SBEE Act.  Thus, it is not surprising that it contains some items that, I think, are far more pressing for IPs than the 26 May provisions of the SBEE Act.

Correcting Minmar

Oh dear!  How long will we have to put up with the Minmar state of affairs where Notices of Intention to Appoint an Administrator (NoIA) have to be issued even on some cases where there is no floating charge holder?!

The answer is: not much longer.

The answer is in the Deregulation Act: its paragraph 6 of schedule 6 will amend Para 26 of Schedule B1 so that the need to issue an NoIA is restricted to cases only where there is a floating charge holder.  This will then flow through nicely to the existing Insolvency Rules.  The problem is that unfortunately it doesn’t yet have a commencement date.

I have been told that it is the Insolvency Service’s current intention to commence this provision in October 2015 (although, of course, that was under the previous Business Secretary).

New Fees Rules (The Insolvency (Amendment) Rules 2015)

A month ago, I blogged on this subject – see http://wp.me/p2FU2Z-a3 – and now I’m able to update some of my queries.

When is a liquidator not a liquidator?

As mentioned previously, R4.127 will be amended to state that “where the liquidator proposes to take [remuneration on a time costs basis], the liquidator must prior to the determination… give to each creditor… the fees estimate”, but does this mean that the IP needs to be in office as liquidator when he/she issues the fees estimate?

The Insolvency Service does not believe this is limited to the liquidator once he/she is in office.  In other words, the prospective liquidator may provide the fees estimate before the members’ meeting.  This means that, provided the IP can produce an early estimate, these new rules should not impact on the current practice of holding members’ meetings and S98 meetings on the same day.

It is worth noting that the new rules do not stipulate how long before the creditors’ meeting (or postal decision) the fees estimate should be sent: thus, it could be sent along with the S98 notice or at any time before the meeting is held.  As the fees estimate needs to be provided to all creditors, however, it will not be sufficient to hand out the fees estimate only at the S98 meeting.

Exceptional treatment needed for SoS-appointed liquidators

As noted in my previous blog, the transitional provisions operate so that, generally, if an IP takes office (as administrator, liquidator, or trustee) after 1 October 2015, he/she will need to follow the new rules in fixing the basis of his/her fees.  However, whilst the rules cover compulsory liquidations where the liquidator is appointed by: creditors’ meeting (S139(4)); contributories’ meeting (139(3)); and the court following an administration or CVA (S140), they do not refer to appointments by the Secretary of State (S137).

The consequence of this is that the new rules will apply to all SoS-appointment liquidations, irrespective of when the liquidator was appointed.  However, the Insolvency Service has stated that, if the basis of the liquidator’s fees has already been approved before 1 October 2015, then the new rules will have no effect on that case (unless the liquidator seeks to change the basis of his/her fees).

Thus, you may want to look to get your fees fixed on all existing SoS appointment compulsory liquidations before 1 October 2015; otherwise you will need to have some system in place to ensure that you follow the new rules, despite your appointment commencing before 1 October.

Block transfers

As the transitional provisions define that the new rules apply generally wherever there is an administrator/liquidator/trustee appointed after 1 October 2015, I wondered how this would impact, say, cases involving block transfer orders after 1 October 2015: does this mean that the new office-holder would need to go through the fees estimate etc. process?

The answer I received was: not where the new office-holder is continuing to draw remuneration under any prior approval.  Only where a new office-holder seeks to change the basis of his/her fees will the new rules kick in.

I look forward to meeting some of you, and hearing more on these and other developments, at R3’s SPG Technical Review series, the first one being held on Tuesday 12 May 2015 in Manchester.  There’s a lot going on!


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IP Fees & Regulation Consultation: Have Turkeys Voted for Christmas?

1037 EW2

Faced with an apparent government vision of heavy-handed oversight over the RPBs and some peculiar restrictions on the time cost basis for IP fees, how have the RPBs and R3 responded? Have they resisted the pressure to offer some kind of compromise? Have they offered anything that might “solve the problems”? Here I have attempted to compare and contrast the responses of ACCA, ICAEW, ICAS, IPA and R3 to the key proposals of the recent consultation.

The government consultation page is at: https://www.gov.uk/government/consultations/insolvency-practitioner-regulation-and-fee-structure

The bodies’ responses are located at:

• ACCA: http://www.accaglobal.com/content/accaglobal/zw/en/technical-activities/technical-resources-search/2014/march/cdr1267.html
• ICAEW: http://www.icaew.com/en/technical/insolvency/insolvency-reps
• ICAS: http://icas.org.uk/Technical-Knowledge/Insolvency-Technical/Submissions/
• IPA: in the members’ area>public consultations>other consultations
• R3: https://www.r3.org.uk/media/documents/policy/consultation_subs/R3_response_-_Strengthening_the_regulatory_regime_and_fee_structure_for_IPs.pdf

In particular, I would recommend reading the R3 response in full, as there is not the space here to do it justice and it includes some valuable member survey results.

Regulatory Objectives

The government has proposed regulatory objectives for the statute-books, “framed” as follows:

1. Protecting and promoting the public interest

2. Having a system of regulating persons acting as IPs that:
(i) delivers fair treatment for persons affected by their actions and omissions,
(ii) reflects the regulatory principles under which regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed, and any other principle considered to represent best regulatory practice, and
(iii) delivers consistent outcomes

3. Encouraging an independent and competitive IP profession whose members:
(i) deliver quality services transparently and with integrity, and
(ii) consider the interests of all creditors in any particular case

4. Promoting the maximisation of the value of returns to creditors and also promptness in making those returns

5. Ensuring that the fees charged by IPs represent value for money

ACCA seemed alone in considering most of the above to be “uncontentious”, even going so far as to suggest what it felt would be a useful addition to them. However, none of the proposed objectives avoided the other bodies’ critical eyes. Many of the comments revolved around the thought that any such objectives will need to be supported by detailed guidance so that everyone was clear on the standards by which IPs and the RPBs are being measured.

Here are some other fruitier comments:

• Why stop at “having a system of regulating IPs” that delivers fairness etc.? Aren’t some of these objectives appropriate to the insolvency regime itself? (ICAEW, IPA)
• Shouldn’t the regulation system “deliver fair treatment” also to IPs? (ICAEW)
• Fixing IP fees on a prescribed scale (reference to another of the consultation’s proposals) would not “encourage a competitive IP profession”. (ICAEW)
• Statute already sets out how office holders should consider creditors’ interests (ICAEW, R3), although not uniformly in all cases (IPA). Setting it as an objective may raise false hopes of some expecting greater weight to be given to their interests than provided by statute. (ICAEW)
• Promoting the “promptness of returns” could threaten consideration of longer term gains, thus encouraging a culture of “quick kills” rather than thorough investigation and pursuit of claims. (IPA)
• “You should recognise that to perform a ‘value for money’ assessment in a case will require a detailed audit… which will be a very time consuming (and therefore expensive) process.” (ICAEW)
• Setting “value for money” as a regulatory objective simply shifts the responsibility for finding a solution onto the RPBs, rather than helping to overcome the difficulties in ascertaining what actually represents value for money. (IPA)
• The regulatory process cannot alter the facts that creditors will suffer losses, but enshrining objectives 4 and 5 risks over-inflating creditors’ expectations and thus may have a detrimental effect on public confidence. (IPA)

R3 kicked back more robustly on the concept as a whole: “the proposals… prompt us to suggest that now is the time to look at, in a fundamental way, the role of the Insolvency Service, as presently structured, funded, resourced and whether it is the most appropriate body to direct and oversee as important a part of the UK’s financial support service sector as the insolvency profession”.

Oversight Regulator’s Statutory Powers over the RPBs

The government proposes to introduce statutory powers to enable the Insolvency Service/Secretary of State to take a variety of actions against RPBs and, in certain cases, to make their own enquiries of, and apply to court to decide sanctions on, IPs directly. Unsurprisingly, the RPBs – and perhaps a little surprisingly, R3 – expressed concerns over some of the proposals as well as questioning whether the powers were truly necessary (again with the clear exception of ACCA, which had few specific comments on the proposals).

• “The ‘oversight regulator’ should take care to avoid ‘micro-managing’ RPBs and their disciplinary processes. Effectively running a ‘shadow’ regulatory system on top of the existing established processes would be confusing and damaging for the insolvency profession and those it serves.” (R3)
• “The increased powers of sanction by the oversight body seem to be little more than window dressing to address non-existent illegal actions… In our view, the system of regulation operates at its most effective when the oversight regulator and the RPBs work together, as demonstrated through the introduction of the complaints gateway.” (ICAEW)
• “It is worrying that the Secretary of State would wish to acquire the ability to control individual enquiries, which could undermine the fairness of the procedure.” (ICAEW)
• “The fundamental problem… is that the proposed legislation does not envisage there being any stage at which a proper disciplinary hearing will be held to allow the IP to deal with and refute the findings of the Insolvency Service investigation and it is envisaged that the Secretary of State, through the good offices of the Insolvency Service would be investigator, prosecutor and judge (determining both guilt and sanction).” (ICAEW)
• “We wonder whether this process could be susceptible to challenge on the basis of human rights legislation given that there appears to be no provision for a fair trial by an independent tribunal.” (ICAEW)
• “Who picks up the likely significant costs?” If these are to be passed on to the RPBs, then licence fees will increase significantly, with the likely consequences of increased costs on insolvent estates and IPs leaving the market. (ICAEW and R3)
• “There are several proposals… that would see IPs potentially punished twice for the same transgression. It is both inequitable and a position that few other professionals could find themselves in.” (R3) The IPA also stated that such a process “would introduce a degree of double jeopardy and be contrary to principles of natural justice”. Although apparently the Service has clarified, in a meeting with the IPA, that it is not intended to subject an IP to a second disciplinary process, the IPA has questioned how, and in what circumstances, would the Service conduct such enquiries independent of the IP’s licensing body.
• “The power for the Secretary of State to sanction an IP directly calls into question the point of the regulation of the profession being delegated to RPBs in the first place.” (R3)
• As regards the proposed power to issue a direction to an RPB in the context of a disciplinary matter: “it would be wholly inappropriate for the Insolvency Service to mandate that a particular decision be reached.” (ICAS)
• Will the Service be adequately resourced – financially and with skilled staff – to exercise these new powers, particularly in regard to the proposed investigations and prosecutions? (R3 and ICAS)

A Single Regulator?

It seems that there has been a slight convergence of opinions of R3 and the RPBs on this question. Setting aside ACCA, which “endorsed” the proposal, the regulatory and trade bodies now seem united in their objection to the proposed reserve power to enable the Service to designate a single regulator.

However, whereas R3 brought attention to the “regulation gap” that would result as a single regulator got up to speed, the RPBs had other reasons for their objections:

• Whatever could be achieved by the Insolvency Service overseeing a single regulator equally should be achievable with multiple RPBs. Effective oversight is the key. (ICAS and ICAEW)
• “There seems to be a failure to recognise that many IPs are already members of bodies which operate with the best regulatory models for professionals.” (ICAS)
• “Competition between regulators has driven down licensing costs and led to improvements in RPBs’ offerings to their members. There would be no such incentive to innovate, were there to be a single regulatory body.” (IPA)
• The government is also proposing to introduce a formal process to de-recognise an RPB if it fails to perform, but how would that work with a single regulator? We could hardly be left with no regulator! (IPA)
• Providing even a reserve power “could be seen to demonstrate on the part of the Insolvency Service a lack of commitment to the changes proposed for the regulatory regime and a lack of confidence in its part in the RPBs.” (ICAEW)

R3 suggested a third way: a “Single Regulatory Process”, which “would reduce significantly the inconsistencies that currently exist in the insolvency profession’s regulation” and “would also be a chance to take a fresh look at the profession’s regulatory processes and standards”.

Restriction of Use of Time Cost Basis

I wonder if the Service had any inkling of the floodgate they were prising open with the suggestion that the option of seeking fees on a time cost basis be limited to certain cases. Even ACCA is opposed to this one!

The core objections will not come as a surprise:

• If the primary issue is lack of creditor engagement, then the solution should lie in improving creditor engagement, starting with the Crown creditors. (ACCA, ICAS, ICAEW)
• “Some IPs may feel minded for their own commercial protection to factor in more work than might in the event be necessary, in which case fees could end up being over-estimated.” (ACCA; similar comments made by R3)
• In 2013, only 2% of all complaints related to fees, so perhaps creditors’ concern is not so acute as perceived by the government, and any action taken to change the existing regime must be proportionate. (ACCA, R3, ICAEW, ICAS)
• Plenty of criticisms of the OFT study: out of date, limited scope (which is now being extrapolated far beyond its remit), confusion between fees and costs, assumption that engaged creditors are the only constraint on fees, etc… (primarily R3 and ICAEW)
• IPs will avoid small and risky cases, as a fixed/percentage fee would not be economical. (R3, ACCA) [Although I have heard this many times, personally I don’t get it (unless people have in mind a prescribed rate): for a case with assets of £10,000 (net of non-IP costs), how does an IP’s recovery differ, if he is paid on a time cost basis, a fixed fee of £10,000, or a fee of 100% of the first £10,000 (net) realised?]
• This would burden the public purse, as uneconomic cases will remain with the OR. Some IPs also would leave the market, resulting in reduced competition and fewer options for debtors seeking help, which would seem contrary to the public interest. (R3, ICAEW)
• Fixed fees do not incentivise IPs to pursue tricky assets or to carry out non-profitable tasks. What does an IP do when he reaches the limit but still has work to do; is he expected to work for no pay? (ACCA, R3, ICAS, ICAEW, IPA)
• As recommended by the Cork Report, percentage-based fees were largely dropped in the 1980s, as they were viewed as unfair and inequitable to creditors. (ACCA, R3) “There is nothing inherently fair in a basis of charging where the results depend upon the amount and quality of realisable assets, rather than the work required.” (ICAEW) Arguably, time costs are the fairest fees mechanism (ICAEW), whereas fixed/percentage fees will invariably result in an element of cross-subsidisation of cases. (IPA)
• There is no evidence – or reason – to support the assumption that adopting fixed/percentage fees will reduce fee levels (IPA) or creditors’ returns (ICAEW).

But here are some of the more impassioned and novel comments:

• This specific proposal has no grounding in the Kempson review nor has there been any evidence-based research. “The Insolvency Service has disclosed the rationale behind this decision is solely ‘because two methods of remuneration are simpler than three’.” (R3)
• “R3 is not aware of anywhere else in the world where fee restrictions as outlined in the consultation are in operation. In effect, the Insolvency Service proposes to introduce an untested system of IP remuneration in the UK.” (R3)
• Secured creditors have the power to negotiate discounts from IPs, but why must that mean that unsecured creditors are ‘over-charged’? If a large customer (such as the government via its own procurement policy) sought to obtain discounts, that does not mean that other buyers of the goods and services are automatically being ‘over-charged’. (R3)
• Is a 9% differential in costs (the OFT study’s conclusion) really concerning? “The differential, for instance, between prices charged for consumer goods to wholesale or retail customers could be expected to be much higher (and still not exploitative of consumers).” (ICAEW)
• Restricting fees could result in outsourcing of parts of the job to unregulated entities, shifting the cost rather than reducing it and resulting in less transparency and control. (R3)
• “It is simplistic to think that changes introduced in the personal insolvency market can be imported into the corporate sector; this view demonstrates a complete lack of understanding of corporate insolvency, This market cannot be ‘commoditised’ in the same way.” (R3)
• If creditors have difficulty assessing the reasonableness of fees based on time costs, they will have the same, if not greater, difficulty judging fixed/percentage fees, something acknowledged by Professor Kempson. (R3)
• There is no reason to believe that restricting the use of the time cost basis in this manner will impact on creditor engagement or complaints about fees. (R3)
• RICS abolished fee scales for valuations after the Monopolies and Mergers Commission concluded that “they restricted competition and worked against consumers and were against the public interest”. (ICAEW)
• It is difficult to reconcile the government’s apparent determination to improve public confidence in the insolvency regime with the World Bank’s report that shows the UK currently as one of the most effective jurisdictions for resolving insolvency. (ICAEW)
• “If the aim of the Insolvency Service is to reduce IPs’ fees in aggregate to a break-even level, it seems unlikely that a high quality profession will be sustained.” (ICAEW)
• The Impact Assessment identifies the risk that the OR might be left with more small-value cases, but the Assessment’s suggestion “that the concerns will be ‘overcome’ through regulatory objectives of RPBs and monitoring is fanciful. The consequences would result from a fee regime imposed upon the profession by the government and RPBs would not be in a position to do anything about it.” (ICAEW)
• Professor Kempson recommended greater use of mixed bases for fees, but the government is proposing to abolish this. (IPA) [Mixed bases were only introduced in 2010!]
• The government wishes RPBs to engage more actively in monitoring and assessment of fees, but this will be more difficult in non-time cost cases. (IPA)
• The 2010 reforms and revised SIP9 are still fresh, but “the Insolvency Service appears already to have concluded that those reforms failed.” (ICAEW)
• Proposals to provide different fee bases for different case types, recovery prospects, and UK jurisdictions will do nothing to clarify an already-confusing picture for creditors. (ICAEW)

The bodies’ suggestions of alternative approaches are a mixed bag (some of which, personally, I find a bit scary! But hey, a bit of brain-storming is no bad thing.):

• Greater engagement by Crown creditors (pretty-much everyone’s idea).
• Reduce the constraints on creditors’ committees, e.g. smaller quorum. (ICAS)
• Encourage committee members, e.g. small payments for attending meetings. (ICAEW)
• Introduce a Scottish-style Reporter mechanism across the UK (the consultation stated that the Scottish system’s checks and balances appeared to work reasonably well). (ICAS)
• Require IPs “to justify to creditors and regulators their use of the hourly rate, by reference to prescribed criteria”. (ACCA)
• “More targeted support… to creditors to enable them to assess the reasonableness of the amounts being claimed.” (ACCA)
• “Improved management of creditor expectations, through creditor guides, fee estimates and estimated outcome statements.” (IPA)
• “Enhanced capital requirements and/or direct financial contribution by directors to the basic costs of insolvency processes.” (IPA) [Interesting idea, but isn’t there a risk of conflict with this..?]
• Fixing a minimum fee for those statutory elements of an insolvency administration that will generally not be of direct financial benefit to creditors.” (IPA, similar suggestion by R3)
• “Data collection and benchmarking of fee data.” (IPA) [And..?]
• “Guidance and/or compulsion of IPs to make greater use of mixed fee bases for different elements of the work involved within an insolvency administration. The onus could be put on the IP to justify why the basis sought is appropriate to the nature of assets, the complexity of the task and the value that it is estimated will result.” (IPA) [But does this follow, given some of the arguments against fixed/percentage fees..?]
• Better explanation by IPs up-front of the likelihood (or not) of dividends and of the work that will need to be carried out that will not generate direct financial benefits. (IPA)
• Adjusting the requisite voting majorities so that greater creditor participation is required. (IPA) [Why penalise IPs for creditors’ inactivity?]
• Encouraging cheaper ways of conducting “meetings”, e.g. by telephone, e-meetings, or resolutions by correspondence. (ICAEW)
• Drop the Red Tape Challenge proposal to remove the requirement to hold creditors’ meetings. (R3)
• More/better guides for creditors, similar to those that the Insolvency Service already provides for debtors facing bankruptcy. (ICAEW, R3)
• More transparency/information regarding the costs to insolvent estates by the Insolvency Service, as creditors/debtors often confuse these with IPs’ fees. (R3)
• Trade bodies should help members to understand insolvency – and how to avoid it or becoming a creditor in an insolvency – better. (ICAEW)
• All relevant Insolvency Service officials should work in an IP firm for a minimum of two weeks per year as ‘on the job/CPD training’ to plug the apparent knowledge gap, given the lack of understanding of the insolvency profession evidenced by the consultation proposals. (R3) [Ooh!]
• Greater use of cost-saving measures of 2010 Rules and more time to allow them to have effect. (R3)
• “IPs should also be required to report work with more transparency, e.g. break down time-use clearly into constituent parts such as ‘communicating with x number of creditors to establish a meeting’.” (R3) [Ooer! Can we try to keep it relatively simple and proportionate..?]
• “Introducing elements of a Code of Practice for IPs (based on the model in Australia) plus changes to SIP9 could be introduced to ensure that IPs’ records of time spent (and corresponding fees on a case) are transparent and accountable.” (R3) [In what ways is the current SIP9 deficient in this area..? R3 points to the Australian part of the MF Global case report as a good example; this report provides a fee estimate of $1 million for the first month – is R3 sure this is an appropriate model for typical (non-secured creditor) cases?] R3 suggests that in this way IPs would explain the work done “in more detail” and “reporting would be clearer”.

The most widely-made suggestion as regards fee-setting is the mandatory use of fee estimates (ACCA, IPA, ICAEW, R3), with some bodies suggesting express creditor approval for exceeding an estimate could be required (IPA, R3; ACCA: “perhaps”). I’m attracted to this idea as well, but, although I agree with the idea of seeking creditors’ approval for fees in excess of an estimate, I would hope that this could be done without necessarily positive creditor response; if creditors do not respond to an invitation to vote, then is it fair to penalise the IP? It could also impact on creditors’ returns, as silence may force the IP to take further measures, perhaps by court application, to achieve approval. It might also be more likely to encourage a poor habit of over-estimating fees in the first instance, so that IPs can avoid the hassle of seeking approval to more fees later. There are many issues with this suggestion – some will complain that it is well-nigh impossible to estimate fees with any degree of confidence at an early stage – but it has to be the lesser of several suggested evils, hasn’t it? In addition, isn’t it a standard and professional way of approaching fees? After all, don’t we usually seek fees estimates – with subsequent approval for uplifts – from many suppliers, from solicitors to garage mechanics?

Regulatory Intervention in Matters of Remuneration

The consultation also sought views on proposals to have the RPBs take a greater role in assessing and deciding on fees issues, via both enhanced monitoring and dealing with complaints about the quantum of fees. Most RPBs pointed out that IP fees are already considered to a significant extent; the ICAEW described it this way: “reviewers already look in detail at the insolvency practitioner’s time records. They will question the time recorded against specific tasks, where it doesn’t appear commensurate with the work evidenced on the case files; where it appears to have been carried out by a more experienced member of staff than we would consider appropriate; or where it appears excessive.”

As regards the suggestion that RPBs should do more than look at clear regulatory breaches:

• “To suggest that RPB bodies should step into the breach – even if one exists in relation to IP remuneration – will not address the issue without a sincere attempt by the UK Government to review the legislation. Regulators should not be asked to circumvent or overrule the law and to do so will inevitably expose the regulators to legal challenge.” (ICAS; ICAEW also highlighted the risks of Court challenge of RPBs’ judgments)
• “We are unclear on what basis an RPB could interject when the fee basis has been approved by a statutory process. This would be a usurpation of Court’s powers.” (IPA)
• “If 90% of creditors have approved as IPs fees, it does not appear reasonable to allow a minority financial interest to delay the administration of an estate.” (IPA)

Whilst the IPA is “opposed to routine regulatory involvement in fee assessment”, it seems more open to the idea that more could be done practically: it suggested that, if the idea of fee estimates were taken up, it could engage in “routine monitoring of practitioner performance” against these estimates. It also stated: “we can see no reason why, in a case of apparent excessive charging, the RPB could not direct the practitioner to repay such fees as exceed the original estimate provided or else direct the IP to have their fees assessed by a Court”, although the IPA does seem to be alone in this view.

It seems clear from the responses that there is much confusion amongst the bodies as to exactly what the government is proposing; simply dropping in a “value for money” regulatory objective and telling RPBs to get on with it will not work. The IPA remarked: “The regulatory challenges presented flow from the entirely subjective nature of establishing what value for money is and in whose opinion such value should be ascertained. The government has been singularly unable to define these concepts and appears now to expect the RPBs to be able to do so on their behalf… Will a full review of time spent and how this compares to the fixed or percentage fees charged be required? Will on-site visits to review practitioners’ files be expected?” The ICAEW also stated that, if the idea is for “RPBs to effectively conclude on each file reviewed that the IP’s costs represent value for money, we would expect there to be a significant impact on our monitoring costs; potentially doubling them.” However, the ICAEW seems to have been party to a meeting with the Consultation Policy Lead that has led them to conclude that all that is envisaged of RPBs as regards “enhanced monitoring” is pretty-much what they are already doing. One would hope that the Service could do better at communicating their desires to the bodies that they directly oversee!

In summary, I don’t think the turkeys have voted for Christmas. I think they have resisted well the pressure to seek a compromise, but have endeavoured to keep their eye focussed on what truly appears to be the issue – creditor engagement – and what practically might be done to improve the situation.