The Joint Insolvency Committee (JIC) is consulting on changes to SIP 9 – Payments to insolvency office holders and their associates and SIP 7 – Presentation of financial information in insolvency proceedings.
The consultation will commence on 27 April 2020 and will be open for a period of 12 weeks, closing on 20 July 2020.
The JIC recognises that these are testing times. But these are only proposed changes. There is no intention to amend the Statements of Insolvency Practice (SIPs) without careful consideration of the responses received and any plan to introduce changes will take into account any continuing challenges faced by the insolvency profession.
The legislative changes recently announced by Government, do not have impact on the SIPs which are the subject of this consultation.
SIP 9 – payments to insolvency office holders and their associates and SIP 7 – presentation of financial information in insolvency proceedings
In 2019, the Joint Insolvency Committee was asked to review Statement of Insolvency Practice 9, payments to Insolvency Office Holders and their associates, by the Insolvency Service. This was because in its Review of the monitoring and regulation of insolvency practitioners published in September 2018, the Insolvency Service reported that in the volume IVA sector:
There is limited evidence that certain disbursements charged in volume operations are providing real value to either debtors or their creditors and it is not clear whether some are required at all. There is also limited, if any, explanation provided by insolvency practitioners as to why they are fair and reasonable. Some disbursements may instead to be business costs that should not be charged to individual estates or do not provide fair and reasonable value to creditors.
There were also some concerns, raised that SIP9 does not offer sufficient clarity in relation to expenses, including in relation to distinguishing between disbursements and business overhead costs.
A JIC working party was formed and considered the SIP. The working group’s conclusion is that SIP 9 as currently drafted could be refined, in certain specific aspects as follows:
i). The treatment of “per case fees” charged to the estate as an expense or disbursement.
ii). Being clear that overheads cannot be recovered from an estate.
iii). Whether SIP 9 should distinguish between disbursements and other expenses.
iv). Whether relying on the statutory definition of associates was appropriate.
v). The treatment of pre-appointment costs.
vi). Whether the use of lists of examples is helpful or whether such lists are treated as exhaustive; that is if something is not listed as an overhead in a list of examples it is apparently not an overhead and can be charged to an estate.
vii). Whether SIP 9 should apply to members voluntary liquidation (MVLs). The vast majority, if not all MVL fees, are not paid out of the “estate” but by the parent or some other part of the group, and therefore SIP 9 should not apply. Should the SIP be more explicit about whether or not it applies to MVLs?
A revised version of SIP 9 has been developed which seeks to address the points listed above. The working group is also proposing that the title of the SIP is changed to Payments to insolvency office holders and their associates from an estate.
The working party noted the value of consistency of approach which assists the users of insolvency practitioners’ services and consequently determined that the draft SIP should be issued for consultation with a questionnaire to specifically seek feedback from the users, as well as the regulators, their review teams, the professional compliance teams and Insolvency Service. The consultation questionnaire asks questions about the matters listed above as well as more general questions about the SIP. It is hoped that a constructive approach to the consultation will be taken with parties responding to the consultation questionnaire.
The group also took the opportunity to review SIP 7 – Presentation of financial information in insolvency proceedings. Some minor amendments have been made to the SIP but the changes made are primarily to align the language used in SIP 7 with SIP 9.
The JIC is seeking your views versions of SIP 9 for England and Wales, Scotland and Northern Ireland. Legislative differences across the jurisdictions mean that there needs to be differences in the SIPs, but the principles remain consistent in all the versions of SIP 9. The same version of SIP 7 applies in England and Wales, Scotland and Northern Ireland.
All the changes proposed to the SIPs are in the context of the current legislative framework. SIPs cannot be used as a means of amending the law.
Download the form to submit your consultation response
The form can be completed electronically and returned by email. If you would prefer to provide your comments in a different way, please send them to jic_sip_consultation@icaew.com