As your trade body we are interested in hearing your opinions and concerns and over the last 18 months the one issue we have heard more about from R3 members than any other is the Official Receiver (closely followed by HMRC, more of that later).
R3 has been having regular discussions with the Official Receivers (ORs) for a long time, both as part of our regular meetings with local ORs offices as well as formal meetings with Dave Chapman, the senior OR, which were introduced late in 2016.
You, our members, have been voicing concerns about difficulties in getting appointed in place of the OR in bankruptcies and compulsory liquidations for a while now. Following pressure from R3 to update the OR manual so that it reflected the actual procedures and policies followed in this regard by the ORs the Insolvency Service issued Dear IP 72. This caused some consternation amongst the profession as it stated that the existing guidance on Secretary of State appointments was “out of date” and did not “reflect longstanding policy that the OR should remain as liquidator/trustee where asset realisations were reasonably achievable and the return to creditors would potentially be greater if the case were retained by the OR”. Dear IP 72 also set out a number of exceptions where the OR could overrule majority creditor support for a Secretary of State (“SoS”) appointment.
The profession saw this as a clear intention to retain cases in house and R3 challenged the IS on their approach.
As a result of our actions the IS issued Dear IP 75 which sought to clarify the earlier comments made and restated the fundamental principle that the OR will follow the wishes of the majority of creditors when they seek the appointment of an insolvency practitioner.
Following the introduction of the Insolvency (England and Wales) Rules 2016 and the new decision making procedures R3 sought clarification from the IS as to how they would interpret the new rules in practice, particularly in relation to the appointment of an IP in place of the OR. This was set out in Dear IPs 75 and 76 which re-iterated the fundamental principle that where a majority of creditors sought an IP appointment a request would be made to the SoS. Where more than 25% of creditors sought an IP appointment a decision procedure would be implemented.
We are still being regularly contacted by members and creditors expressing frustration in the approach adopted by individual ORs offices where creditors have sought an IP appointment, with concerns being raised that the ORs, despite the fundamental principles laid out in Dear IP, have sought to frustrate the process. Members were directed to contact the senior OR directly where they had concerns over the approach taken by an OR office and whilst this does seem to have been effective on a case by case basis, we continue to hear frustrations being voiced in this regard. If you have a case you feel should be looked into, please contact David.Chapman2@insolvency.gsi.gov.uk.
We are aware that there is more work to be done to address members’ concerns with the Official Receiver and that, crucially, what has been agreed at the top of the Official Receiver and Insolvency Service is not always followed by Official Receivers around the country.
In addition to concerns regarding the appointment of an IP in place of the OR, we are intending to raise the following matters with the IS at the highest level;
- Lack of transparency and a level playing field with the insolvency profession (the ORs are not subject to the same regulatory restrictions and reporting requirements as IPs are). We have been contacted by creditors who are frustrated by the lack of reporting by the OR.
- The impact on creditors and debtors following the introduction of the £6,000 general fee in April 2016.
R3 is determined to address members’ remaining concerns about the Official Receiver. To do this, we need your help.
Our efforts to seek changes in approach by the Official Receiver are most successful when we have firm evidence that rules are not being adhered to properly, or that Official Receiver policy is detrimental to creditors or debtors. The best source of evidence is you, the R3 membership. Examples of problems passed to us by R3 members have already led to the Insolvency Service reversing course.
To make it easier to tell us about your experiences of the Official Receiver, we have set up an online form which you can complete here. The more information you give R3, the easier it is for us to make the case for change – whether we’re talking to the Insolvency Service, to ministers, to MPs, or to the press.
All information you provide to R3 using the link will be treated anonymously, although, with your permission, we may contact you for further details.
If you are attending the SPG Forum in Warwick later this week you will have the opportunity to talk to R3 staff about your concerns and the work we have been doing on your behalf to date. We look forward to meeting you there.
HMRC- MVLs and statutory interest
Following the recent move of HMRC’s MVL team to Scotland we have been made aware that HMRC are now requesting statutory interest to be paid at the rate of 8% (15% in Scotland) and are also expecting such interest to be paid from the date of liquidation rather than the normal due date. We are aware that historically many of our members would have paid statutory interest in a MVL from the date the tax was due and that in many cases the change of interest calculation will have a significant financial impact on a case. We are currently exploring this change of approach with HMRC and to support our discussions are seeking to obtain evidence from members that historically HMRC were content to receive interest from the date the tax was due and at the prevailing HMRC rates. If you are able to provide R3 with such evidence, for example where HMRC have issued an assessment with interest calculated from the date the tax was due, it would help to support our ongoing discussions with them and evidence that there has been a change of policy by HMRC.
We understand that HMRC are relying on some principles arising out of the Lehman Brothers Court cases which, whilst it applied to administrations, decided that statutory interest applies to debts payable at a future date. HMRC are relying on a similarity in legislative wording that applies to liquidations. We are not currently in a position to say that HMRC are wrong in this regard however we are continuing to review all options.
In the meantime you should be aware of this change in approach when advising directors on a potential members’ voluntary liquidation as well as when dealing with current members’ voluntary liquidations. We are discussing with HMRC practical solutions for members to adopt in this regard and we will provide you with further information once HMRC Policy team get back to us with their views. We understand that some members are applying R14.44 to discount the HMRC claim and calculating interest on the reduced amount, ensuring that any documentation provided to HMRC makes the treatment very clear. We have also been advised that some shareholders are ensuring that an estimate of the liability is made prior to the company entering into liquidation and this sum is being paid up front on account. If this approach is taken however you should be aware that the claim cannot then be discounted using r14.44.
Members should be aware that HMRC do not consider the issuing of tax clearance to mean that there will be no further tax due should an error in calculation be identified at a later date. R3 is requesting that the HMRC Policy team agree not to apply this change in policy retrospectively but members should continue to be cautious in this regard.
If you have any evidence to support our discussions with HMRC please send them to caroline.sumner@r3.org.uk.