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.


More news about no news

Yes – you guessed it – the latest news about the timing of the new Rules is that there is no news, at least officially. But, there are a number of rumours that have reached my ears and together they go something like this –

  • Because of internal resourcing difficulties combined with an absence of parliamentary time, the Rules won’t come out for October 2016, but should be ready to “go live” in April 2017……
  • But because of the vote to leave the EC, those resources that had been promised for our Rules are likely to be diverted to the urgent review of EU affected law…. (and ours is a part of the department that deals with those rules most of all) so October 2017 is now the target date……
  • Except that we still won’t get the parliamentary time very easily because of the pressure to deal with whatever new legislation is required depending upon what we negotiate with the EU… so a side bet on October 2018 might be in order.

Somehow, somewhere, I remember reading that effective government depends upon retaining the respect of the nation…. Mmm.

No consolidated rules in October?

A short note to say that the latest rumblings from the Insolvency Service are apparently that they “recognise” they they gave an undertaking to allow us 6 months preparation for the new Rules. Now that we are into May, the suggestion is that the October launch is now off.

Traditionally, this would mean a delay through to March 2017, but I am concerned that they have, occasionally done stuff at 1 December. So, we are not out of the woods, yet…


Hot issues from 2015


Here is a brief round-up of the main issues which came up with my visits in 2015.

Shorter visit times and (mostly) lower charges – it’s nice to start on a positive note – with two exceptions, caused by firms taking on new partners, visits this year were shorter and less expensive.  Also, the average number of queries raised was lower as was the number resolved straight away.

Although the advent of the new rules is likely to result in some increase in time, I hope to see this trend continue, reducing both the time and monetary costs to all my clients. Of course, this does have some implications for my own income, so any referrals to other firms will be gratefully appreciated!

Problems with Administrations (especially pre-packs) – I am sorry to say that the trend from last year has continued. The only comfort I can offer is that my fellow compliance consultants are all reporting the same kind of troubles. The main issues are these:–

Poor internal documentation of planning and decision making in the pre-appointment period. The tone of the new SIP 16 has shifted again and you must now be able to justify the decision to do an ADM, especially a pre-pack and most especially a pre-pack with connected parties.  Going forward, QAD will be looking very closely at the clarity and care taken in the decision making process, in line with both the new SIP1, SIP16 and Regulation 13.3.

  1. Procedural mistakes, especially around whether there is a prospect of a dividend, calculating the prescribed part and making the right election under paragraph 52. As a result, a number of IPs have had to redo the fee authorization process, because they didn’t get secured creditor approval.
  2. Failing to clearly set out what has been done pre-appointment and why. Both the old and the new SIP 16s place a great emphasis on justifying the costs and it is not enough to just enclose a SIP 9 style cost breakdown. Work on specific areas needs to be outlined, e.g. preparing and making the application, work on sales contracts, liaison with secured creditors, valuation and marketing work.
  3. However, clarity of reporting has actually, mostly improved. The main residual issues have arisen around over-reliance on templates – not deleting redundant comments or repeating information contained in previous reports.
  4. Finally, please remember that SIP 9 now applies to pre-appointment fee statements, as well. This means that some analysis and justification of time spent pre-appointment must be provided, especially where the time exceeds an initial estimate that you might have given to the Board.

Documentation of critical decisions (especially on investigations) – even before the changes to regulation 13.3, QAD had been pressing for better documentation of work in investigations.  With the new regulations in place, they are likely to be much more demanding going forward, so the absence of strategy notes and the like will be criticized.

Investigation work (especially construction and use of deficiency accounts) – or some reason, between last year and this, I have seen a number of incorrect deficiency accounts, two of which came close to causing a serious outright loss. On all those occasions, the manager responsible for preparing the account clearly did not understand the purpose of explaining the deficiency.

Pre-appointment AML and other checks – there continue to be issues around completion of AML and other pre-appointment due-diligence.  It seems that the problem largely stems from more junior staff not understanding what to do when a case is unusual or arrives from the courts.

SIP 3 and VA terms – not many of my clients have any continuing significant IVA work. While those that do regular IVA work seem to have absorbed the changes to SIP 3.1 and the new Consumer Credit requirements (cooling off periods, etc.) those that only do occasional VA work have had problems because of being out of practice.

File reviews, case management and progression – While the number of outright, serious failings in case progression has fallen (i.e. delays of over a year) I continue to see a lot of variable quality in setting and following up on tasks, particularly after the first 6 months has passed. With the new regulations, QAD will tend to be even hotter on this area than before.

One final note of encouragement; looking back over the ten years since I first started working as a reviewer at ICAEW, the standards of compliance have really improved. Except where there are new rules in force or they have become particularly complicated, as in ADMs, all of my clients deserve congratulations for the work they have all done.  But it begs a question – are we now reaching a stage where a general review should be taken (risk based) on just how much compliance work is actually needed?  The ICAEW rules actually do allow it, so why not? If you are keen to do such a review and want to discuss how, please call.

(Delayed) Preparations for the Consolidated Rules

The latest news is.. there is no news, but the rumours are that the new drafts won’t be ready in time to allow for implementation in October.

Yes, as you have probably already heard, the drafting process has become further drawn out and, as a consequence, we may not see the draft rules until well into April/May. Theoretically, this should mean that the implementation date will move from 1 October this year to 1 March 2017, but I am worried that the Insolvency Service are now so cowed by the cuts they have suffered that if the minister insists, then they will go ahead, regardless. It’s about the only reason that I am grateful for the referendum – in all that infighting, they might just forget us, for a while.

But, while that means that we won’t be able to start detailed preparations just yet, there remain a few important areas to look at in advance – get these things sorted and the task of taking in the new rules themselves should be a lot easier.

  1. Use of websites and portals to deliver creditor reports – it really does save on expense and there are a number of helpful and inexpensive sources of help available.
  2. Provisions for holding meetings remotely –while there are plenty of conference call systems out there, remember that you will need to find a secure method of identifying and recording creditors’ questions, comments and votes, especially in any case that might attract a challenge.
  3. Paperless systems – the latest offerings from companies like Virtual Cabinet and Invu are much better than they were a few years ago, and I believe that most firms will see positive cost savings from using them. But there are other products out there and it is worth shopping around. I have four tips –
  • Do divide the electronic records as you have done with paper files.
  • Make sure the system tracks and sorts your email traffic in real time. Some systems actually will prevent the email being sent unless it has been properly indexed to a file.
  • Make sure your server and broadband provisions are adequate. If you have more than one office and the broadband service is poor in some of them, you may be better advised to use small, local servers in those offices, to hold specific case records.
  • Get an IT consultant to work with you on choosing and implementing the system.

That’s all for now. Hopefully, we will get some further news, soon.

Fee bases – shaken or stirred?

The debate about when and where to charge time costs has been sharpening, not just because of the coming rule changes but the increasingly demanding terms of SIP 9. I have heard a variety of opinions over the last year – I hope it will help to put all the arguments together in one place.

  1. Fixed fees

Fixed fees have been expressly allowed since 2010, but have actually been used for many more years in larger, group MVLs, where fees as a whole would be agreed and paid by the parent company, direct. Their main advantage is that they offer all sides a degree of certainty and avoid the need for any SIP 9 disclosures (having been paid outside the estate). But MVL work is supposed to be much more predictable than other insolvencies, especially if all tax and accounting matters have been dealt with elsewhere.

I have also seen a handful of recent cases where fixed fees have been agreed in CVLs, but these have all been cases where the issues were simple, prospective realisations limited and the directors or other connected parties have controlled the voting process. Even so, the IPs have still had to keep time records for the case and still been obliged to report on all their activities at least in summary and those requirements are not going to change.

As for more complicated cases of less certain outcome, I just can’t see the attraction of a fully fixed fee. After all, with a capped estimate, you can still go back to creditors – not so easy when you have promised to do everything for one price, all in.

  1. Percentage of recoveries

Cases based entirely on percentages are rare. I have usually only seen them in Court appointments, usually because the case offered a large and easy, immediate recovery and the IP was pretty certain that the percentage would be higher than his time costs, in any event. More usually, percentages get applied to a specific asset class (as in recoveries for fixed charge-holders) with the IP expecting to get time costs from other recoveries to deal with the remainder of costs in the case.

A big draw back with percentages is that they restrict your fees to less than the total net recoveries. This means that you must plan for a distribution to at least one class of creditors, with all the extra rigmarole that can entail. And, looking forward, I think you will find that a percentage, once agreed, is as hard as a fixed fee to change.

  1. Mixed* fixed and percentage

I have only once seen this proposed and that was earlier this year. The IP was essentially experimenting with the idea that if he charged a fixed fee to cover all expected estate maintenance costs (including reports over the expected lifetime of the case) and a percentage of recoveries, he would come out roughly the same as if he had taken time costs, with a prospect that if things went really well, he would get a little extra.

But this IP had taken the trouble to do a lot of work bench-marking his charges across his most typical types of case before committing himself to the rates to be applied. And also, the case was a relatively predictable one, in a sector he had dealt with before. The accounts looked clean, there were good books and records, debtors looked stable, etc.  He also made sure it was placed with his most efficient manager.

The question you have to ask is, how often do you get cases which are that clear to begin with.

  1. Time costs, only.

I think the reason why IPs have not made more use of percentage and fixed fees in the past is simple – they don’t really work that well for the majority of our case work. And there is nothing about the new rules which changes that underlying reality.

While it may seem an additional burden to estimate your time costs in advance and then report annually on how you did, the saving with percentage or fixed fee cases won’t actually be that great as the rules and the new SIP 9 will still require you to keep tie records and report on what you have done in a manner that is accurate to the case.

  1. Mixed* time costs and percentage

We have had these for a long time – In ADMs, CVLs and Receveiverships we have all charged a percentage on fixed charge recoveries with time costs applied on all other matters applied against floating charge recoveries.

I have also seen percentages applied in specific cases where a Committee (usually) wanted an IP to have some extra incentive for steering a successful litigation to a conclusion. However, there remains no room for success uplifts (multiples of time costs) as such, so be careful that your resolutions don’t mistakenly give the impression that is what you are getting.


I am not convinced that anyone should rush out to quote fees on any basis other than time costs except in quite specific circumstances. If I were still in practice, I would instead,

  1. Do some benchmarking of historic costs in the main areas were they might be predictable – annual estate maintenance costs, creditor reporting, dealing with meetings, closure, dividends (per creditor) and preliminary investigations. If you have someone on board who understands statistics, standard deviations and the like, you could even try to work out “risk-ranges”. If you aren’t sure or want some help, give me a call. Subject to take-up and compatibility of categories, I am offering a service to benchmark a number of firms simultaneously, at reduced cost to all.
  2. Take a careful look at how some types of recovery might be remunerated successfully. This means not only looking for what might be a reasonable level of percentage to charge, but how to make best use of, and match your fees to that of agents.
  3. Review your approach to strategic planning and budgeting of case costs. Despite recovery rates continuing to fall across the profession, many IPs still seem to do planning in the same old way, i.e. not much. For tips on this subject, see my next blog.

(*By the way, be careful about this term, “mixed”. Yes, you can use more than one base in the same case, but be wary of applying two bases to the same area of work (e.g. book debts) – I worry that it could be seen as double-counting, under trust rules of value and benefit.

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Compliance by the numbers, 2

One of the things which I have always felt we reviewers could handle better is the guidance we give on the seriousness of our findings in compliance visits. The problem is that an RPB compliance visit doesn’t just look at the findings on any one file in isolation – context is everything.  A few late reviews in one practice, where there are no other significant issues might only attract a plea to be more consistent – but if it’s a recurring problem with other issues, the licensing authorities will feel start to worry about what else might go wrong at a practice – rightly in my view.

So, it is important to deal with all compliance issues that are raised in any review. Equally, I don’t think it is right to treat all compliance issues with the same priority. IPs in smaller practices can’t simply drop everything to address all systemic issues together. And while RPBs tend to understand that, I think IPs can still lose a great deal of time and energy working on things that don’t need such immediate all-out attention.

“So, why don’t the RPB reviewers give more guidance?” I hear you ask. Well, some will make some limited comments, but an RPB reviewers’ main priority is to point out the issues. He or she only has limited time at your practice and will only get a limited understanding of your systems and staff and resources in that short time. In any case, their chief concern will be to write up a clear report for the licensing committee; after all, it is only the committee that has the power to decide. This is also why RPB reviewers are generally quite reluctant to leave anything out of a report or to vouch too much of their own opinion in case the RPB takes a different tack.

But as a compliance advisor, I think you should be able to expect me to give pretty clear indications on seriousness and priority, at least to start you off. On a first visit, I may not get to know a lot more about your systems than an RPB reviewer but you are my client….. So, I have developed my own grading system to help make my reports that much more helpful. I found it a refreshingly clear way of organising my thoughts and, so far, at least, my first clients seem happy, too –

Grading Explanation
Dangerous Any exception(s) to the Rules or SIPs which raise serious questions about the actual or perceived integrity, capability or fitness of the IP. Anything actionable against the IP; findings which are likely to lead to action by the courts, the regulator or both.
Significant Exceptions or systemic issues which threaten the effectiveness or quality of outcome for key-stakeholders (real or perceived); things which, could well lead to regulatory action even if no dangerous exception arises.
Worrying Exceptions which may put doubts into the mind of a third party, over the quality, thoroughness or reliability of the IP’s work – generally related to systems or methods of practice. Again, left unaddressed, they will lead to worse problems.
Minor Exceptions which appear isolated and have no significant effect on the outcome of the work, but which should receive attention to ensure they don’t get worrying.
Good stuff! These are things which you are doing that I think raise the bar on common standards or procedures.


By grading it this way, I like to think that my clients will understand the immediate implications of my findings more readily and be able to prioritise their remedial work accordingly.

On remedial work, I think the key principles are speed, effectiveness and robustness. With anything “dangerous” I would say to you, “drop everything – get this sorted”. If remuneration has been overdrawn, pay it back right now; don’t wait for the time costs to accrue – the RPB will think that you are showing insufficient care. If you discover an ethical problem has been overlooked, talk to me or a good insolvency solicitor about meaningful ways of addressing it.

With anything “significant”, you need to act with similar speed to anything “dangerous” but you also need to take the time to find out how deep the problem goes and whether it lies in systems or training, or specific personnel. If, for example, a review has raised concerns about the standard of work on a house sale, check any similar cases to see how deep the problem goes and then go to work on preventative measures.

What if you can’t overhaul a system straight away? At least put in a temporary fix and ensure all your staff know about it – then, diarise the time for a more complete work-over later. RPBs aren’t ogres (at least not most of the time) and their committees are peopled by fellow IPs who know what it is like. They will allow time for improvements to be carried out, providing there is a rational and targeted programme.

For worrying issues, I would still advise that you take a closer look quite soon, after you have dealt any other, more significant issues. As for minor or isolated issues, I think it is fine to give these a low-ish priority, but it would still be wise to look at these points again on say, your next review, to make sure they really were isolates.

And if in doubt about what to do and how fast, don’t hesitate to ring your compliance advisor. The more experienced will probably have seen your problem somewhere else and have a good idea of both how to fix it and what priority to give it.

I hope that helps, but if you have any questions or comments on the gradings, suggestions for better words, etc. please get in touch.