Insolvency technical update – July 2021
By David Menzies, Director of Practice
2 August 2021
Insolvency technical update – your round-up of recent developments in insolvency
Responsibility for advertising leading to insolvency appointments and considerations when using referral sources
The Financial Conduct Authority has recently taken action against a number of firms involved in debt packaging services leading to IVA and Protected Trust Deed appointments. This follows concerns about a range of issues including manipulation of consumers’ income and expenditure to meet the criteria for an IVA or PTD; use of persuasive language to promote these products to consumers without fully explaining the risks involved; and providing advice that did not accurately reflect their conversations with consumers or information that consumers had given.
A reminder is issued that under the ICAS Code of Ethics, IPs have a duty to be satisfied that any advertising which may have lead to an insolvency appointment is appropriate (R2360.6). The Code also requires that IPs consider the fitness for purpose of third parties, such as debt packagers, to address the needs of recipients of the service (R2330.5). Procedures should be in place to regularly evaluate and carry out appropriate due diligence before entering into arrangements and to remain satisfied throughout the duration of such referral arrangements that the source of such referrals are conducting themselves in an appropriate manner.
HMRC insolvency guidance – changes to process for insolvent liquidation Corporation Tax cases
HMRC has issued a bulletin setting out changes to the process for Corporation Tax matters in insolvent liquidations. The bulletin includes a Q & A section.
In summary, if, during the period of liquidation, there has been no activity giving rise to a charge under Corporation Tax, there will be no requirement to submit nil Company Tax returns or liquidator reports and there will be no requirement to contact HMRC for tax clearance prior to closing the liquidation.
HMRC Insolvency Guidance - disguised remuneration and the loan charge
HMRC has issued guidance on the interaction between insolvency and steps it is taking in relation to disguised remuneration and the loan charge.
Defence Against Money Laundering (DAML) guidance for IPs
The National Crime Agency (NCA) has approved DAML guidance for IPs.
The guidance relates to DAML requests on truly urgent insolvency matters where there is an intrinsic urgency for an IP to fulfil their duties towards creditors. The guidance also addresses situations where multiple DAML requests are necessary.
As a matter of goodwill, the NCA have agreed to prioritise DAMLs in certain truly urgent insolvency cases, but it is important that this escalation process is reserved for only the most urgent of DAML requests and it does not represent an overall change in the statutory timescales to which the NCA operate.
Insolvency Service: directors of dissolved companies
The Insolvency Service are to be given powers to investigate directors of companies that have been dissolved via the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill, if approved. The bill has reached report stage in the House of Commons.
Extension of the power to investigate will also include the relevant sanctions such as disqualification from acting as a company director for up to 15 years. These powers will be exercised by the Insolvency Service on behalf of the Secretary of State for Business.
The measures will be retrospective and will enable the Insolvency Service to challenge directors who have inappropriately wound-up companies that have benefited from Bounce Back Loans.
Dear IP
Dear IP 132 has been issued by the Insolvency Service. The edition provides details of changes to the Director Conduct Reporting Service (DCRS) effective from 12 July 2021. The new release of DCRS that will affect the way that users navigate around a conduct report and provide new functionality.
Dear IP 133 has been issued by the Insolvency Service. The edition contains details of HMRC's new process for Corporation Tax in insolvent liquidations, RPS updates in relation to a template for setting up a new case and NI number validation, an update on the revised IVA protocol and a reminder to IPs regarding the review of current IVAs in view of the changes to the DRO criteria.
AiB Dear Trustee
The AiB has issued a ‘Dear Trustee’ letter which sets out details of the cessation of some of the contingency measures previously notified in its letter of 18 March 2020. The changes will take effect from 30 August 2021, unless otherwise notified, and include the recommencement of division and sale and eviction actions.
Updated list of AML High Risk Countries
The list of High Risk Third Countries defined under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 has been amended by the Money Laundering and Terrorist Financing (Amendment) (No.2) (High-Risk Countries) Regulations 2021 which came into effect on 13 July 2021. Ghana is no longer classed as a high-risk country for the purposes of enhanced customer due diligence requirements with Haiti, Malta, Philippines and South Sudan added to the list of countries where enhanced due diligence would be required.
Insolvency Service request for information – postmasters affected by Horizon IT system
The Insolvency Service has published an article seeking further information from postmasters who believe that financial discrepancies reported, incorrectly, by the Horizon IT system resulted in their insolvency.
HMRC agent dedicated line: debt management
HMRC has published contact details for an agent-dedicated line for authorised tax agents to discuss their clients’ debts.
Tax debt, government lending schemes and Company Voluntary Arrangements (CVAs)
In the context of the UK emerging from the pandemic and the resumption of economic activity, HMRC has released a policy paper setting out:
- what HMRC expects from customers using the various government lending schemes available, in relation to servicing tax debts.
- HMRC’s approach to Company Voluntary Arrangements (CVAs).
Money Laundering Regulations - consultation
HM Treasury has issued a consultation seeking views and evidence on the steps that the government proposes to take to amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
Areas of direct relevance to insolvency practitioners include:
- Supervisor access to SARs.
- Extension of Trust or Company Service Providers (TCSPs) services to include all Companies House registerable entities.
- Amending the beneficial discrepancy reporting requirement to make it an ongoing obligation.
The consultation closes 14 October 2021.
The Financial Markets and Insolvency (Transitional Provision) (EU Exit) (Amendment) Regulations 2021
The above regulations came into force on 1 July 2021.
The regulations address deficiencies in retained EU law arising as a result of the UK's withdrawal from the EU, in line with the approach taken in other financial services EU exit instruments under the European Union (Withdrawal) Act 2018.
The Payment and Electronic Money Institution Insolvency Regulations 2021
The above regulations came into force on 8 July 2021.
The regulations create a new special administration regime for payment and electronic money institutions. They apply, with modifications, part 24 of the Financial Services and Markets Act 2000 (which makes provision for insolvency) to those institutions except in respect of special administration.
Guidance on Boundaries of Personal and Professional Life
As members of a profession the requirements for act appropriately extend into non-work situations. The CCAB have published guidance to help understand what in personal life may discredit the profession.
Legal update
Re Hurricane Energy PLC [2021] EWHC 1759 (Ch): An application to approve a restructuring plan under Part 26A of the Companies Act was rejected on the basis that the plan failed to satisfy one of the key conditions set out in section 901G, namely that for cross-class cram down, no members of the dissenting class are worse off under the plan when compared with the relevant alternative.
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