30 April 2021: Connected Persons Disposal Regs, InsS Guidance, SIP13, SIP16, new IVA Protocol (with eight annexes), SIP9 FAQs from the RPBs and Dear IP 126 – wow! Even Usain Bolt would struggle to keep up with the pace of regulatory change right now!
Firstly, I’ll look at the SIPs.
“No changes have been made to the SIPs other than those required by the change in the law”
stated some of the RPB/R3 releases. Well, that’s not quite true…
What needs changing?
In summary, solely to deal with the SIPs (i.e. not including the Connected Persons Disposal Regs at all), I think the following needs to be done:
- Ensure that all staff know the widened scope of SIP13 – i.e. affecting all corporate insolvencies – and consider including prompts within checklists, progress reports etc. to ensure that any sales to less directly connected parties are picked up
- In the pre-ADM letter template to connected parties (and letter of engagement, where relevant), replace the old Pre-Pack Pool reference with the new evaluator’s report requirement… and repeat the letter template (tweaked) for any post-appointment substantial disposals
- Ensure that pre-pack connected parties that are not also connected persons are notified of the potential benefits of a viability statement
- Tweak the SIP16 statement to remove references to the Pre-Pack Pool and viability statement, except where a viability statement has been provided, and add reference to enclosing any evaluator’s report with an explanation if it has been redacted
SIP13’s scope enlarged…
The old SIP13 affected sales to parties connected to the insolvent debtor or company by reason of S249 and S435 (but excluding certain secured creditors). Now, SIP13 defines a connected party as:
“a person with any connection to the directors, shareholders or secured creditors of the company or their associates”
If SIP13 had been changed solely to reflect the new regulations, why has the reach of SIP13 been expanded far wider than the regulations’ scope? And what does “any connection” mean exactly? Are we talking friendships? Even if “any connection” is still intended to mean something approaching the statutory definition, including connections with the associates of directors, shareholders – and secured creditors – wraps in a whole host of business and familial relationships that were not captured by S249, S435 or Para 60A(3) Sch B1.
…but also narrowed..?
There is a curious omission from the above definition: reference to any connections with the debtor. Presumably this is an error, as the SIP still states that it “applies to both personal and corporate insolvency appointments”. Oops!
Connected person communications
The above definition is of a connected party, but both SIPs also refer to connected persons. These are the statutorily-defined connected persons caught by the new regulations, the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021, as defined by Para 60A(3) of Schedule B1. Of course, it is sensible for IPs to ensure that any connected person considering a regulations-caught disposal is aware of the requirement to obtain a qualifying evaluator’s report to enable the disposal to be completed without creditor approval. This is now also a SIP requirement.
Because SIP16 is concerned only with pre-packs, the requirement appears also in SIP13 in order to capture substantial disposals in Administrations that are not pre-packs. In my mind, this means substantial disposals that occur in the first 8 weeks of an Admin where there have been no pre-appointment negotiations (and, I guess, the odd “hiring out” or non-sale “disposal” of all or a substantial part of the business/assets), i.e. truly post-appointment sales. Indeed, the R3/RPB releases explained that the 8-week time frame of the new regulations led to the changes in SIP13.
However, the changes are odd. SIP13 requires the “insolvency practitioner” to ensure that the connected person is made aware of the regulations, but SIP13 states that:
“for the purposes of this Statement of Insolvency Practice only, the role of ‘insolvency practitioner’ is to be read as relating to the advisory engagement that an insolvency practitioner or their firm and or/any (sic.) associates may have in the period prior to commencement of the insolvency process. The role of ‘office holder’ is to be read as the formal appointment as an office holder”.
So the new SIP13 requirement for connected person communications applies to IPs acting pre-appointment, not to office holders post-appointment. Given we are talking about non pre-pack disposals here, would it not have made more sense for the SIP13 requirement to be on office holders?
But don’t worry RPBs, I am sure that no Administrator is going to spend time negotiating a deal with a connected person without ensuring that they are in a position to complete. They hardly need a SIP to tell them to warn a relevant purchaser that they’ll need a qualifying evaluator’s report where necessary.
Viability Statements’ appearance narrowed…
I reported at https://insolvencyoracle.com/2020/10/30/pre-pack_reforms/ that the Insolvency Service’s report that led to the regulations had noted the government’s plan to “work with stakeholders to encourage greater use” of viability statements. I was most surprised, therefore, to see viability statements take a step further into the shadows in the revised SIP16.
The old SIP16 required Administrators to report to creditors on the existence or otherwise of a viability statement and, if there were none, on the fact that the Administrators had at least asked for one. Now, the only appearance of reference to a viability statement in a SIP16 statement is where one exists, in which case it should be attached.
…but also enlarged!
But we cannot ignore viability statements entirely: the new SIP16 has retained the need to make certain purchasers “aware of the potential for enhanced stakeholder confidence in preparing a viability statement”. You might think: well, that’s fine, it had been in my letters to connected purchasers when I told them about the Pre-Pack Pool, so now I’ll leave in the viability statement bit and just tweak those letters to include the bit about the evaluator’s report instead.
Ah, if only it were that simple! Now this requirement applies “where the purchaser is connected to the insolvent entity”… and this time, “connected” means:
“a person with any connection to the directors, shareholders or secured creditors of the company or their associates”.
So, if you are contemplating a pre-pack to someone who isn’t connected to such an extent that the new regulations apply, but they still have some kind of connection, you will need to write to them solely to tell them about the “potential for enhanced stakeholder confidence” of a viability statement. What is the point?!
Copy evaluator’s report in SIP16 statement
Unsurprisingly, the new SIP16 requires a copy of any qualifying evaluator’s report to be included with the SIP16 statement circular (whether or not this is at the same time as the Proposals).
The SIP does not mirror the regulations’ provision that the copy qualifying report (when included with the Proposals) may exclude any information that the Administrator considers is confidential or commercially sensitive, but presumably this would be acceptable provided that, as per SIP16 para 19, the Administrator explains why the report in full is not being provided.
More changes to come?
Yes, I’m afraid so. Dear IP 126 states that:
“SIP16 will be reviewed and amended further during the next 6 to 12 months”.
I shall be interested to see the trend of Administrations in the future. I suspect that it is not so much the evaluator’s report that will discourage pre-packs but rather the endless tinkering!