The Insolvency (Amendment) Rules 2015 'the Rules' came into force on 1 October 2015 and since 1 December 2015 the insolvency profession has had a new SIP 9 to give guidance and instruction as to how the Rules should be interpreted.
The Insolvency (Amendment) Rules 2015
The Rules affect all types of insolvency appointment except individual and company voluntary arrangements. The Rules basically affect all other cases with a date of appointment from 1 October 2015 and there are transitional provisions that should be referred to if you are uncertain about how this will apply in specific cases. The transitional provisions failed to include compulsory liquidations with the effect that the Rules will apply to existing pre 1 October 2015 compulsory liquidations where the basis of remuneration is changed or fixed after 1 October 2015.
From 1 October 2015, although an officeholder's remuneration is still to be charged on a time cost, fixed fee or percentage of realisation basis, or a combination of these, the means of the approval of the basis of the officeholder's remuneration has changed.
In the event that remuneration is to be calculated on a time cost basis, then the office holder must send a fees estimate to all creditors before the basis of calculating the remuneration has been approved.
In the event that remuneration is to be calculated on a fixed fee or percentage of realisation basis then the office holder must send to all creditors details of the work it is proposed the office holder will undertake and the expenses considered likely to be occurred, again before the basis of calculating the remuneration has been approved.
It is possible to request approval for an increase to a fees estimate, provided the appropriate information is provided to those approving the remuneration, but there is no provision to increase either the fixed fee or percentage of realisation, once properly approved.
The new SIP 9
The new SIP 9 replaces the previous SIP 9 that has been withdrawn. The new SIP 9 therefore refers to all cases, regardless of the date of appointment and including individual and company voluntary arrangements.
All appointment takers and their staff should read the new SIP 9 and refer to it when drafting reports. The main changes are that the new SIP 9 is principles based rather than prescriptive, there is an increased emphasis on the quality of narrative information provided by office holders to creditors so that they can make informed decisions and there is no longer a requirement to provide a specific matrix of information about time costs.
Practical implications of the Insolvency (Amendment) Rules 2015 and the new SIP 9
The new SIP 9 will affect all cases including individual and company voluntary arrangements, regardless of the date of appointment. It is not possible therefore merely to change standard policies regarding remuneration for cases with a date of appointment from 1 October 2015. Consideration should also be given to changing policies for the reporting of information about remuneration for cases predating 1 October 2015 - there is now increased emphasis on the quality of narrative.
While there is no longer a requirement to provide a matrix of information the new SIP 9 does not say that insolvency practitioners cannot do this. If a matrix of information would presents information in a manner that is transparent and useful to creditors and helps those approving remuneration with sufficient information to make an informed judgement, then there is a justification for continuing to use it, or something similar.
SIP 9 asks for information to be presented in a way that is consistent throughout the life of the case and there would seem to be a strong argument to continue to use the matrix of information or something similar to it if it has previously been used in cases pre-dating 1 October 2015.
The Rules use the title of the office holder throughout the legislation, suggesting that fees estimates and information about fixed fees and/or percentage rate remuneration can only be sent to creditors after appointment. This would imply a major change in creditors' voluntary liquidations as before 1 October 2015 the basis of the liquidator's remuneration would typically be approved at the S98 meeting. If this is to continue it would now mean sending out the fees estimate etc before appointment and the Rules do not provide for this.
Dear IP 68 gives guidance to how the Rules should be applied and advises that 'the use of the word 'liquidator' is not intended to preclude an insolvency practitioner from providing this information (fees estimates etc) ahead of a s98 meeting at which s/he is subsequently appointed'. SIP 9 advises that 'an insolvency practitioner is not precluded from providing information, including a fee estimate, within pre-appointment communications'.
It is understood that consideration is being given by some insolvency practitioners to charging a fixed fee in some cases. There is no provision for the increase of a fixed fee in the Rules. In such cases consideration could be given also to asking for remuneration on a time cost basis for additional work that may become necessary should the facts of the case change. In the event that additional work did become necessary in the case concerned the appointment taker could then go back to creditors and ask for the time cost fees estimate to be revised as necessary.
Insolvency practitioners who take appointments in compulsory liquidations and bankruptcies will be familiar with the concept of contacting creditors to obtain approval of remuneration some time after appointment. Experience shows that it is possible to obtain creditors' approval of remuneration in this way and engagement with creditors helps deal with many of the difficulties.
Caroline Clark's insolvency career started over 30 years ago and since 1994 she has specialised in insolvency compliance and regulation.