Updated Statements of Insolvency Practice
Other articles (Insolvency Practitioner, March 2021):
- Michelle Thorp, CEO
- Kevin Hellard, President
- IPA events update
- IPA examinations – entry closing date approaching
- A reminder from the Insolvency Service on filing a report of an approval of an IVA with the Secretary of State
- Guidance for Anti-Money Laundering Supervisors on submitting better quality Suspicious Activity Reports
- Vacancy for a Business Development Lead
- Meet a Committee member: Neil Bennett, member of the Regulation and Conduct Committee
- Guest article: Insolvency Practitioners – how to prepare for 2021
As a reminder to members following our communication last week, we draw your attention to the recently updated Statements of Insolvency Practice (SIPs) 3.2, 7 and 9.
SIP 3.2 (Company Voluntary Arrangements (CVAs)), SIP 7 (presentation of financial information in insolvency proceedings) and SIP 9 (payments to insolvency office holders and their associates) have been revised following a Joint Insolvency Committee (JIC) consultation held last year. The new versions will come into effect from 1 April 2021.
The main changes are summarised below. The new SIP documents are available here on the IPA website.
SIP 9: Payments to insolvency office holders and their associates
The requirements for creditor approval of disbursements have been extended to cover all expenses, irrespective of whether they are paid firstly by the office holder, their firm or direct from the estate. The test for requiring authorisation prior to payment now applies to expenses, divided into Category 1 and Category 2 expenses, not just to disbursements. The categorisation depends on who provides the service to the estate, rather than how they are paid. Category 1 expenses can be paid without prior approval. Category 2 expenses are payments to associates or which have an element of shared costs. Before being paid, Category 2 expenses require approval.
There is clarification that overheads can only be recovered from an estate by being included within charge out rates. They cannot be separately recovered.
The meaning of “associate” is aligned with its interpretation in the insolvency Code of Ethics consideration of personal and business relationships. The meaning is therefore extended beyond the statutory definition. Insolvency Practitioners should consider the substance and likely perception of any association between the Insolvency Practitioner, their firm, their staff and the recipient of a payment. Where a reasonable and informed third party might consider there to be an association, the payment should be treated as if it is being made to an associate – notwithstanding that the nature of the association may not meet the definition in the legislation.
Appointments as Monitor
There is clarification that SIP 9 does not apply to appointments as Monitor under the new moratorium process introduced by the Corporate Insolvency and Governance Act 2020 or in a Members’ Voluntary Liquidation (MVL), unless those paying the fees require the level of disclosure that would be made if it were an insolvent liquidation.
The information to be provided to creditors where work is to be sub-contracted is expanded. The information should now include detail of what work is being undertaken, why the work is being sub-contracted and the cost of the work.
Although the principles remain consistent, legislative differences across the jurisdictions mean that there are separate versions of SIP 9 for England and Wales, Scotland and Northern Ireland.
SIP 7: Presentation of financial information in insolvency proceedings
The changes made are primarily to align the language used in SIP 7 with SIP 9, in terms of the extension of the definitions of associate, the perception of association and the greater emphasis on transparency. There are slight changes to requirements for reporting in order to make reports more relevant and useful to creditors and other stakeholders.
SIP 3.2: Company Voluntary Arrangements
The principal changes made to SIP 3.2 are to improve transparency and the provision of information. There is a re-emphasis on the need for the nominee to act professionally and objectively by introducing an additional principle: “An Insolvency Practitioner should act professionally and with objectivity in each role associated with the arrangement. Failure to do so may prejudice the interests of both the company and creditors, and is likely to bring the practitioner and the profession into disrepute.”
Additions have also been made to the section of the SIP which deals with the proposal, adding an explanation of the role and powers of the supervisor, and details of any discussions that have taken place with key creditors.
The development of technology has been recognised where the CVA is to be proposed by directors. Meetings can be conducted virtually as well as physically. A number of other more minor amendments have been made.
The same version of SIP 3.2 applies in England and Wales, Scotland and Northern Ireland.
You can access the new SIP documents here on the IPA website.
If you would like to make any comments to us on the changes to the SIPs, please email [email protected].