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.

The “Value-Added” insolvency business?

There are all sorts of ways of doing business and all sorts of theories on how the good ones work,  but there is one underlying feature that lies at the core of all successful enterprise; the delivery of added value. Value, of course, doesn’t mean price. Water is valuable; indeed essential, but there is so much of it that it usually has no price. So price is a function of scarcity, not value.

But making water easily available and guaranteeing that it is free of contaminants is valuable, saving time and effort and making the consumer feel safe. So, next time you buy a bottle of water, you can reflect that it is not the water that you are paying for, but the bottle, its convenient delivery to your hand and the guarantee of quality.

So, if you want to improve your business prospects, the most assured way of doing so is to work out what value(s) it delivers, and how those can be increased and also, how they are perceived. Then, assuming you are doing something that other people can’t easily do/make themselves, you have the makings of a business.

Question – What value(s) can an insolvency process deliver?

Actually, there’s quite a lot of them; delivering a dividend to creditors, investigate and recover misdirected assets, identify delinquent directors. But I think the main things that good IPs deliver are reduced stress, the prospect of a fresh start and the chance to get a good night’s sleep. Of course, it’s more complicated than that and few people have the aptitude to do this work, which is why we can often charge high fees. As a leading QC and part-time judge said to me at an SPG conference a while back,”We [judges/the public] need to make sure IPs can earn enough to attract more and more quality people into the profession”. Quite.

Of course, you can’t just go for value, because there is the issue of price to consider; a concept that I have sometimes struggled to impart on some of my staff. Here is an approximation of one conversation with an administrator at my last firm.

Me (reviewing the time on a case) – “Jack, why have you spent all this time agreeing the unsecured claims?”

Jack (looking a little puzzled) – “Well, I got the last of the cash in last month and that was the next thing to do.”

Me (trying to keep the high pitch out of my voice) – “Jack, you’ve spent £3,400 of time on that”.

Jack (looking disturbingly like Tony Blair explaining the Iraq war) – “Yes. Well, there are 200 creditors and there’s four big ones whose claims are really muddled in the books….”

Me (feeling the weariness of my years) – “Jack – there is only £12,000 left in the case; our WIP was £8,000 before you started on the claims and it is now nearly £11,500. It’s going to cost at least another £2,500 to close the thing. Didn’t you think to check the WIP before getting into so much work”

Jack – “Errrr…. ?”

I am pleased to say that after some further explanation, Jack did get my point and the experience led to a series of training sessions for all my staff, partly on that particular issue, but about the values we needed to deliver in order to keep getting paid (me by the clients; them by me). From those training sessions, we went on to remodelling our job planning, our check lists, investigation methods, report styles and staff-development programme.

Did it lead to better profits? We were never able to prove that absolutely; there are too many variables in any year of an evolving professional practice. But I do know that all my staff moved on to taking greater responsibility and enjoying the work more. Reports to creditors got shorter AND more meaningful. And I spent less time in detailed case work, able to take more time for other things.

Here, then, a few things to think about–

  • Do your systems make your staff think about the financial implications of their actions?
  • Have your staff got a clear idea of how much initiative they can take, and when to call on you or a senior manager to give directions?  This can be particularly important with a mid-level manager whose belief in him/herself (a quality that you need to foster) sometimes leaves you in places that are either expensive (bad) or exciting to your RPB (really bad).
  • Does your case plan include an outcome statement that can be regularly updated to trace where the work is going?
  • And, does the case plan feed into your overall WIP management in a way that is clear and helpful?

I could go on, but I really do need to get out more.