{"id":1541,"date":"2023-03-21T15:10:21","date_gmt":"2023-03-21T15:10:21","guid":{"rendered":"https:\/\/thecompliancealliance.co.uk\/blog\/?p=1541"},"modified":"2023-03-21T15:10:21","modified_gmt":"2023-03-21T15:10:21","slug":"sip3-1-part-2","status":"publish","type":"post","link":"https:\/\/thecompliancealliance.co.uk\/blog\/sips\/sip3-1-part-2\/","title":{"rendered":"The revised SIP3.1 (part 2): will it improve debtors\u2019 experiences?"},"content":{"rendered":"\n<p>This is my second post on the changes introduced by the revised SIP3.1.&nbsp; In this post, I examine how the SIP affects the IVA journey through the Nominee to Supervisor and on to closure.&nbsp; I end with a quick summary of all the key document changes required by the revised SIP.<\/p>\n\n\n\n<p>As mentioned in part 1, please bear in mind that these posts focus on the main changes.&nbsp; Particularly depending on your own templates and procedures, the revisions may affect you in other ways.&nbsp; This is no substitute for scrutinising the SIP for yourself.<\/p>\n\n\n\n<p>The topics covered in this blog post are:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Elevating the need to communicate with affected third parties<\/li><li>Pre-IVA investigations relaxed?<\/li><li>Signposting creditors<\/li><li>Thirteen items added or changed on the Proposal wishlist<\/li><li>Additional steps for modifications<\/li><li>Six additions or changes to the Supervisor\u2019s duties<\/li><li>Will all this help improve IVA standards and, importantly, the debtor\u2019s experience?<\/li><li>Finally, a quick summary of document templates affected by the new SIP<\/li><\/ul>\n\n\n\n<p><strong>Dealing with third parties<\/strong><\/p>\n\n\n\n<p>The SIP contains a couple of new requirements about how we should be dealing with third parties:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>IPs need to maintain records of \u201cconsiderations of the impact of the IVA on any third parties, including any joint creditors, guarantors or co-owners of property\u201d at all stages of the IVA (para 15b)<\/li><li>IPs need procedures to ensure that \u201cconsent is obtained, where appropriate, from any third-party individuals whose income is to be shown as included in the income and expenditure statement or who have an interest in any assets included in the proposal\u201d (para 16f)<\/li><\/ul>\n\n\n\n<p>In my experience, it has been rare (maybe <em>too <\/em>rare) for only one person in a couple to propose an IVA, but in those circumstances there is a need to communicate directly with the other party where they have interests in assets or the household income or they share liabilities.<\/p>\n\n\n\n<p>The SIP also includes that \u201cany third party contributor\u2019s identity [should be] checked and verified and all evidence is kept on the file\u201d (para 18f) \u2013 this was previously required by the RPBs, albeit only appearing in their AML \u201cguidance\u201d.&nbsp; The SIP extends this requirement also to verifying the debtor\u2019s identity, but as this is clearly required by the MLR17, I am not quite sure why it has been considered necessary for a SIP.<\/p>\n\n\n\n<p><strong>A relaxed requirement?<\/strong><\/p>\n\n\n\n<p>It is very unusual for a SIP to be revised to ease requirements.&nbsp; This SIP3.1 appears to have done that as regards exploring the debtor\u2019s assets, liabilities, income and expenditure:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The old SIP3.1 required \u201cproportionate investigations into and verification of\u201d these items<\/li><li>The new SIP3.1 merely requires \u201cproportionate enquiries\u201d to be undertaken and evidenced on the file (para 18f)<\/li><\/ul>\n\n\n\n<p><strong>Duties to creditors<\/strong><\/p>\n\n\n\n<p>An IP\u2019s procedures are required to ensure that:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>\u201cwhere creditors might need assistance in understanding the consequences of an IVA, the insolvency practitioner signposts sources of help\u201d (para 18g)<\/li><\/ul>\n\n\n\n<p>While it might be useful to add to your initial letter to creditors something to achieve this, this paragraph actually appears under the heading, \u201cPreparing for an IVA\u201d, i.e. before issuing the Proposal, so it might be difficult to put safeguards into place to ensure this is met, as any pre-Proposal exchanges with creditors will be pretty bespoke.<\/p>\n\n\n\n<p>Anyway, where would you send such creditors?&nbsp; Who other than a solicitor would be well-placed to assist a creditor in understanding the consequences of an IVA?<\/p>\n\n\n\n<p><strong><u>Finally, the Proposal!<\/u><\/strong><\/p>\n\n\n\n<p>By the time we get to the SIP\u2019s Proposal section, I think we all realise that the concept of SIPs being principles-based and not prescriptive has gone out of the window.<\/p>\n\n\n\n<p>Here is a list of the main additions to the Proposal wishlist (para 21):<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>\u201cthe alternative options considered both outside and within formal insolvency procedures, with specific reasons for not adopting them\u201d<ul><li>This seems odd for an IVA Proposal \u2013 you wouldn\u2019t put in a contract why the parties have decided not to contract with competitors \u2013 but hey ho.<\/li><\/ul><\/li><li>\u201cwhere relevant, information to support any profit and cash projections, subject to any commercial sensitivity\u201d<\/li><li>\u201can explanation of the role and powers of the supervisor\u201d<ul><li>\u2026 in addition to \u201cthe <em>functions<\/em> of the supervisor\u201d (R8.3k)..?<\/li><\/ul><\/li><li>\u201cdetails of any discussions which have taken place with key creditors\u201d<\/li><li>\u201cwhere it is proposed that certain creditors are to be treated differently, an explanation as to which creditors are affected, how and why, in a manner which aims to be clear and useful\u201d<\/li><li>\u201can explanation of how debts are to be valued for voting purposes, in particular where the creditors include long-term or contingent liabilities\u201d<ul><li>More SIP3.2 spill-overs (sigh!)<\/li><\/ul><\/li><li>\u201cwhether the source [of any referral of the debtor] undertook the regulated activity of debt counselling, and if so whether the source is FCA authorised or exempt in relation to debt counselling\u2026\u201d<ul><li>As mentioned earlier, this seems to require IPs to have an in-depth knowledge of the FCA\u2019s authorisation regime and regulations including its distinction between advice and information.&nbsp; The PERG section of the FCA\u2019s handbook has much to say on this topic.<\/li><\/ul><\/li><li>\u201c\u2026 and details of any prior relationship between the source and the debtor or the insolvency practitioner\u201d<ul><li>It seems odd that this was not extended to encompass the referrer\u2019s relationship with the <em>firm<\/em>.<\/li><\/ul><\/li><li>where any payment has been, or is proposed to be, made to the referrer, an explanation of \u201chow it represents value for the work\/services provided to the insolvency practitioner\u201d<\/li><li>\u201cdetails of any direct or indirect payments made, or to be made, to any third parties or associates in connection with the proposed IVA, together with a description of the goods or services provided and the reasons for all payments\u201d<ul><li>This is pretty-much the old SIP\u2019s words but in a different order.&nbsp; I think this is now clearer in requiring disclosure of payments from sources other than the IVA estate (e.g. from the IP\u2019s firm), although I think it could be difficult to enforce.<\/li><\/ul><\/li><li>\u201can explanation of how debts that are proposed to be compromised will be treated should the IVA fail\u201d<\/li><li>\u201cthe circumstances in which the IVA might conclude or fail, including what might happen to the debtor in such circumstances\u201d<ul><li>I\u2019m assuming they only mean what might happen to the debtor if the IVA fails, not if it concludes (successfully).&nbsp; But even this is asking a lot, isn\u2019t it?<\/li><\/ul><\/li><li>\u201cany specifically identifiable risks of failure applicable to the IVA\u201d<\/li><\/ul>\n\n\n\n<p>If any of these new (or any other) items on the Proposal wishlist are \u201cnot detailed in full\u201d, the SIP requires \u201cadequate explanations\u201d to be provided (para 21).&nbsp; I am not sure how one measures what might be an <em>adequate<\/em> explanation!<\/p>\n\n\n\n<p>As with the Initial Advice wishlist, although many of these may already be covered in your Proposal template, I think you would do well to double-check that the template hits the mark in all aspects.<\/p>\n\n\n\n<p>In addition, the SIP states that, \u201cif the IVA Protocol has been used to form the basis of an IVA proposal, any deviations from the Protocol should be explained in writing to the debtor and their creditors\u201d (para 20), although this need not form part of the Proposal itself.<\/p>\n\n\n\n<p><strong>Handling modifications<\/strong><\/p>\n\n\n\n<p>The SIP has changed in respect of the Nominee\u2019s duties on receiving creditors\u2019 modifications (para 22):<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>when the Nominee seeks the debtor\u2019s consent to any modifications, their explanation should \u201cinclude the preparation of revised comparative outcome statements showing the effects of the modifications if agreement to them is a reasonable prospect and will change the outcome\u201d<\/li><li>\u201cwhere any conflicting modifications are proposed, the prevailing adaptations, i.e. those agreed by debtor and supported by a 75% majority of creditors, are identified and recorded by the nominee\u201d<ul><li>I thought I understood what was meant by \u201cprevailing adaptations\u201d, but the \u201ci.e.\u201d threw me.&nbsp; The \u201ci.e.\u201d just means the mods agreed by debtors and creditors need to be recorded.&nbsp; But \u201cprevailing adaptations\u201d where there are conflicting mods means much more, doesn\u2019t it?&nbsp; Doesn\u2019t it mean that, if one creditor caps fees at \u00a33,000 and another caps them at \u00a32,000, and both mods are agreed by debtor\/creditors, then the \u201cprevailing adaptation\u201d is that the fees are capped at \u00a32,000?&nbsp; Of course, that\u2019s a straightforward clash of mods. There could be many complex conflicts presented by agreed mods and the \u201cprevailing adaptations\u201d could depend on one\u2019s priorities, but I don\u2019t think the SIP makes clear what is required.<\/li><\/ul><\/li><li>\u201cthe debtor\u2019s consent to agreed modifications is recorded and in the absence of the debtor\u2019s consent, the IVA cannot proceed in a modified form\u201d<ul><li>The wording here is slightly changed from the previous SIP.&nbsp; The change is rather subtle, but I think it means that the debtor\u2019s agreement must be recorded <em>by the start <\/em>of the IVA \u2013 otherwise it cannot proceed \u2013 rather than staff contacting the debtor after the creditors\u2019 decision has been made in order to record the debtor\u2019s agreement.<\/li><\/ul><\/li><\/ul>\n\n\n\n<p><strong><u>Finally, the IVA!<\/u><\/strong><\/p>\n\n\n\n<p>The SIP contains a few more additions for Supervisors (para 23):<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Supervisors should \u201cobtain the debtor\u2019s written consent to any variations to the original terms of the IVA proposal put forward by creditors\u201d<ul><li>This is odd: how many variations are \u201cput forward by creditors\u201d??<\/li><\/ul><\/li><li>Reports must provide full disclosure of the IVA costs \u201cincluding the cost of any work carried out by third parties and associates of the supervisor or their firm\u201d<ul><li>The revision removes the requirement to disclose also \u201cany sources of income of the insolvency practitioner or the practice in relation to the case\u201d.&nbsp; But it should be remembered that, if the IP\/firm\/associate receives any referral fees or commission during the IVA, the Code of Ethics requires this to be paid into the estate and disclosed to creditors in any event.<\/li><\/ul><\/li><li>Any increase in costs over previously reported estimates should be \u201cexplained and\u201d reported at the next available opportunity \u201cand in any event no later than six months after the end of the IVA\u201d<ul><li>Given that R8.31 requires a report within 28 days of any full implementation or termination of the IVA, I don\u2019t understand the 6-month deadline here.&nbsp; The only scenario I can think of is where the IP\/firm did not realise that the IVA had expired due to the effluxion of time and so missed this statutory requirement, but does it help to add a SIP requirement seemingly allowing 6 months?<\/li><\/ul><\/li><li>\u201cAny completion certificate should be issued as soon as reasonably practicable and no later than six months after the final payment is made by the debtor, unless another requirement of the proposal makes this impossible\u201d<\/li><li>\u201cThe effect of completion or failure should be reported to the debtor and their creditors\u201d<\/li><li>\u201cWhen the IVA concludes or fails, the supervisor should ensure that they act in accordance with the terms and conditions of the proposal\u201d<ul><li>Isn\u2019t this like stating that an office holder needs to comply with the Act and Rules?&nbsp; Then again, given that the IVA Standing Committee and the Insolvency Service published expectations during the pandemic that Supervisors would <em>not <\/em>act in accordance with IVA Proposals\u2019 terms, maybe it did need saying!<\/li><\/ul><\/li><\/ul>\n\n\n\n<p><strong>Will the new SIP improve the delivery standards of IVAs?<\/strong><\/p>\n\n\n\n<p>My overriding feeling is that the RPBs have seen a number of practices that they don\u2019t like and they have sought to outlaw them by means of this SIP.&nbsp; The only problem is that, if you don\u2019t know what the bad practices are, it can be difficult to discern exactly how the RPBs expect you to implement the changes.&nbsp;<\/p>\n\n\n\n<p>When I asked one RPB staff member to explain some elements of the SIP, their explanations often were: what we don\u2019t want to see is [\u2026]&nbsp; I haven\u2019t repeated them here, as they are only one person\u2019s point of view and I suspect that other RPB monitors will measure compliance success or failure differently in the future.&nbsp; I\u2019m not sure it would be appropriate to publish a list of bad practices and, having had to roll with the RPBs\u2019 FAQs on the last revision of SIP9, I definitely don\u2019t want to suggest that the RPBs follow up with additional guidance on how to implement SIP3.1.&nbsp; But it doesn\u2019t stop me feeling that the SIP has left plenty of room for goalposts to move in the future.<\/p>\n\n\n\n<p><strong>What about the debtor?<\/strong><\/p>\n\n\n\n<p>Finally, I think we should spare a thought for the person at the centre of IVAs: the debtor.&nbsp; While I accept that there are poor practices out there, I am not persuaded that they will be eliminated by requiring IPs to throw yet more information to debtors.&nbsp;<\/p>\n\n\n\n<p>I am surprised that many of the known poor practices were not capable of being addressed with reference to the principles of the old SIP3.1 and the Code of Ethics.&nbsp; And I am not convinced that the new SIP will silence those who believe that pre-IVA advice would be better regulated by the FCA.&nbsp; I suspect this debate will run and run.<\/p>\n\n\n\n<p><strong>A list for compliance managers<\/strong><\/p>\n\n\n\n<p>To summarise my two blog posts, here\u2019s a short list of documents that needed to be amended \u2013 or at the very least double-checked to ensure that you were ahead of the curve \u2013 in light of the revised SIP:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Initial meeting script\/record<\/li><li>Initial advice letter \/ engagement letter<\/li><li>Internal docs to record SIP3.1 Assessments (both pre and post-approval of IVA)<\/li><li>Internal docs and processes to explore advice given by any referrer and their authority for giving the advice<\/li><li>Letters to third party contributors and other third parties affected<\/li><li>Letters to non-IVA partners where household income &amp; expenditures are to be disclosed<\/li><li>Vulnerability checklists<\/li><li>Proposal doc<\/li><li>Nominee report (depending on the extent that the report explains the roles and the extent of investigations)<\/li><li>Letters to creditors (redefining the adviser\u2019s role and signposting sources of help)<\/li><li>Communications with the debtor about proposed modifications<\/li><li>Progress reports<\/li><li>Final reports and any covering letters explaining the effects of the end of the IVA<\/li><li>Checklists (of course!)<\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>This is my second post on the changes introduced by the revised SIP3.1.&nbsp; In this post, I examine how the SIP affects the IVA journey through the Nominee to Supervisor and on to closure.&nbsp; I end with a quick summary &hellip; <a href=\"https:\/\/thecompliancealliance.co.uk\/blog\/sips\/sip3-1-part-2\/\">Continue reading <span class=\"meta-nav\">&rarr;<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[18],"tags":[108,197,208,205,202,206],"class_list":["post-1541","post","type-post","status-publish","format-standard","hentry","category-sips","tag-iva","tag-iva-proposal","tag-modifications","tag-nominee","tag-sip3-1","tag-supervisor"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p6i4jv-oR","_links":{"self":[{"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/posts\/1541","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/comments?post=1541"}],"version-history":[{"count":1,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/posts\/1541\/revisions"}],"predecessor-version":[{"id":1542,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/posts\/1541\/revisions\/1542"}],"wp:attachment":[{"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/media?parent=1541"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/categories?post=1541"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/tags?post=1541"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}