Insolvency Oracle

Developments in UK insolvency by Michelle Butler


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The new Insolvency Rules: is the wait almost over?

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The last published .gov.uk update on the new Insolvency Rules was July 2015, when the expectation was that the Rules would be made in “Spring 2016 with a commencement date of 1 October 2016”. As that day fast approaches, where are we..?

Is there a light at the end of the tunnel?

At the ICAEW’s London roadshow last week, Simon Whiting, Senior Policy Advisor of the Insolvency Service, gave us the news:

“we are aiming to lay the Rules before Parliament in the week commencing 10 October 2016”

“commencement will be 6 April 2017”

“… all subject to Ministerial approval”

Technical and compliance directors, managers and consultants have been fearing and dreading this day for several years now. Although my stomach still turns when I think of all the candle-burning days and nights ahead, personally I feel like I’ve done enough waiting: I’m ready!

 

Spare a thought for colleagues

This is a short plea to all appointment-taking and practice-heading IPs in England & Wales: please try to avoid giving your technical and compliance staff any other projects over the next six to twelve months.

The new Rules will be well over 400 pages long and they will introduce changes from the blinding to the subtle. Okay, many changes will be neither here nor there; if some changes are overlooked, the worst effect will be a red flush at the next monitoring visit. However, some crucial processes – such as how to get appointed and how to obtain fee approval – will change fundamentally and you will want to get these correct from the start.

Also, don’t be misled into thinking that the changes won’t matter until you get your first new appointment after 6 April 2017. The plan is that, with the exception of a few common-sense items, the new Rules will apply across the board, to both existing and future appointments. This does have an advantage – we won’t have to devise and endure dual processes, as we have done since 2010 – however, it will be impossible to introduce the changes gradually: when we wake up on 6 April 2017, we will have to be ready to implement the new Rules for cases at any stage from cradle to grave.

 

The headline changes

Deborah Manzoori summarised some of the planned changes in an earlier post on the Compliance Alliance’s blog (https://goo.gl/qGLZWv). We’ve known about these ever since the Small Business Enterprise and Employment Act 2015 and the Deregulation Act 2015 came into being. These changes are set in stone and we’ve simply been waiting for the new Rules to tell us “how to”.

They include:

  • Abolition of physical meetings (unless requested by creditors who meet prescribed criteria)
  • Introduction of decisions approved by “deemed consent”
  • “Qualifying decision procedures” – i.e. the methods by which positive responses to proposed decisions can be sought
  • Allowing small debts without proofs
  • Official Receiver immediately being appointed as Trustee in Bankruptcy

If you want to learn more about these changes as set out in the two Acts, which are good foundations to the detailed changes to come, my partner Jo Harris will be recording a webinar in a week’s time. Email info@thecompliancealliance.co.uk for more information.

 

The “how to”s… and more

If you have a chance to attend one of the ICAEW’s roadshows – or indeed one of the IPA’s – I would recommend it. Hearing first-hand how the Insolvency Service plans to implement the Acts’ changes is quite an experience: I challenge you not to leave the room feeling baffled and just a little depressed!

I’m sure things will become crystal clear when we finally get to see the new Rules… won’t they?

I don’t want to steal the roadshows’ thunder, but here are some items that furrowed my brow:

  • Complicated S98s

I am very keen to see how S98s will work: Centrebinds will still be 14 days max, but creditors will have some time after receiving notices (for a virtual meeting or a proposed deemed consent) to request a physical meeting… for which directors (/IPs) then will need to issue notice. I am sure it can be done, but timescales will be very tight (perhaps it will mean that more company meetings will be adjourned) and companies/IPs will need to manage unexpected hiatus periods.

  • Complicated Statements of Affairs

It will take some careful managing to comply with the requirement for statements of affairs submitted to Companies House to exclude details of “consumers and employees”, whilst ensuring that creditors receive the full schedules. Will this mean a new creditor code in IPS etc.? What about cases where the director submits a hard copy SoA (e.g. Administrations); will insolvency staff need to type up separate schedules for RoC? Will “consumers” always be obvious, e.g. will they be easily distinguishable from other individual creditors? What is the risk if an IP gets it wrong..?

  • Complicated ADM-CVL Conversions

The Insolvency Service has made several attempts in the past to manage the move from Administration to CVL. Their latest method sounds better, but still not ideal. It seems that the conversion will happen when the final Admin report is filed at RoC… and, if in the meantime “anything” has happened, the Administrator will inform the Liquidator. So the final Admin report won’t actually present the final position and IPs will still be on tenterhooks waiting for the RoC to bring down the shutter.

These are only some of the meaty changes. There are many, many more, affecting every part of what we do, even to the extent of changing some of our language: you may think that it is not before time that “defray” is being removed from Notices of No (Further) Dividend, but think of the template-editing to be done as a consequence.

 

Standing on the starting blocks

As we take our places on the starting blocks – working (/support!) groups are created, timetables are formulated, and we wave goodbye to holidays – we steel ourselves for the next six months: bring it on!

We at the Compliance Alliance are planning a suite of progressive webinars and document pack updates to help clients prepare for the big day. Call us sceptical, but we’re reluctant to set out exactly what we’re planning until we see the new Rules land – we’ve been here before! However, if you want me to explain to you what we think we’ll be doing, please do get in touch with me.

 


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The ICAEW Roadshows: A Helping Hand Through Hazards

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Last autumn, Jo Harris and I enjoyed travelling with the ICAEW on their Roadshows (although it has taken us several months to recover!). If you want to know what you missed (or you feel you need a reminder in view of all that has changed in the past six months), here is my personal summary of highlights from last year’s programme.

RPB Changes

Bob Pinder, ICAEW’s Director of Professional Standards, explained to us the impacts of the two 2015 Acts primarily on the RPB environment.

As we know, the Small Business Enterprise and Employment Act 2015 introduced new powers for the Insolvency Service to sanction RPBs. However, it is worth remembering that the Secretary of State now also has the power to apply to court for a “direct sanctions order” against an IP “if it appears to the Secretary of State that it would be in the public interest for the order to be made” (S141 of the SBEE Act 2015).  Such an order could involve: loss, suspension or restriction of a licence; specific requirements to comply; and/or a contribution to creditors.

Although I am sure that this action will only be contemplated in extreme cases (not least as I’m sure the Service would prefer that the RPBs spend the time and money disciplining IPs), I found this development more than a little disconcerting given the cudgel a certain past Secretary of State swung about when some IPs appeared not to have complied with the employee consultation requirements. As commented on by R3 last November (https://goo.gl/QX6kHM), the 2015 government consultation on this particular issue offered no helpful solution and who knows what (in)action might light the next touch paper in Ministers’ minds.

Compliance Hazards

This was Jo’s and my presentation: an attempt to highlight the principal areas in which we’ve seen IPs trip up. Some of the areas we covered were:

  • Getting remuneration right: how to approach the new fees rules
  • File management: how to deal with the new Oct-15 IP Regulation on maintaining records to demonstrate administration and material decisions
  • Statutory deadlines: how misunderstanding certain rules can make all the difference
  • Anti-money laundering and bribery: how to make checklists more effective
  • SIP highlights: a quick trip through the SIP series identifying some key and some lesser-known slip-up risks
  • Ethics: how to avoid threatening compliance with the principle of professional competence and due care

If you would like to hear the full presentation, Jo has recorded it as a webinar available to all Compliance Alliance webinar subscribers (£250+VAT for firm-wide access to all our webinars for one year)*.

Legal Update

Steven Fennell, Exchange Chambers, explored with ease some key decisions, such as Jetivia SA v Bilta (UK) Limited and Re Corporate Jet Realisations Limited.

Reviewing Steven’s notes now emphasises to me how necessary it is for us to keep up to date with court decisions – so much can happen in six months! Cue plug for R3’s Technical Reviews (starting next month): https://goo.gl/jnnxUA.

Regulatory Hot Topics

Allison Broad, Senior Manager of ICAEW QAD, ran through some regulatory developments and issues seen by the monitoring team. The main points that stood out to me were:

  • ICR reminders: as we know, all appointment-taking ICAEW-licensed IPs need to have an ICR each year. Don’t forget that this includes retiring IPs even if they are merely running off their remaining few cases. IPs who move practices also need to make sure that this requirement is not overlooked, which is easily done if their new colleagues have already carried out an ICR earlier in the year.
  • Ethics reminders: make sure that ethics checks are carried out and signed off before appointment; initial ethics checks signed off months (or even years!) after appointment are not acceptable. Ethics checks should be signed off by the appointment-taking IP personally, not delegated. Make sure that the ethics check is noted appropriately, e.g. if your Form 2.2B (Statement of Proposed Administrator) discloses a prior relationship, is this noted on the ethics review?
  • Anti-Money Laundering reminders: ensure that the files demonstrate the risk-based approach; it is not sufficient simply to state that you consider a subject as “normal” risk, you should be setting out how you reached this conclusion. Also don’t forget to carry out a risk assessment even on court appointments and take appropriate steps consequent to that risk assessment.
  • Bonding reminders: make sure that forms calculate the bond correctly, taking into consideration charged assets and prescribed parts. Also, be consistent in calculating the bond level in VAs: you may have difficulty in justifying why you have bonded assets for less than their realisable values as set out in the VA Proposal’s EOS.
  • SIP8 reminders: Allison described a surprising flurry of SIP8 breaches as regards S98 reports, e.g. lack of detail in trading history and company accounts and inaccurate deficiency accounts. Therefore, perhaps it would be valuable to refresh your staff’s/template’s treatment of SIP8 disclosures in S98 reports.

The Pre Pack Pool

At a time when we were all awaiting the revised SIP16, Stuart Hopewell, a Director of Pre Pack Pool Limited, gave us a welcome insight into the Pool’s vision… and valiantly tackled a number of enthusiastically-delivered questions from the floor.

Back in December, Allison’s webinar http://goo.gl/ZCzzxR reported that the Pool had received two applications over its first month of operation.  I wonder if that number has reached double figures yet…

Valuable CPD

In conclusion, I would just like to say to those of you who have never attended an ICAEW Roadshow before: please do consider it this year. I found it a valuable overview of core developments – both past and prospective – affecting insolvency, together with several heads-up warnings on how some IPs are getting things wrong and carefully-worded insights into the RPB’s perspective on some serious challenges for IPs, balancing well the ICAEW’s roles as both a regulator and a membership body.

* For more information on the Compliance Alliance’s Compliance Hazards webinar, please email info@thecompliancealliance.co.uk


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SIP9 – the tricky bits

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Warning: this blog post may lead to disappointment.

I know that I am not alone in feeling that SIP9 poses as many questions as it answers. To be fair, much of our dissatisfaction originates from inadequate rules, but the fact that my earlier post, “SIP9 – the easy bits” (http://goo.gl/Xu7DM4), generated contrary feedback indicates to me just how much clarification is needed.

Regrettably, I don’t have the answers, certainly not here and now. I could offer my best guesses, but my opinions don’t count.  We need to know how the RPBs will measure compliance with the SIP and how they want SIP9 applied.  I’m currently waiting for answers to a number of questions I’ve put to some RPB monitors, but I do hope that the regulators – via monitors, committees or the Insolvency Service – issue guidance publicly, so that all IPs and insolvency professionals can benefit.  Allison Broad, ICAEW, has made a fantastic start with her webinar, but SIP9 raises far more questions.

What are the questions?

Here are what I think are some of the tricky bits of SIP9:

  • How does SIP9’s statement that “an IP is not precluded from providing information, including a fee estimate, within pre-appointment communications” fit with the rules’ requirement that the office-holder must give the information to creditors? (I know this is an old chestnut, but a serious one, which I note has not been adjusted in the published draft 2016 Rules.)
  • To what extent are we expected to continue to be “consistent” in using an old reporting style?
  • When and how should proposed S98 fees be disclosed? What about MVL fixed fees?
  • How far do we go in providing narrative? Does the bond premium really need to be explained? Are “a few lines of text” (per an RPB staff member’s online interview) really going to satisfy monitors (and be rules-compliant)?
  • How do you explain why a proposed fixed or % fee is “expected to produce a fair and reasonable reflection of the work” to be undertaken?
  • Are monitors expecting to see time costs breakdowns at all? What about charge-out rate sheets in progress reports?
  • If they are not expecting them right now, is it safe to ditch the ability to produce time costs breakdowns or might we need them for the next inevitable iteration of SIP9?
  • Do the Creditors’ Guides to Fees really work to “inform creditors and other interested parties of their rights under the insolvency legislation”?
  • What are the RPBs expecting as regards providing “an indication of the likely return to creditors where it is practical to do so”?

Where are the answers?

The absence of “official” answers puts pressure on all of us to come up with our own. We’ve heard noises to the effect that some RPB monitors will go gentle on IPs as the SIP beds in.  However, I think that’s a cop-out.  An enormous amount of time and effort is expended in setting up systems and procedures and training staff in what is required.  It’s not good enough to learn only at a monitoring visit how we’re expected to apply the SIP, leading to the need to invest further time and effort in changing things.

I think that the fact that the SIP hasn’t been in force for 3 months yet and already it has been the subject of an R3 webinar, an ICAEW webinar, countless blog posts and insolvency queries demonstrates just how we’re all struggling to get to grips with the issues dealt with so unsatisfactorily by the fees rules and the SIP.

Nevertheless, we have to manage as best we can. If you’re keen to absorb yet more information about SIP9, for the Compliance Alliance I shall be recording a webinar providing my thoughts on the questions above (including some thoughts from RPB staff who have responded to my queries) as well as taking a practical look at how to apply the SIP’s principles and standards.  If you would like to sign up to the webinar (which will be available in a week’s time), please email info@thecompliancealliance.co.uk*.

SIP16: two for the price of one

In the same webinar, I’ll also be reviewing the practical application of the latest revision of SIP16 – a far less troublesome SIP, I think, but perhaps just as risky.

* Our webinars are available to all Compliance Alliance webinar subscribers (£250+VAT for firm-wide access to all our webinars for one year).  If you would like to sign up, please email info@thecompliancealliance.co.uk.