30 April 2021: Connected Persons Disposal Regs, InsS Guidance, SIP13, SIP16, new IVA Protocol (with eight annexes), SIP9 FAQs from the RPBs and Dear IP 126 \u2013 wow! Even Usain Bolt would struggle to keep up with the pace of regulatory change right now!<\/p>\n\n\n\n
Firstly, I\u2019ll look at the SIPs. <\/p>\n\n\n\n
\u201cNo changes have been made to the SIPs other than those required by the change in the law\u201d <\/p><\/blockquote>\n\n\n\n
stated some of the RPB\/R3 releases.\u00a0 Well, that\u2019s not quite true…\u00a0<\/p>\n\n\n\n
<\/p>\n\n\n\n
What needs changing?<\/span><\/strong><\/p>\n\n\n\n
In summary, solely to deal with the SIPs (i.e. not including the Connected Persons Disposal Regs at all), I think the following needs to be done:<\/p>\n\n\n\n
- Ensure that all staff know the widened scope of SIP13 \u2013 i.e. affecting all<\/em> corporate insolvencies \u2013 and consider including prompts within checklists, progress reports etc. to ensure that any sales to less directly connected parties are picked up<\/li>
- In the pre-ADM letter template to connected parties (and letter of engagement, where relevant), replace the old Pre-Pack Pool reference with the new evaluator\u2019s report requirement\u2026 and repeat the letter template (tweaked) for any post-appointment substantial disposals<\/li>
- Ensure that pre-pack connected parties that are not also connected persons <\/em>are notified of the potential benefits of a viability statement<\/li>
- Tweak the SIP16 statement to remove references to the Pre-Pack Pool and viability statement, except where a viability statement has been provided, and add reference to enclosing any evaluator\u2019s report with an explanation if it has been redacted<\/li><\/ul>\n\n\n\n
<\/p>\n\n\n\n
SIP13\u2019s scope enlarged\u2026<\/u><\/strong><\/p>\n\n\n\n
The old SIP13 affected sales to parties connected to the insolvent debtor or company by reason of S249 and S435 (but excluding certain secured creditors).\u00a0 Now, SIP13 defines a connected party as:<\/p>\n\n\n\n
\u201ca person with any connection<\/strong> to the directors, shareholders or secured creditors of the company or their associates\u201d<\/p><\/blockquote>\n\n\n\n
If SIP13 had been changed solely to reflect the new regulations, why has the reach of SIP13 been expanded far wider than the regulations\u2019 scope? And what does \u201cany connection\u201d mean exactly? Are we talking friendships? Even if \u201cany connection\u201d is still intended to mean something approaching the statutory definition, including connections with the associates<\/em> of directors, shareholders – and secured creditors<\/em> – wraps in a whole host of business and familial relationships that were not captured by S249, S435 or Para 60A(3) Sch B1.<\/p>\n\n\n\n
\u2026but also narrowed..?<\/u><\/strong><\/p>\n\n\n\n
There is a curious omission from the above definition: reference to any connections with the debtor<\/strong>. Presumably this is an error, as the SIP still states that it \u201capplies to both personal and corporate insolvency appointments\u201d. Oops!<\/p>\n\n\n\n
<\/p>\n\n\n\n
Connected person communications<\/u><\/strong><\/p>\n\n\n\n
The above definition is of a connected party, <\/em>but both SIPs also refer to connected persons. <\/em>These are the statutorily-defined connected persons caught by the new regulations, the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021, as defined by Para 60A(3) of Schedule B1. Of course, it is sensible for IPs to ensure that any connected person considering a regulations-caught disposal is aware of the requirement to obtain a qualifying evaluator\u2019s report to enable the disposal to be completed without creditor approval. This is now also a SIP requirement.<\/p>\n\n\n\n
Because SIP16 is concerned only with pre-packs, the requirement appears also in SIP13 in order to capture substantial disposals in Administrations that are not pre-packs. In my mind, this means substantial disposals that occur in the first 8 weeks of an Admin where there have been no pre-appointment negotiations (and, I guess, the odd \u201chiring out\u201d or non-sale \u201cdisposal\u201d of all or a substantial part of the business\/assets), i.e. truly post-<\/strong>appointment sales. Indeed, the R3\/RPB releases explained that the 8-week time frame of the new regulations led to the changes in SIP13.<\/p>\n\n\n\n
However, the changes are odd.\u00a0 SIP13 requires the \u201cinsolvency practitioner\u201d to ensure that the connected person is made aware of the regulations, but SIP13 states that:<\/p>\n\n\n\n
- \u201cfor the purposes of this Statement of Insolvency Practice only, the role of \u2018insolvency practitioner\u2019 is to be read as relating to the advisory engagement that an insolvency practitioner or their firm and or\/any (sic.) associates may have in the period prior <\/strong>to commencement of the insolvency process.\u00a0 The role of \u2018office holder\u2019 is to be read as the formal appointment as an office holder\u201d.\u00a0<\/li><\/ul>\n\n\n\n
So the new SIP13 requirement for connected person communications applies to IPs acting pre<\/strong>-appointment, not to office holders post<\/strong>-appointment. Given we are talking about non pre-pack disposals here, would it not have made more sense for the SIP13 requirement to be on office holders?<\/p>\n\n\n\n
But don\u2019t worry RPBs, I am sure that no Administrator is going to spend time negotiating a deal with a connected person without ensuring that they are in a position to complete. They hardly need a SIP to tell them to warn a relevant purchaser that they\u2019ll need a qualifying evaluator\u2019s report where necessary.<\/p>\n\n\n\n
<\/p>\n\n\n\n
Viability Statements\u2019 appearance narrowed\u2026<\/u><\/strong><\/p>\n\n\n\n
I reported at https:\/\/thecompliancealliance.co.uk\/blog\/legislation\/pre-pack_reforms\/<\/a> that the Insolvency Service\u2019s report that led to the regulations had noted the government\u2019s plan to \u201cwork with stakeholders to encourage greater use\u201d of viability statements.\u00a0 I was most surprised, therefore, to see viability statements take a step further into the shadows in the revised SIP16.<\/p>\n\n\n\n
The old SIP16 required Administrators to report to creditors on the existence or otherwise of a viability statement and, if there were none, on the fact that the Administrators had at least asked for one. Now, the only appearance of reference to a viability statement in a SIP16 statement is where one exists, in which case it should be attached.<\/p>\n\n\n\n
\u2026but also enlarged!<\/u><\/strong><\/p>\n\n\n\n
But we cannot ignore viability statements entirely: the new SIP16 has retained the need to make certain purchasers \u201caware of the potential for enhanced stakeholder confidence in preparing a viability statement\u201d. You might think: well, that\u2019s fine, it had been in my letters to connected purchasers when I told them about the Pre-Pack Pool, so now I\u2019ll leave in the viability statement bit and just tweak those letters to include the bit about the evaluator\u2019s report instead.<\/p>\n\n\n\n
Ah, if only it were that simple! Now this requirement applies \u201cwhere the purchaser is connected to the insolvent entity\u201d\u2026 and this <\/em>time, \u201cconnected\u201d means:<\/p>\n\n\n\n
- \u201ca person with any connection to the directors, shareholders or secured creditors of the company or their associates\u201d.\u00a0<\/li><\/ul>\n\n\n\n
So, if you are contemplating a pre-pack to someone who isn\u2019t <\/em>connected to such an extent that the new regulations apply, but they still have some kind of <\/em>connection, you will need to write to them solely <\/em>to tell them about the \u201cpotential for enhanced stakeholder confidence\u201d of a viability statement. What is the point?!<\/em><\/p>\n\n\n\n
<\/p>\n\n\n\n
Copy evaluator\u2019s report in SIP16 statement<\/u><\/strong><\/p>\n\n\n\n
Unsurprisingly, the new SIP16 requires a copy of any qualifying evaluator\u2019s report to be included with the SIP16 statement circular (whether or not this is at the same time as the Proposals). <\/p>\n\n\n\n
The SIP does not mirror the regulations\u2019 provision that the copy qualifying report (when included with the Proposals) may exclude any information that the Administrator considers is confidential or commercially sensitive, but presumably this would be acceptable provided that, as per SIP16 para 19, the Administrator explains why the report in full is not being provided.<\/p>\n\n\n\n
<\/p>\n\n\n\n
More changes to come?<\/u><\/strong><\/p>\n\n\n\n
Yes, I\u2019m afraid so. Dear IP 126 states that:<\/p>\n\n\n\n
\u201cSIP16 will be reviewed and amended further during the next 6 to 12 months\u201d\u00a0<\/p><\/blockquote>\n\n\n\n
I shall be interested to see the trend of Administrations in the future. I suspect that it is not so much the evaluator\u2019s report that will discourage pre-packs but rather the endless tinkering!<\/p>\n\n\n\n
<\/p>\n","protected":false},"excerpt":{"rendered":"
30 April 2021: Connected Persons Disposal Regs, InsS Guidance, SIP13, SIP16, new IVA Protocol (with eight annexes), SIP9 FAQs from the RPBs and Dear IP 126 \u2013 wow! Even Usain Bolt would struggle to keep up with the pace of … Continue reading