I think we all need a break from new legislation and threats of more changes, don\u2019t we?\u00a0 How about settling back into something more familiar and, I think, strangely comforting: common non-compliances.<\/p>\n
Usually, late spring brings us the Insolvency Service\u2019s annual review of regulation, but there\u2019s no sign of it this year.\u00a0 But we do have the ICAEW\u2019s reports, which are well worth a read for any IP, as they highlight common issues that I think we\u2019re all seeing.\u00a0 This year, there are three ICAEW reports, although this blog only looks at their Insolvency Monitoring Report at: www.icaew.com\/-\/media\/corporate\/files\/technical\/insolvency\/regulations-and-standards\/annual-return-and-monitoring\/insolvency-monitoring-report.ashx<\/a><\/p>\n In the report, the ICAEW highlights the following areas that have brought IPs to the Committee\u2019s attention:<\/p>\n The ICAEW report identifies several other areas of concern as well as providing some useful tips on conducting SIP11 reviews<\/strong>.<\/p>\n <\/p>\n Issues that have led to Committee-referral<\/u><\/strong><\/p>\n The ICAEW reports that the following have led IPs to face the Insolvency Licensing Committee (\u201cILC\u201d):<\/p>\n 1. Remuneration<\/strong><\/em><\/span><\/p>\n The ICAEW reported instances of:<\/p>\n The issues that I have seen include: drawing pre-CVL fees that do not meet the R6.7 definition; getting in a muddle with who is required to approve Administrators\u2019 fees (and failing to make sure that this tallies with the Proposals); and accepting shareholders\u2019 informal approval of MVL fees, rather than getting a proper resolution.<\/p>\n When I have spoken with monitors (ICAEW and IPA), I have been given examples of excessive\/unreasonable fees that truly are toe-curling, although I have seen other cases that do not appear particularly damning.\u00a0 I understand that both RPBs have a number of cases working through their disciplinary procedures, but I have yet to see any sanction published under this heading.\u00a0 It may be a difficult allegation to make stick, but for some time I have felt that the RPBs and the InsS have been looking for a worthy scalp.<\/p>\n This one frustrates me: despite the comprehensive checklists and templates that many firms have, somehow several people still manage to overlook a key component in fee proposal packs.\u00a0 Often, the missing piece is a Notice of Decision Procedure when seeking a vote by correspondence.\u00a0 Sometimes, it is an Invitation to Nominate Committee Members and\/or a failure to seek a decision on the formation of a Committee.\u00a0 In some other cases, fee proposal packs have not been circulated to all the relevant creditors, sometimes because a bunch of creditors (usually the employees) have not been provided previously with a R1.50 website notice and sometimes because IPs have assumed that, as the RPO is the major preferential creditor, it is the only one who needs to be asked to approve an Administrator\u2019s fees in a relevant Para 52(1)(b) case.<\/p>\n This is scary, considering that the Rules changed in 2015!\u00a0 <\/em><\/strong>Personally, I haven\u2019t seen this in a few years now.\u00a0 I do still see, however, fee proposal packs lacking details of expenses, which is a necessary statutory component of all ADM, CVL, WUC and BKY fee proposal packs (and a SIP9 expectation in all case types).<\/p>\n The ICAEW\u2019s tips to improve in this area are:<\/p>\n I agree that this is valuable, although it will not ensure that valid approval has been achieved unless minutes of meetings\/records of decision are signed off with similarly rigorous checks.<\/p>\n Yep, I agree with this too.\u00a0 When considering fee estimates, I find it useful to consider the hours <\/em>being proposed.\u00a0 For example, it might look like good value to estimate time costs of \u00a35,000 to recover \u00a330,000, but if this means you\u2019re expecting to spend three whole days <\/em>to collect one book debt, then without more explanation this will look unreasonable.<\/p>\n <\/p>\n 2. Ethics<\/strong><\/em><\/span><\/p>\n The ICAEW reported three instances where:<\/p>\n I see this so <\/em>often that it makes me want to weep.\u00a0 In these cases, the reviewer\u2019s view was that the IP should have concluded that it was unethical to accept the appointment: now, that will <\/em>get you into hot water.<\/p>\n Unsurprisingly, the ICAEW\u2019s tips are:<\/p>\n I wonder if this goes wrong because people independent from the case (and\/or people who don\u2019t really understand ethics) are tasked with completing the ethics review\u2026 and then the prospective office holder signs it off without thinking.\u00a0 IPs, please think before you sign off an ethics review: does it disclose all prior relationships and are they well explained and evaluated?<\/p>\n <\/p>\n 3. Investigations<\/strong><\/em><\/span><\/p>\n The ICAEW reported:<\/p>\n Over recent years, there has been a trend away from lengthy checklists.\u00a0 While I can understand this for routine case administration not least as checklists are often completed after-the-event, this approach simply does not work for SIP2 investigations.\u00a0 The RPBs expect to see contemporaneous evidence <\/em>of what work has been done and the office-holder\u2019s thinking on whether anything is worth looking into further.<\/p>\n I have seen SIP2 investigations fail to pick up weird goings-on like money moving out of accounts after the company had apparently stopping trading.\u00a0 I have also seen SIP2 checklists identify a potential action and then the trail goes cold.\u00a0 Both are just not acceptable and, I think, usually stem from an overflowing caseload or disorganised case administration.<\/p>\n The ICAEW\u2019s tips are:<\/p>\n The ICAEW reminds us that litigation funders may be able to help.\u00a0 Some IPs screw their noses up at this suggestion based on rejections they received many years\u2019 ago.\u00a0 Times have changed, so I would recommend trying again.\u00a0 And if you still get a rejection, at least this can form part of your decision.\u00a0 Of course, your decision will also be based on your target\u2019s wealth: it may be a no-brainer decision, but always write it down.<\/p>\n <\/p>\n 4. Statutory Deadlines<\/strong><\/em><\/span><\/p>\n The ICAEW reported:<\/p>\n This isn\u2019t an issue I have seen.\u00a0 Perhaps it derives from poor diary\/task templates?\u00a0 I have seen some sub-standard designs since the 2016 Rules were introduced, but I think those issues have largely been ironed out now.\u00a0 Could the problem be overwhelming caseloads?\u00a0 Firms weren\u2019t exactly working at full pelt last year, so if this is your problem, then heaven help you in 2020\/21!\u00a0 Also, try not to get into the habit of running off progress reports at the very end of the deadline (and remember that ADM deadlines are one month, not two): if you do that, then there is no wriggle-room when you have a flurry of new work.<\/p>\n The ICAEW\u2019s tips are:<\/p>\n If diaries are very detailed, sometimes it is difficult to see the wood for the trees.\u00a0 Having this as one person\u2019s duty (or requiring, say, all managers to monitor\/chase) can help sift out the vital diary prompts from the not-so-important ones.\u00a0 It also helps more junior staff to learn which diary lines are non-negotiable.<\/p>\n <\/p>\n 5. Insolvency Compliance Reviews<\/strong><\/em><\/span><\/p>\n \u00a0<\/strong>The ICAEW reported:<\/p>\n It is worth remembering that the ICAEW does take this seriously, so please do give ICRs a great deal of attention.<\/p>\n Sometimes actually conducting <\/em>the ICR is the easy bit.\u00a0 The time required to make the necessary changes can be substantial.<\/p>\n The ICAEW\u2019s tips are:<\/p>\n The ICAEW provides a checklist (note: this works for corporate and personal cases): www.icaew.com\/regulation\/insolvency\/support-for-insolvency-practitioners\/corporate-insolvency-casework<\/a>.\u00a0 Some questions are subjective, e.g. re case progression, but if used critically with no preconceptions it covers all the major statutory bases.\u00a0 The ICR also needs to consider key areas on a firm-wide basis.\u00a0 The ICAEW\u2019s Review of Internal Controls and Systems Helpsheet \u2013 at www.icaew.com\/regulation\/insolvency\/support-for-insolvency-practitioners\/insolvency-compliance-review-helpsheets<\/a> \u2013 is a good start, but remember that, aside from the ICR itself, SIP11, client money and the Money Laundering Regs require more thorough individual attention.<\/p>\n I recommend getting the easy wins, e.g. fixing document templates and diary lines, out of the way quickly.\u00a0 Meatier tasks may take months to resolve, especially if they involve changing procedures, training staff and making sure that they have adapted to new requirements.\u00a0 Plan to tackle these tasks methodically, assign the tasks to appropriate staff and follow up with chasers\/meetings to make sure that progress continues to be made.\u00a0 Then, review the effectiveness of the changes ideally before the next ICR is due and keep going until the issue is resolved.<\/p>\n <\/p>\n 6. Information to Debtors<\/strong><\/em><\/span><\/p>\n The ICAEW reported:<\/p>\n \u2026including: omitting relevant options; rushing calls; leading the debtor; and not sufficiently explaining the pros and cons of options.<\/p>\n The ICAEW\u2019s tips are:<\/p>\n Nothing more needs to be said, really.\u00a0 Quality-controlling advice calls is a never-ending job and one that needs to be well-resourced.<\/p>\n <\/p>\n The Worst of the Rest<\/u><\/strong><\/p>\n Yes, there\u2019s more\u2026 lots more.<\/p>\n The above issues will get you in front of the ILC, but the ICAEW\u2019s report also highlights other issues that are worth double-checking:<\/p>\n Be careful of assuming first class delivery times and then using second class post.\u00a0 Take care also to exclude the date of delivery and the date of a decision when calculating notice periods.<\/p>\n In addition to the issues raised above, a plethora of qualitative issues arise, e.g. does the narrative explain the WIP or fee requested; are the numbers consistent throughout the doc; and are generic statements relevant to the case in question?\u00a0 Something I see missing a lot are explanations as to whether the fee and expenses estimates have been (or will be) exceeded and if so why.\u00a0 In some other cases, these explanations do not stack up with the WIP analysis, e.g. it might be reported that the fee estimate has been exceeded because of difficulties pursuing a certain asset, but the WIP analysis shows the fee estimate has only been exceeded in the Admin & Planning category.\u00a0 Sometimes this can point to poor time-recording practices.<\/p>\n The ICAEW reports some delays in asset recovery and in progressing dividends, as well as miscalculation of claims, especially those of employees.\u00a0 Remember that in most cases you have only 2 months after the last date for proving to declare the dividend and, if you miss that, then you will need to go through the NOID rigmarole again (and, if you don\u2019t have a good reason for missing it, then your second attempt should be at your own cost).\u00a0 The ICAEW expects payment of interim dividends in appropriate cases.\u00a0 I have also seen IPs put off progressing a preferential distribution until they can see their way clear to an unsecured dividend, which is not acceptable.\u00a0 The ICAEW has also highlighted an issue with IPs telling creditors that they will apply the small debt provisions and then they fail to follow this through.\u00a0 I have seen some initial letters and progress reports state such an intention and, although personally I think this is not binding until the NOID is issued (R14.31), to avoid any creditor confusion, I strongly recommend removing such statements from these early circulars: if you decide later to apply the small debt rules, then you can make this clear in the NOID.<\/p>\n The ICAEW report reminds readers about the need to review the firm-based AML risk assessment annually and to carry out a full AML review.\u00a0 I\u2019ll take a closer look at this topic in a future blog when I review the ICAEW\u2019s other annual reports.<\/p>\n The ICAEW report highlights that its Clients\u2019 Money Regs apply to more than just ICAEW-licensed IPs.\u00a0 If you work in an ICAEW-defined firm or the ICAEW is the firm\u2019s AML Supervisor, then you need to comply with the ICAEW\u2019s Clients\u2019 Money Regs whether or not you are licensed as an IP by them.\u00a0 To be honest, there are few differences between the IPA\u2019s and the ICAEW\u2019s Regs, but one notable difference is that the ICAEW requires an annual review of the operation of a client account.<\/p>\n The ICAEW reports that some are not considering on a case-by-case basis what personal data is held by the insolvent, whether it is secure and for what purpose it is held\/processed.\u00a0 The ICAEW also expects IPs to check whether the entity was registered with the ICO\u2026 although it is not clear what they expect you to do subsequently.\u00a0 I recall that R3 asked the ICO way back in 2018 whether IPs should be maintaining (or even initiating) insolvents\u2019 ICO registrations, which of course would attract additional costs to the estate.\u00a0 But then 2018\u2019s problems seem so<\/em> last year!<\/p>\n <\/p>\n SIP11 Reviews<\/u><\/strong><\/p>\n The ICAEW devotes a whole page to this topic in its report.\u00a0 Noteworthy points include:<\/p>\n I have seen more than one firm try to carry out a SIP11 review without having taken this step.\u00a0 How can you check whether the firm\u2019s processes have been followed, if they\u2019re not written down?\u00a0 SIP11 lists nine areas in paragraph 9 to document\u2026 and then adds a tenth (insurance cover) in paragraph 11.\u00a0 In effect, these areas result in a cashiering manual setting out what happens to money in, payments out, bank recs etc.<\/p>\n The ICAEW report highlights that traditional ICRs will not cover everything required of a SIP11 review.\u00a0 Jo and I concur: if you want us to do a SIP11 review alongside your ICR, please let us know this and expect the ICR to be longer (and more expensive). \u00a0There is no prescription as regards a SIP11 review, but the ICAEW report lists four points that could be considered:<\/p>\n To some extent, this will be covered by a traditional ICR, but the reviewer may only carry out full reviews of a couple of cases, which will be insufficient for SIP11 purposes.<\/p>\n From a SIP11 perspective, key issues include: how quickly client account money is moved to estate accounts; whether all post-appointment transactions are reflected on the case\u2019s cash-book; and what happens to any interest credited to the client account.<\/p>\n I would also recommend running reports on balances held in closed cases or in \u201csuspense\u201d accounts.<\/p>\n I have seen bank recs with uncleared adjusting entries or uncleared receipts signed off month after month without any apparent thought as to what is behind these.\u00a0 Understandably, uncleared payments can sit around for longer, but they do need to be resolved at some stage.<\/p>\n Although not included in the ICAEW\u2019s list, the report does note that the firm\u2019s bonding and insurance<\/strong> procedures also need to be reviewed as part of the SIP11 exercise.\u00a0 This could include a comparison of your open case list against your bond insurer\u2019s, which would help identify whether bonds are being released appropriately.\u00a0 You could also review whether bond schedules are issued before the 20th<\/sup> day of the following month \u2013 look particularly at appointments occurring right at the end of the month, as they can easily fail to hit IPS etc. in time for the following month\u2019s bordereau \u2013 and see how swiftly increases are arranged.\u00a0 Of course, the firm\u2019s insurances are reviewed annually on renewal, but you could prove SIP11 compliance by keeping a record of that renewal consideration by the IP(s)<\/em> in the same location as the SIP11 review docs.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" I think we all need a break from new legislation and threats of more changes, don\u2019t we?\u00a0 How about settling back into something more familiar and, I think, strangely comforting: common non-compliances. Usually, late spring brings us the Insolvency Service\u2019s … Continue reading \n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n