Reproduced below is my article for the ICAEW’s Insolvency & Restructuring Group. I wrote it before the revised SIP9 was released, but I think it has withstood that squall. Of course, SIP9 has added substantially to all our compliance to-do lists, so I will deal with that topic via a future blog and webinar.
This article focuses on how the infrastructures of an insolvency practice can help to implement the October fees rules now and into the future:
Do you still feel unprepared to deal with every aspect of the Insolvency (Amendment) Rules 2015? You are not alone.
I think that most of us have only become prepared to implement the new rules as and when it has become necessary. At the moment, it has only become truly necessary to deal with when seeking initial fee approval. However, this staged implementation is understandable given that we have been waiting to see how the revised SIP9 will affect disclosures to creditors.
It will take many months, possibly years, for the new regime to settle down and for us to develop suitable models, and ways of drafting reliable and informative fees and expenses estimates. In the meantime, what practical steps can we take to make the new regime work?
Careful time recording
I am sure that we have all looked at a SIP9 time cost breakdown and asked ourselves, “How can so much time have built up in admin and planning?” As the magnifying glass is focused ever more on justifying (anticipated) fees we would do well to examine how time is recorded in our practices. The importance of allocating time accurately and specifically to descriptive categories will be critical if we are planning to propose fees to be fixed on a mixture of bases.
Inappropriate time-posting to admin and planning may be down to laziness, but it might be due to a staff member’s lack of understanding. For example, if you have a general correspondence code in admin and planning, do staff gravitate towards this code instead of allocating time according to the content of the correspondence?
If they file away a whole host of creditors’ claims do they post the time to Creditors or do they see this as non-specific admin and planning filing? If they are dealing with the company’s books and records, do they consider the purpose behind the work, e.g. investigations, asset realisations or creditors, or do they just see it as an admin and planning task?
Whilst you will want to avoid staff incurring more time completing their timesheets, they may benefit from a refresher on good time-recording habits.
Diligent monitoring of fees
The mistake of drawing unauthorised remuneration is our worst nightmare. It is not difficult to see how the introduction of fees estimates increases the risk of this happening. If your time recording system provider has not already offered you a tool ask them how you can monitor the time costs incurred (and/or fees drawn) against approved estimates:
- Have they created a simple report for this purpose?
- Is the report able to flag up cases where the time costs incurred are, say, within 10% of an estimate?
This may help you to identify cases where you need to seek approval for excess fees (of course, if there are sufficient assets to pay them). If you intend seeking fees on a milestone basis, rather than for the case to completion, you will also want to find a way of monitoring these so that you do not lose sight of passing milestones. The prospect of monitoring fees estimates may be inclining you towards seeking approval of fees on a different basis or bases.
This would simplify the initial fee-approval process as you will not need to set out how much time you anticipate to spend on each part of the work, nor will you be restricted by the fees estimate. However, regardless of the fee basis sought, you will need to provide details of the work you propose to undertake and your expenses estimate. A fixed sum or a percentage of realisations effectively still acts as a cap, which will need to be monitored to ensure that the cap is not over-stepped. If you are planning mixed fee bases, it may also mean that you have to monitor fees drawn against two or three different thresholds, which will make fees-monitoring even more complex.
Although it will take time to build up a post 1 October case portfolio, this area presents such a high risk that I recommend you put the infrastructure in place now to deal with fees-monitoring as routine. Delegate to someone the responsibilities of inputting approved estimates on the system, running a report and identifying cases in need of excess approvals, chasing team members to obtain such approval, and recording onto the system revised fee approvals.
You should also revisit the process for raising or paying fees. Most IPs operate a system in which a copy of the fee approval (e.g. the minutes of the creditors’ meeting) are attached, along with a time costs print-out, to the request either to raise or pay a fees invoice. I recommend that you add to this request evidence of any approved fees estimate together with sufficient information to check that the fees proposed are within the estimate, fixed sum or percentage approved, i.e., a receipts and payments account. As a further safety blanket, you might add to the periodic case review forms a cross-check of the fees position.
Targeted compliance reviews
Staff training, updated template documents, checklists and diaries will help guide staff through the obstacle course of the new rules, but to make sure that the requirements are understood and the tools are working as intended, it would be valuable to review the outputs periodically. Assign to someone, independent of the cases, the task of reviewing the various stages across a range of cases.
The questions you might address
- Did the documents proposing the fees resolution explain the work proposed to be undertaken adequately and was it relevant to the case in question?
- Were the fees and expenses estimates realistic?
- Have fees been drawn in line with approvals?
- Was the need to seek approval for excess fees spotted early and dealt with promptly?
If the answer to any of these is “no”, then how can systems be changed to reduce the risk of recurrence?
I am sure that over time we will become skilled in presenting fees estimates clearly and concisely so that creditors better understand, not only the costs of meeting the plethora of statutory obligations but also the complexities and difficulties that occur even in seemingly straightforward cases. Effective communication is key.
Michelle Butler, The Compliance Alliance
(© ICAEW 2015)