“Monitoring visits by ICAEW’s insolvency team in 2022 highlighted some key issues and reminders,” says Broad. “And we like to share those because we hope it can help make sure you don’t fall foul of the same issues, and that you can learn from the mistakes of other IPs.”
Overall, 71% of the monitoring visits were deemed satisfactory, 17% were referred for some form of follow up and 12% were referred to ICAEW’s Insolvency Licensing Committee (ILC).
Follow-ups generally involved a request to see an IP’s next insolvency compliance review (ICR). But in some instances, there was case-specific follow up on issues raised during the visit, often in relation to case progress or dividend delays.
“Where visits result in referral to the ILC, it can just be about one issue,” says Broad. “It’s not necessarily the case that all of an IP’s work is poor, although in some cases it may be.”
Cases referred to the ILC last year covered a range of issues, including:
- significant unauthorised fees
- specific conduct referred to the Professional Conduct Department for investigation
- failing to have an ICR
- extended case progression or dividend delays
- convening physical meetings without meeting the criteria to do so
- failing to issue a form HR1 before making redundancies
- breach of SIP 11.
Timely reminders
Picking up on some of these themes, the webinar looks in detail at the requirements around fees, SIP 1 documentation, and notice periods and progress reports. It also provides some timely reminders about ongoing issues such as SIP 11 reviews, case progression and dealing with employees’ claims.
“It’s right that IPs are paid for the reasonable work they do,” says Morgan. “And it is an area where we get a lot of queries from IPs. We’re aware there are a number of grey areas in respect of getting fee approval, and for subsequent increases.”
To help IPs navigate the complex and sometimes ambiguous rules, the webinar provides a recap of current requirements and shares ICAEW’s approach from a monitoring visit perspective. Issues covered include pre-and post-appointment fees, including approval processes and timescales; fee estimates; fee increase requests; and unauthorised renumeration or expenses.
SIP 1 documentation is another area where monitoring visits are revealing problems. “SIP 1 requires there to be documentation of strategies and decision making, so that’s quite key for the file,” says Broad. “But our team regularly finds instances where it isn’t particularly clear from the files what’s been done and why, and equally why something hasn’t been done.”
“There are a few complaints currently going through the Disciplinary Committee where IPs’ files might not sufficiently support the decisions they’ve taken,” she says. “And that only serves to emphasise the need for this documentation.”
“We would expect you to document a strategy, even for the most straightforward cases,” she adds. “And you need to revisit that if the strategy changes. “
An example might be where the initial strategy is to trade the business and then transfer all employees together with the business sale. But it might later become apparent you can only sell part of the business, making some job roles redundant.
“If you haven’t already done so, you would then need to start a redundancy consultation process alongside any TUPE consultation,” explains Broad. “And depending on the number of staff, you may need to file an HR1 form. If that applies, failing to do so is a criminal offence.”
“We’ve seen some cases where IPs could have complied with redundancy consultation requirements but because they failed to fully revisit their initial strategy, they ended up in breach.”
Keep checking
IPs are also falling down on what should be relatively simple requirements, such as notice periods and the contents of progress reports.
During the webinar, Morgan outlines a simple example of how to calculate requisite notice periods, and emphasises the need to factor in potential delays, such as recent postal disruption.
“Where we regularly see IPs relying on minimum notice periods, they are more likely to come unstuck than if they give more generous notice periods than the minimum requisite,” she says. “Don’t just be thinking of strict timeframes and notice periods. You need to think about statutory bank holidays, different geographical locations, and the needs of creditors.”
She also highlights cases where the content of progress reports is not fulfilling the purpose. “We’re seeing more instances where we need to query the content, or lack of content,” she notes.
Although she recognises the reasons behind using pre-populated standards and narratives, IPs must properly check these. “If there are pre-populated narratives explaining the work that’s done in the period, we expect you to check whether they are valid for the case in question,” she says.
Some of the obvious errors in progress reports include ongoing time allocated to trading when the business and assets have been prepacked, and narratives saying tax returns have been done in the period when they haven’t yet been prepared.
“The weakest documents we see are those where the preparation isn’t started until very near to the delivery date,” says Morgan. “And then the focus becomes very much on complying with the timeframe, rather than on the content.”
Ongoing issues
The webinar concludes with a summary of some other perennial issues. One of these is IPs failing to carry out SIP 11 reviews annually. “Both the ILC and QAD are likely to take a firmer line on failure to do this going forward,” emphasises Broad.
Case progression is another issue that refuses to go away. “We’ve seen some cases that have stagnated because the IP is struggling to decide what to do with something that is a little unusual,” says Broad. “And if that issue is preventing distribution of significant funds, then the stagnation is going to affect and prejudice creditors.”
“If you have cases in that position, we suggest you discuss those with your compliance provider, a fellow IP or partner in your firm, or potentially take formal legal advice.”
Monitoring visits are also continuing to flag issues related to employee claims. “You need to be vigilant about potential abuse of Redundancy Payment Service (RPS) claims,” warns Broad.
“In accepting and completing the RP14 and RP14A forms, you’re providing the RPS with details of claims which you should have verified against supporting evidence from employers’ records.”
The RPS relies on those documents in making payments. So if there are no employer records available and the only way to complete RP14A is by taking information from the claimant’s RP1, you need to tell the RPS that you have not checked it.
“We most often see issues in relation to holiday pay claims,” says Broad. “This is particularly common in the SME sector where perhaps firms don’t have a formal holiday recording system.”
ICAEW has seen several cases where directors have been paid for more than 30 days of holiday. The IP hasn’t been able to verify that but has still submitted the claims to the RPS without stating that the claim hasn’t been verified. “Employee claims are currently a hot topic with the Insolvency Service,” says Broad. “And if we identify that you have submitted an RP14A form and haven’t told the RPS if the information isn’t verified, you’re likely to be referred to the ILC.”
During another Restructuring and Insolvency Community Roadshow last year, Morgan and Broad looked in more detail at the issues around employee claims. They also discussed the broader consequences of IPs failing to collect an insolvent’s books and records. IPs are required to do this promptly and ensure they are used to discharge their statutory duties.
This webinar also covered other Insolvency Service hot topics such as issues in the IVA sector, including non-compliant advertising and concerns about the quality of advice given to some debtors.
“Some of our visits in this sector have raised concerns that debtors are not always being given balanced information about their options,” says Broad.
It is worth noting that SIP 3.1, which deals with IVAs, is changing from 1 March 2023. The main changes relate to the degree of emphasis on the IP’s responsibility to ensure the debtor has received suitable advice before entering an IVA and during its implementation. This includes a greater emphasis on documenting the process and a focus on providing tailored information.
Other Insolvency Service hot topics include energy company insolvencies, SIP 16 statements and IPs’ duties to check the validity of government COVID support measures.
“We are seeing some issues with Bounce Back Loans on visits,” says Broad. “It’s clearly part of the IP’s role to consider whether a debtor has legitimately obtained and properly used government support. But it’s something that’s not always done, or is not done particularly well.”
Supporting monitoring visits
ICAEW is back to pre-COVID ways of working, carrying out face-to-face visits on site. “But we’re encountering an ever-increasing problem that it’s not possible to complete visits in the time agreed,” says Broad.
One of the key issues is that IPs and staff are not getting responses back to the reviewers as quickly as they would have done pre-COVID. Part of the reason for this is that staff are continuing to work remotely or are simply not available during the visit to respond to queries.
“It does cause significant difficulties for our monitoring teams,” explains Broad. “So as we move forward in 2023, we urge IPs to work with us and ensure staff are going to be available during our visit. It helps us conclude your visit most efficiently and it also means you’re going to find out about key issues arising from your visit much more quickly.”