{"id":760,"date":"2021-03-17T19:45:18","date_gmt":"2021-03-17T19:45:18","guid":{"rendered":"http:\/\/thecompliancealliance.co.uk\/blog\/?p=760"},"modified":"2021-03-17T19:45:18","modified_gmt":"2021-03-17T19:45:18","slug":"sip3-2","status":"publish","type":"post","link":"https:\/\/thecompliancealliance.co.uk\/blog\/sips\/sip3-2\/","title":{"rendered":"New SIP3.2: more red tape and longer docs"},"content":{"rendered":"\n<p>It would be a mistake to assume that we don\u2019t need to think about the revised SIP3.2 until 1 April.&nbsp; It applies to all <em>nominee appointments<\/em> from 1 April 2021, so in view of the lead time on preparing CVA Proposals, you may well find that you already have engagements that need to comply with the new SIP3.2.<\/p>\n\n\n\n<p>In this article, I look at the practical effects of the changes to SIP3.2.<\/p>\n\n\n\n<p>Firstly, though, I should apologise for maligning the ICAEW.&nbsp; In my last blog, I\u2019d said that they had not formally issued the revised SIPs, but I\u2019d overlooked an email that hit my inbox two days before I posted my article.&nbsp; The IPA finally issued the SIPs on 10 March 2021\u2026 so if you\u2019re an IPA member who has already issued an unchanged advice letter to deal with a nominee appointment that you expect to get after 1 April, I suggest that you have a very good excuse why the letter didn\u2019t comply with the new SIP.<\/p>\n\n\n\n<p>The revised SIP3.2 (E&amp;W) can be found at <a href=\"https:\/\/www.icaew.com\/-\/media\/corporate\/files\/technical\/insolvency\/regulations-and-standards\/sips\/england\/sip-3-2-company-voluntary-arrangements-england-and-wales.ashx\">https:\/\/www.icaew.com\/-\/media\/corporate\/files\/technical\/insolvency\/regulations-and-standards\/sips\/england\/sip-3-2-company-voluntary-arrangements-england-and-wales.ashx<\/a><\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>More Ethical Taglines<\/strong><\/p>\n\n\n\n<p>There are several new references in the SIP to acting professionally, objectively etc.&nbsp; In practice, these don\u2019t affect how IPs work, as I\u2019m sure that your Ethics Checklists and periodic case reviews already keep these requirements in the frame.&nbsp; The SIP3.2 additions just seem to be another cudgel that an RPB may wield if they see unethical behaviour, although I\u2019m not sure why the Ethics Code needs an escort.<\/p>\n\n\n\n<p>Instead, let\u2019s focus on what you need to change to comply with the new SIP.\u00a0<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>\u201cAdditional Specialist Assistance\u201d<\/strong><\/p>\n\n\n\n<p>The SIP requires the IP to have procedures in place to ensure that, at each appropriate stage of the process, the company\/directors are informed about:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>\u201cwhether and why the company will require additional specialist assistance which will not be provided by any supervisor appointed, including the likely cost of that additional assistance, if known\u201d<\/p><\/blockquote>\n\n\n\n<p>On a similar theme, the Proposal must contain information on:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>\u201cany additional specialist assistance which may be required by the company which will not be provided by any supervisor appointed, and the reason why such assistance may be necessary.., the cost of any additional specialist assistance\u201d<\/p><\/blockquote>\n\n\n\n<p>What do the drafters have in mind here?&nbsp; Perhaps they are thinking about restructuring professionals.&nbsp; \u201cAdditional specialist assistance\u201d could also encompass other instructions, for example where the company expects to deal with something outside the ordinary course of business, such as selling assets\u2026 or dealing with a legal matter\u2026 or refinancing&#8230; or\u2026&nbsp;<\/p>\n\n\n\n<p>Of course, it makes sense to ensure that the directors are prepared to factor in such additional costs, but I am not sure I understand what this has to do with the creditors: if the Proposal sets out what net proceeds or contributions will come into the CVA together with sensible forecasts where appropriate \u2013 and further details if the IP\u2019s firm is to receive any additional payments (as was already required by SIP3.2) \u2013 then isn\u2019t that enough to enable them to assess the Proposal?<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>Changes to Advice Letters and Interview Records<\/strong><\/p>\n\n\n\n<p>In addition to covering off any additional specialist assistance, advice letters and\/or interview records must now explain the directors\u2019 responsibilities and role both before and during the CVA \u2013 \u201cduring\u201d is new.<\/p>\n\n\n\n<p>Instead of requiring a \u201cface to face\u201d meeting with the directors, the SIP now requires the initial meeting to be \u201cin person (whether a physical meeting or using conferencing technology)\u201d.\u00a0 For sole directors, would a telephone meeting be acceptable..?\u00a0 In any event, it might be useful to add to your interview record the method used.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>More Strategy Notes<\/strong><\/p>\n\n\n\n<p>The SIP adds some new strategy note requirements, which might also be incorporated into interview records.&nbsp; It requires:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>\u201cA detailed note of the strategy, outlining the advantages and disadvantages of each option\u201d, which was previously only required for Administrator\/Liquidator Proposals<\/li><li>\u201c\u2026including the impact of trading within a CVA for a prolonged period and the continued viability of the business during that period\u201d \u2013 this is new and makes sense to me: it is of course sensible to manage the directors\u2019 expectations, make them fully aware of how tough it can be to trade on in a CVA.\u00a0 CVA companies may have some protection via S233 and S233A, but practically I suspect that most creditor suppliers make CVA companies go through pain.\u00a0 The SIP also requires:<\/li><li>Creditors to be \u201cgiven adequate time to consider what is being planned as regards the CVA\u201d.\u00a0 I find this odd: what are the RPBs\u2019 expectations?\u00a0 In the ICAS webinar (<a href=\"http:\/\/ow.ly\/tcGU50DKuCp\">http:\/\/ow.ly\/tcGU50DKuCp<\/a>), David Menzies suggested that IPs should document why the period of time given to creditors to consider the CVA is adequate, including factors such as the delivery time and the time creditors would need to get advice.\u00a0 But the company is insolvent, it is probably continuing to trade under difficult and uncertain circumstances, surely the approval of a CVA should be pursued as quickly as possible, for creditors\u2019 sakes as well as the company\u2019s?\u00a0 The Rules put a narrow timescale on the process \u2013 effectively between 14 and 28 days from delivery of the nominee\u2019s report \u2013 so presumably the legislators felt that 14 days (post-delivery) was adequate time for creditors, doesn\u2019t this satisfy SIP3.2?\u00a0<\/li><\/ul>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>Signposting Sources of Help<\/strong><\/p>\n\n\n\n<p>Something else to record on the strategy note might be your consideration of \u201csignposting sources of help\u201d \u201cwhere creditors may need assistance in understanding the consequences of a CVA\u201d.<\/p>\n\n\n\n<p>In his webinar, David Menzies recommended that IPs should document their consideration of the creditor composition, such as their knowledge, experience and skills, and especially if the IP is not going to be signposting creditors to sources of help.&nbsp; He also suggested that we gather details of potential sources of help \u2013 generic and sector specific \u2013 that could be signposted to.<\/p>\n\n\n\n<p>Ok, a generic one is the R3\u2019s site at <a href=\"http:\/\/www.creditorinsolvencyguide.co.uk\/\">http:\/\/www.creditorinsolvencyguide.co.uk\/<\/a>, which I expect many of us added to our initial creditor letters years ago.&nbsp; Other than that, where would you signpost creditors to?<\/p>\n\n\n\n<p>The elephant in the room is the British Property Federation, which was represented on the SIP3.2 working group.&nbsp; Additions to the Proposal\u2019s contents listed below strongly suggest that the BPF had quite some influence over the revised SIP.&nbsp; True, the BPF provides guidance for landlords who receive a CVA Proposal, but I question whether it is helpful to the process to recommend that landlords issue a 33-point wishlist to nominees as \u201ca standard document\u2026 if they do not feel they have been provided with the requisite information\u201d (<a href=\"https:\/\/bpf.org.uk\/media\/2319\/cva-creditor-friendly-document-09102019.pdf\">https:\/\/bpf.org.uk\/media\/2319\/cva-creditor-friendly-document-09102019.pdf<\/a>).<\/p>\n\n\n\n<p>What about employees?&nbsp; Ok, employees rarely have much more than contingent claims that won\u2019t crystallise, but particularly as they could find that not all their claims would be covered by the RPS in the event of an insolvency process following the CVA, it would seem appropriate to consider giving them access to guidance.&nbsp; However .gov.uk\u2019s coverage is poor.&nbsp; <a href=\"https:\/\/www.gov.uk\/your-rights-if-your-employer-is-insolvent\">https:\/\/www.gov.uk\/your-rights-if-your-employer-is-insolvent<\/a> simply lists CVA amongst the insolvency processes and states that employees might be able to make claims to the government.&nbsp;<\/p>\n\n\n\n<p>Well, that\u2019s two creditor groups that might not be helped with any existing resources.\u00a0 It seems that the JIC has put the cart before the horse on this one.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>Much More Required in Proposals<\/strong><\/p>\n\n\n\n<p>The new SIP adds several new items to the Proposals\u2019 tick-sheet:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Additional specialist assistance, as explained above;<\/li><li>The alternative options considered, both prior to and within formal insolvency by the company;<\/li><li>An explanation of the role and powers of the supervisor;<\/li><li>Details of any discussions with key creditors;<\/li><li>Where it is proposed that certain creditors are to be treated differently, an explanation as to which creditors are affected, how and why;<\/li><li>An explanation of how debts are to be valued for voting purposes, in particular where the creditors include long term or contingent liabilities;<\/li><li>An explanation of how debts that it is proposed are compromised will be treated should the CVA fail;<\/li><li>The circumstances in which the CVA may fail; and<\/li><li>What will happen to the company and any remaining assets subject to the CVA should the CVA fail.<\/li><\/ul>\n\n\n\n<p>Although I dislike the way SIP requirements grow and grow, most of the above additions are not disastrous and in fact several are probably addressed in most CVA Proposal templates already. &nbsp;At least two of the new requirements are clearly targeted at multiple landlord CVA Proposals, which one would hope are already being well crafted with the assistance of solicitors.<\/p>\n\n\n\n<p>One of the new requirements has got us puzzling.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>How to Value Votes<\/strong><\/p>\n\n\n\n<p>Firstly, is it possible to define how votes will be valued for the S3 process other than as set out by legislation and case law precedent?&nbsp; If the chair\/convener were to value votes in any other way, wouldn\u2019t it give rise to grounds for a challenge of material irregularity?<\/p>\n\n\n\n<p>Secondly, what can be the point of adding to the Proposal terms setting out how claims will be valued for voting in the S3 process, when the Proposal does not take effect until after the vote has been determined?&nbsp; A Proposal\u2019s terms cannot have any effect on what happens before it is approved, can it?<\/p>\n\n\n\n<p>Presumably, therefore, the regulators only expect Proposals to set out how votes would be valued in decision processes during the <em>course<\/em> of the CVA\u2026 although that\u2019s not what the SIP says.<\/p>\n\n\n\n<p>But what kind of explanation do the regulators expect?\u00a0 If it is proposed that votes be valued by applying the Rules for statutory decision processes in CVA, e.g. by following R15.31(1) that votes will be calculated according to the claims as at the decision date and R15.31(3) that debts of unliquidated or unascertained amounts will be valued at \u00a31 unless the chair\/convener decides to put a higher value on it, is this sufficient explanation?\u00a0 Or do the regulators expect Proposals to set out how every single claim (especially the uncertain ones) will be valued and at every stage of the CVA, e.g. before adjudicating on claims for dividend purposes and then after having paid a dividend?\u00a0 What about if there is new case law that takes things in a different direction?\u00a0 Should a supervisor simply consider themselves bound by what the Proposal (and perhaps as modified!) dictates?<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>After Approval<\/strong><\/p>\n\n\n\n<p>AND breathe.&nbsp; In comparison, the post-approval additions don\u2019t look too grim.&nbsp;<\/p>\n\n\n\n<p>The SIP adds to the supervisor\u2019s post-approval duties:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Sources of income of the associates of the IP in relation to the case must be disclosed (the old SIP restricted it to the IP\u2019s and their firm\u2019s income);<\/li><li>If the CVA costs have increased beyond previously reported estimates, not only should the increase be reported, but also \u201can explanation of the increase\u201d should be provided;<\/li><li>When a CVA concludes or fails, the supervisor should ensure that the company is dealt with appropriately in accordance with the CVA Proposal (presumably where this is in the supervisor\u2019s power?); and what is to happen should be reported to creditors.<\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>It would be a mistake to assume that we don\u2019t need to think about the revised SIP3.2 until 1 April.&nbsp; It applies to all nominee appointments from 1 April 2021, so in view of the lead time on preparing CVA &hellip; <a href=\"https:\/\/thecompliancealliance.co.uk\/blog\/sips\/sip3-2\/\">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","enabled":false},"version":2}},"categories":[18],"tags":[188,189,187],"class_list":["post-760","post","type-post","status-publish","format-standard","hentry","category-sips","tag-cva","tag-cva-proposal","tag-sip3-2"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p6i4jv-cg","_links":{"self":[{"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/posts\/760","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=760"}],"version-history":[{"count":3,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/posts\/760\/revisions"}],"predecessor-version":[{"id":763,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/posts\/760\/revisions\/763"}],"wp:attachment":[{"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/media?parent=760"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/categories?post=760"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/tags?post=760"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}