Deemed consent better for CVL appointments?

One of the most immediate questions for IPs will be which process to use for appointment in a section 100 process – though at least the choice is simple; deemed consent or virtual meeting, only (see R. 6.14(2)).

At first, the advantages and disadvantages of the two appear pretty obvious –

Deemed consent – If not objected to, the appointment is immediate without any awkward messing about with voting. However fees, whether pre- or post-appointment, cannot be agreed other than by a meeting process, meaning that one must seek a separate fee resolution later.

Virtual meetings – allow one to get all the resolutions one might want at the outset, (providing there is a quorum, of course). The only immediate disadvantage is in costs; virtual meetings have to be advertised and there are going to be at least some other costs in providing the virtual service.

Up until now, I had been making what I thought was a sensible suggestion – Deemed consent for small, simple jobs, with no substantial assets or investigation needed; virtual meetings for anything else.

BUT

As time has passed, the potential problems with virtual meetings have been multiplying. Here are a few –

  1. The difficulties of ensuring there is a secure means of attending and voting at the same time.
  2. Extra difficulties surrounding the identification of participants – partly resolved by password access but one still needs to be careful.
  3. Finding a reliable platform or software system to do both a) and b) for attendance from all areas of the UK, regardless of quality of connection AND one which allows the voting to be completed quickly. So far, I haven’t heard of such a system that doesn’t involve prohibitive cost.
  4. Potential problems that could arise because either objections or complaints of exclusion made after the meeting could lead to reversal or variation of resolutions retrospectively (See my blog of 7 April, “Objections anyone?”).

SO

I am recommending all my clients to use Deemed Consent in the first instance and not use virtual meetings until a reliable package comes along, and then only if their office has good broadband service. In doing so, prospective appointees should make sure their directors’ resolution contains a provision for an extra fee to be payable against costs of convening a physical meeting should that become necessary.

Of course, this does mean that one has to get one’s remuneration agreed separately, probably by correspondence, but we have been living with that issue in ADMs for several years, anyway. Not a perfect answer, I know, but the best I can give for now.

Objections, anyone?

You may not have heard the latest novel interpretation of the Rules that the Insolvency Service have provided. To say that quite a few knickers have got twisted following their announcement is an understatement.

The starting point for this fascinating journey is Rule 6.14(6)(a) which says that the request may be made at anytime between delivery of the notice and the day of the decision.

Up to now you may have thought, as did most of the compliance community, that this would include the day of the decision.  This, of course, was fine for a deemed consent process, as the creditors’ appointment wouldn’t actually be taken to be confirmed until 23.59 on the day of the meeting.

But for virtual meetings, this could surely cause a problem – if a virtual meeting was held at 11.00, but the objection threshold was reached at (say) 19.00, then the CVL appointment, whatever it had been, would have to be treated as void, as would any other resolutions passed at the meeting.

Now, fair enough – you might say that few people could imagine creditors demanding a physical meeting instead of a virtual meeting and in any event, surely they would do so earlier in the process – right? But we IPs are few! And we might just imagine a circumstance in which a creditor proving for more than 10% of the claims might, if unhappy with the appointment at the virtual meeting held at 11.00am, put in an objection at 14.00 to force a rematch, giving time to canvass more votes for their nominee.

But now the insolvency service has decided that the word “between” should not include the day of the meeting. Perhaps uncharitably, we think the IS may have thought of this interpretation after the event, as a way of circumventing the above scenario. But, as one suitably irritated friend put it, their suggestion seems equivalent to being asked to pick a number between 1 and 10, but not be able to choose either 1 or 10.

So – what to do?

Well – there is a surprising range of options –

  • Follow the earlier accepted interpretation of the Rules and allow objections after the meeting, up to 23.59 that evening, relying upon the members’ resolution to legitimize any appointment.
  • Follow the new Insolvency Service advice and stop objections at 23.59 the day before the meeting.
  • Follow a suggestion made by another of my compliance friends, to accept objections up to the start of the meeting (or perhaps the end of the meeting) but not after, on the grounds that it is a nonsense that a quorate and properly convened meeting can somehow be rendered void.

But the trouble is that, common sense or not, all our opinions must be subject to the judgement of the court and who knows what that might be.  Which leads me to a tentative response of –

  • Follow the insolvency service advice, having made sure that your notice states that any request must be received “between the delivery and decision dates (i.e. the xxth (the day before the meeting))”. But if the objection threshold is reached after that point, contact the objector(s) and say so, right away, so they can then complain to the Court if they want. With a defense that you were following the insolvency service’s advice, you should at least avoid any sanction for your decision.

In the alternative, of course, you could follow my earlier general recommendation for CVL appointments, of going for deemed consent in the first instance, thus avoiding this whole mess…

Notes on the amendment rules

I owe an apology to readers who might have expected more immediate comment on the new amendment rules as issued on 15th (The Insolvency (England & Wales) (Amendment) Rules 2017). To be honest, they almost tipped me over the edge into a terminal decline in interest. But I struggle on.

Mostly, the amendments are concerned with corrections to spelling and internal references that were confusing, while some have dealt with expressions that had unforeseen consequences. But one two are very helpful.

First up is the decision not to impose the 366 day year that I went on about in my last blog. Month and year ends will return to being on the day before the same day in the starting month, so that a year beginning on 23 March will, once again, end on 22 March.  Yay!

Second up, but really very important, Rule 18.18(3) has been corrected so that one can get fees approved in an ADM under 52(1)(b) without having to go to the unsecured creditors for approval, a potentially serious cock-up, had it been allowed to subsist.

But I am afraid that there remains a long list of issues which my friends in the compliance community have raised that have not been corrected, clarified or otherwise explained. It therefore seems very likely that we will face a further round of amendments sometime in the next two years.

Cheers!

 

Committees – a short cut to agreeing remuneration?

Continuing the trawl through the new rules on Committees, it seems that the Insolvency Service have created a route by which to get a committee of your own nominees rather than rely on a vote by creditors. Because of the obvious ethical risks, some suggest that this is just an example of another cock-up in the drafting. But I think this could be a very useful means of getting Committees appointed in difficult or speculative cases, to avoid repeated applications to creditors for fee changes and the like.  Who knows – the Insolvency Service may even have decided it can trust us to be the professionals that the vast majority of us really are.

In summary, the new rules[1] seem to allow one to decide to have a committee and then establish it (the new expression for “constitute”) by the deemed consent process. Because of the obvious room for conflict in appointing a committee entirely made up of one’s own nominees, one would have thought that the new SIP 15 would have something to say about it, but no.

But until such time as a new SIP does appear or the Insolvency service amend the provision, here is some guidance on how you might think about using it –

  • If you think you should have a committee, seek out the creditors you believe most likely to serve and get their agreement, beforehand.
  • Conduct a check under the ethical code, to ensure that there are no self-interest or familiarity risks arising (e.g. you act regularly for that creditor in some other capacity, or they (or their representatives) are already acting on other committees where you are office holder).
  • Make sure the decision is justified by a clear note as to the reasons why you want a committee and why those particular creditors are being nominated.
  • Give notice that you will deal with the matter by deemed consent, and state that unless other nominations are made, the persons you have nominated will be its members.
  • You will also have to make provision in your notice for creditors to either object to the committee altogether or submit their own nominations in the period allowed. If you get more than five nominations altogether including your own, you will then have to either put the nominations up for a decision by meeting or perhaps invite (some of) your own nominees to stand down.
  • Make a clear record of the final process of appointing the committee, including any decision to keep one of the original nominees, rather than one from elsewhere.
  • Summarise that rationale in your letter to creditors and make sure the process of choosing committee members is made clear.
  • Be prepared for your RPB reviewer to give any fees decided by the committee, special attention.

There are other things about the processes of dealing with committees and remuneration that you will need to be aware of – this is not a one-stop solution to all the problems created by the fee proposal requirements. I hope to get out a general guidance paper on committees in due course, but for the moment I shall be interested to see what readers make of this.

[1] For those of you who are technically minded, read the new section 246ZF(4) from the SBEE in conjunction with new Rules 17.5, 3.39, 6.19 and 10.76.

 

Consolidated? – Yes. Simpler? – hell, no.

The last month has been one of disappointments for me – disappointing presents, disappointing parties, disappointing weather, etc. But that’s not unusual for December is it. Nor, I suppose, is it unusual in dealing with new insolvency legislation. I am only part way in to it all, but already…..

Remember how the insolvency service promised the new rules would simplify and streamline our processes? The problem is that while they may have intended that, they didn’t really properly amend the Act the way they could have with SBEE. As a consequence, many of the differences between procedures which were there before, have remained. So yes, we now have a number of procedures that are in the same place (thus, consolidated) but with so many exceptions and alternatives, that one wishes for a Philip Schofied type character who could say the magic words – “Simplify” and it would.

So it is with progress and final reports, dividends and even fee agreements.  Even the timings of statutory meetings, which could so easily have been made uniform – 14 days, say, – have to be dealt with in a special table listing 11 different processes.

Then there is the little wrinkle that decisions outside meetings are deemed to be made at 23:59 on the day of the decision. Which, unless I find another subsection somewhere, means that  you will only be able to rely on a decision having been made (if not in a meeting) on the day following.

Let alone, the rule which says that in most processes you have to notify unproven creditors only, when preparing a dividend, but in ADMs you have to notify everyone. Actually, that was already the Rule, but you see what I mean…

This leads me to offer three pieces of advice –

  1. By all means get checklists and letter packs and forms for the new Rules from either a Compliance specialist or from IPS or Vision Blue.
  2. Double check them carefully, yourself before signing any, being particularly careful with decision notices, reports and anything related to SIP 9.
  3. Budget for an extra-long compliance visit this year and probably next. Even the best of my compliance friends and I will be struggling to get used to our own checklists as well as yours, so everything will take longer.

And to think I have at least a couple of more years before I can retire….

 

A note about R3’s guidance notes

You may have noticed (or maybe not) that R3 recently issued a Guidance Note titled “Approach to SIP 9 Reporting and Fee Estimates”. If not, you may be tempted to take a look.

I have now received a couple of queries which I thought might be good to share –

Q.  Does the guidance set a required (i.e. regulatory) standard?

A.  No.  It has been issued by R3 on its own and although I understand that the IPA may have endorsed it, I am pretty sure that ICAEW hasn’t and even if it had, SIP 9 remains the authority.

Q.  So, is it a good idea to read it?

A.  Yes, probably –at least if you are short of CPD ….

Q.  Okay, smarty-points aside, is there anything useful you would highlight?

A.  Sorry, yes.

  1. Transparency and proportionality are key – a small, straight-forward case, deserves a small straight-forward report. Even a big case doesn’t necessarily deserve a big report, but it does deserve clarity. So your question about anything put in the report should be – “will this make it clearer for the creditor?”
  2. Reports should major on narrative rather than figures.
  3. Detailed figures are helpful but are no substitute for the narrative. As I have suggested in my technical notes last year, summarise the key figures in the narrative (e.g. total recoveries, future expectations, costs expected, costs to date, dividend prospects, etc) and put the detailed figure work in the appendices.
  4. Reports should be focused on the work done in the period of the report and avoid repeating information already given.
  5. Don’t clutter up the narrative with endless detail about stuff you have or might do on a procedural basis. You can give guidance on generic duties in appendices (or even better, in policy type statements on your website/portal).
  6. Make distinctions in your estimates between work required by statute, work that gives a financial benefit and any other work that you will do, explaining why it is necessary/worth doing (but see below).
  7. Finally the guidance does make two useful, fresh observations; a) you can consider leaving out some details if they don’t add clarity, but have them ready to answer any follow up queries, and b) in justifying a proposal not to use time costs as a basis for fees, you can make reference to comparative market rates, without having to detail them, as such.

Q.  And anything you disagree with?

A.  Yes – the guidance says that reporting distinctions between work that produced value and work that didn’t is “paramount and of fundamental importance”. In my opinion, that language goes a lot farther than SIP 9 (paragraph 9) which says simply that distinctions of this kind will commonly be of concern to those who have a financial interest (and therefore should be addressed as necessary in the report). If you follow R3’s guidance, then every narrative about work done has to identify what was statutory, what was financially beneficial and what wasn’t – potentially very cumbersome.

By comparison, I think SIP 9 allows the IP to set out in his fee proposal what he is going to do and why (making the distinctions on benefit, if not already obvious) and later report on how he actually got on. Taking this approach, you only need to further report on such distinctions when things haven’t one according to plan (e.g. “We spent £5,600 on an extended investigation in the expectation of gathering evidence for a preference claim, but have been advised by Counsel that the evidence is insufficient to merit pursuit”).

I hope this helps.

 

Strategies for casework (and fees)

One of the consequences of the imminent changes to the fees regime is to turn strategic planning from a nice idea into a practical necessity. First of all, the effective fee caps will mean that poor work execution will be even more costly than it was. Secondly, the RPBs will quickly penalise firms that aren’t able to demonstrate that their fee estimates are based upon a rational plan for the work.

Unfortunately, I don’t think many firms’ planning and review systems are fit to meet these new requirements successfully. The ones most at risk are those who have no standard planning documents at all, but even amongst those that have, most are still using “single issue” media – paper notes or word templates for both the planning and subsequent reviews, rather than flexible data systems like Excel where all information can be easily carried forward and updated as you go, in a single package.

For those of you who haven’t the time or inclination to work up your own such system I am, as always here to help; for those with the time, here are a few pointers –

  1. The initial strategy document should be in a standard form that includes all the usual case metrics – name, type, trade, introducer, principle contact – but also a summary of anticipated recoveries, investigation areas and close-review areas, such as trading, potential onerous property, tax investigations, etc.
  2. The initial strategy should also include a projected “budget” for the case. If designed in Excel, it can be linked to or be the basis of the estimated outcome statement that should be the backbone of any fees estimate, giving a projection of dividend prospects, if there are any.
  3. Crucially, you should be trying to complete the initial strategy in advance of appointment, at least to first draft stage. It can therefore provide a ready reminder to all staff involved in the case as to pre-appointment requirements (e.g. get the pre-appointment fees in, notify charge-holders, secure the books and records, complete pre-appointment due diligence, etc.) as well as what you expect to do post -appointment,  And you can also indicate the timings of critical elements of the work to be done, such as a review of accounts.
  4. The form should, as far as possible, be something that can be easily referred to in subsequent reviews, meaning that there is an available audit trail for all critical decisions in the case. This is where an excel based system will score heavily over paper or Word documents – figures from projections, initial and review comments can all be set up so as to feed into later documents.
  5. Put the strategy document wherever it can be easily accessed from the file – at the front of a paper file or in its own designated folder in a “paperless” system.

There are extra benefits to good strategic planning. These mainly revolve around that tricky business of delegating work to more junior members of staff. The test of a well-designed system will be the extent that it encourages your staff to take ownership of the case.  Try to get the administrator, rather than you or the manager, to fill in the strategy document perhaps in, or after a meeting with you. Once completed, either you or the manager can review, amend or add to it and then print off a copy for signature. From that moment forward, everyone in the team will be aware of all the things that need to be done and when. They will be that much more aware of the time available to spend on preliminary investigations, creditor claims and so on and they can directly populate their diary with key dates for specific tasks, well in advance of execution.  This shoud mean that more of the work is being done at lower charge-out rates, where the leverage to actual salaries should be greater, yielding better profits with (hopefully) less aggravation.

As you may gather, I am a real fan of this kind of system and have done work on two or three over the years and have developed a generic package that can be adapted to any practice.  To take things further or just have a chat about what’s possible, call or drop me an email.