Consultation on Statements of Insolvency Practice

By David Menzies CA, Director of Practice

5 May 2020

The Joint Insolvency Committee (JIC) is consulting on changes to a number of Statements of Insolvency Practice (SIPs) including SIP 3.1 - Individual voluntary arrangements, SIP 3.2 - Company voluntary arrangements, SIP 7 - Presentation of financial information in insolvency proceedings and SIP 9 - Payments to insolvency office holders and their associates.

The JIC recognises that these are testing times. But these are only proposed changes. There is no intention to amend the Statements of Insolvency Practice (SIPs) without careful consideration of the responses received and any plan to introduce changes will take into account any continuing challenges faced by the insolvency profession.

The legislative changes recently announced by Government, do not have impact on the SIPs which are the subject of this consultation.

SIP 3.1 - INDIVIDUAL VOLUNTARY ARRANGEMENTS

SIP 3.2 - COMPANY VOLUNTARY ARRANGEMENTS

A working group of the JIC has been reviewing SIP 3.2 - Company Voluntary Arrangements. The working group was comprised of insolvency professionals and other participants in the company voluntary arrangement (CVA) process, including the British Property Federation and HMRC.

The JIC decided to review the SIP because of the raised profile of the CVA particularly in the retail sector, the outcome of the government’s review of the corporate insolvency framework and its focus on company rescue, and the academic research into CVAs carried out by Professor Peter Walton. Professor Walton presented to the working group on his findings.

The principal changes made to SIP 3.2 relate to transparency and the provision of information. In particular, additions have been made to the section of the SIP which deals with the proposal. Other changes include an emphasis on the need for the nominee to be objective.

After completing its review of SIP 3.2, the working group identified potential changes which would also be relevant to SIP 3.1 - Individual Voluntary Arrangements and Statement of Insolvency Practice 3.3 – Trust Deeds. No detailed review of SIP 3.1 and 3.3 was carried out, the relevant changes from SIP 3.2 were simply carried over into SIP 3.1 and 3.3. The JIC is also seeking your views on the proposed changes to SIP 3.1 and there is an opportunity in the consultation questionnaire to suggest other changes to SIP 3.1.

SIP 3.3 is not included in this consultation as the recent inquiry into Protected Trust Deeds by the Scottish Government may recommend changes to the law, which could require changes to the SIP or recommend changes to the SIP directly.

The consultation seeks your views on the changes made by the working group. SIP 3.2 applies in England and Wales, Scotland and Northern Ireland, SIP 3.1 applies in England and Wales and Northern Ireland.

SIP 9 - PAYMENTS TO INSOLVENCY OFFICE HOLDERS AND THEIR ASSOCIATES

SIP 7 - PRESENTATION OF FINANCIAL INFORMATION IN INSOLVENCY PROCEEDINGS

In 2019, the Joint Insolvency Committee was asked to review Statement of Insolvency Practice 9, payments to Insolvency Office Holders and their associates, by the Insolvency Service. This was because in its Review of the monitoring and regulation of insolvency practitioners published in September 2018, the Insolvency Service reported that in the volume IVA sector:

“There is limited evidence that certain disbursements charged in volume operations are providing real value to either debtors or their creditors and it is not clear whether some are required at all. There is also limited, if any, explanation provided by insolvency practitioners as to why they are fair and reasonable. Some disbursements may instead to be business costs that should not be charged to individual estates or do not provide fair and reasonable value to creditors.”

There were also some concerns, raised that SIP9 does not offer sufficient clarity in relation to expenses, including in relation to distinguishing between disbursements and business overhead costs.

A JIC working party was formed and considered the SIP. The working group’s conclusion is that SIP 9 as currently drafted could be refined, in certain specific aspects as follows:

i).The treatment of “per case fees” charged to the estate as an expense or disbursement.

ii).Being clear that overheads cannot be recovered from an estate.

iii).Whether SIP 9 should distinguish between disbursements and other expenses.

iv).Whether relying on the statutory definition of associates was appropriate.

v).The treatment of pre-appointment costs.

vi).Whether the use of lists of examples is helpful or whether such lists are treated as exhaustive; that is if something is not listed as an overhead in a list of examples it is apparently not an overhead and can be charged to an estate.

vii).Whether SIP 9 should apply to members voluntary liquidation (MVLs). The vast majority, if not all MVL fees, are not paid out of the “estate” but by the parent or some other part of the group, and therefore SIP 9 should not apply. Should the SIP be more explicit about whether or not it applies to MVLs?

A revised version of SIP 9 has been developed which seeks to address the points listed above. The working group is also proposing that the title of the SIP is changed to Payments to insolvency office holders and their associates from an estate.

The working party noted the value of consistency of approach which assists the users of insolvency practitioners’ services and consequently determined that the draft SIP should be issued for consultation with a questionnaire to specifically seek feedback from the users, as well as the regulators, their review teams, the professional compliance teams and Insolvency Service. The consultation questionnaire asks questions about the matters listed above as well as more general questions about the SIP. It is hoped that a constructive approach to the consultation will be taken with parties responding to the consultation questionnaire.

The group also took the opportunity to review SIP 7 - Presentation of financial information in insolvency proceedings. Some minor amendments have been made to the SIP but the changes made are primarily to align the language used in SIP 7 with SIP 9.
The JIC is seeking your views versions of SIP 9 for England and Wales, Scotland and Northern Ireland. Legislative differences across the jurisdictions mean that there needs to be differences in the SIPs, but the principles remain consistent in all the versions of SIP 9. The same version of SIP 7 applies in England and Wales, Scotland and Northern Ireland.

All the changes proposed to the SIPs are in the context of the current legislative framework. SIPs cannot be used as a means of amending the law.

There is a form for you to submit your consultation response which can be completed electronically and returned by email. If you would prefer to provide your comments in a different way, please send them to swood@icas.com.

Consultation on Statements of Insolvency Practice

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