Reporting on SIP 9

What changes should insolvency practitioners expect in the revised statement of insolvency practice 9 (SIP 9)? Alison Curry, head of regulatory standards and support at the Insolvency Practitioners Association (IPA), evaluates the new SIP and explains how it emphasises the importance of narrative explanations provided to creditors.

What are the key changes brought about by the new SIP 9 compared to the old SIP 9?

This revision of SIP 9 was necessitated by the Insolvency (Amendment) Rules 2015, SI 2015/443, which requires trustees, liquidators and administrators to provide an estimate of their time costs when approval of any part of their remuneration is sought on a time spent basis.

These new provisions are a result of the findings of the Kempson Report in 2013, which concluded that, where there was insufficient creditor control of fees, then fees tended to be higher. Professor Kempson also noted that reports to creditors were typically formulaic, which discouraged meaningful engagement. In response to these findings, the Insolvency Service consulted in 2014 on proposals to ban time costs completely where there was no secured creditor in control. However, to the collective relief of the profession, these proposals were abandoned in favour of the current provisions that require practitioners to provide fees estimates.

In addition to accommodating these legislative changes, the new SIP 9 provides a significant shift in emphasis towards the importance of the narrative explanations provided to creditors. This largely reflects what creditors have said they wish to receive—less formulaic reporting, with meaningful explanations of:

  • what has or will be done by the office holder
  • what the office holder has achieved or expects to achieve, and
  • what the office holder expects the costs will be

In keeping with the prevailing theme of transparency, the SIP contains a new provision:

‘Where it is practical to do so, the office holder should provide an indication of the likely return to creditors when seeking approval for the basis of their remuneration’.

This reflects what creditors groups have reported—that this is the key piece of information from their perspective.

Notably, however, the principles of the SIP remain largely unchanged from the 2011 version.

Are there any significant amends to the draft SIP 9 released earlier in the year for purposes of the consultation? If so, why were these amends made to the final version?

There were a number of amendments to the consultation draft because of the consultation responses themselves. The responses were subject to detailed consideration by the SIP 9 working group, and a significant number were adopted. However, the fundamental substance of the SIP remains unchanged from the consultation draft, and most of the changes are merely to clarify what was intended, rather than to change the intended meaning. For instance, para 2 of the SIP now contains a specific statement that it does not seek to impose a requirement to produce a fee estimate where one is not required by statute. This was always the intention, but come consultation respondents had sought clarification of this.

In addition, the examples of common tasks against which time (and fee estimates) might be allocated have been brought in line with the categories used in previous versions of the SIP. The use of the word ‘part’ in this context is deliberate, in that it mirrors the wording of the rules (‘part’ being treated as synonymous with ‘category’ of time spent/work done).

The provision of an indication of the likely return to creditors is perhaps the most significant addition to the consultation draft, and reflects the wishes of creditors to be told at an early stage whether there is any significant prospect of a distribution to them.

Do you think that Insolvency Practitioner’s (IPs) duties have become more onerous because of the new SIP and the provisions in the Insolvency (Amendment) Rules 2015 relating to fees?

The Insolvency (Amendment) Rules 2015 clearly present practitioners with some new challenges. They now need to share more information with creditors at an earlier stage and manage the expectations of those creditors, while potentially delivering a message that the creditors do not want to hear (ie the likely absence of a return to them). This may not always be easy and will necessitate practitioners justifying to creditors their value as professionals.

However, while practitioners may not historically have been producing formal estimates of their fees, or indeed sharing this information outside of their practices, they may in many cases have been estimating the likely outcome of a case from a very early stage as part of the process of providing initial advice. Therefore, it is arguable that sharing this information might not represent a significant additional burden.

The SIP has been written in such a way as to guide practitioners as to the qualitative nature of what is required. In that sense, it is perhaps less onerous than it could have been, as it does not specify a format or a detailed list of matters to be covered (as does SIP 16, for example). It seeks to encourage practitioners to take a meaningful approach to their compliance with the Insolvency (Amendment) Rules 2015. One size will most definitely not fit all in this context.

What do you think might cause most concern for IPs?

While there has been disquiet in the profession about the absence of a template or suggested format for fee estimates, this is fully intended to reflect the fact that a fee estimate in a simple case might be little more than a few lines of text, while such a brief explanation will almost certainly be inadequate in more complex scenarios. Explanations cannot be scripted in advance and the level of detail required will vary from case to case.

In essence, the IP’s duties under the SIP are not necessarily more onerous, but they will need to exercise their professional judgment in deciding how to adequately meet them.

Are there any plus points that improve upon the original SIP 9?

The SIP clarifies that it is acceptable to provide creditors with a fee estimate within the pre-appointment stages—an attempt to assist practitioners in dealing with a drafting defect in the Insolvency (Amendment) Rules 2015, which requires the estimate to be provided by the office holder, which a prospective liquidator is not.

Is there any additional help or guidance available to IPs from their recognised professional body or from the Insolvency Service (or anywhere else) if there are any teething problems with the new process?

We are always happy to talk through any concerns our members have via our ethical and regulatory helpline and the Joint Insolvency Committee issued an explanatory note during the consultation stages of the SIP. However, broadly speaking, responses to the consultation indicated that it should not be necessary to issue guidance on SIP compliance—the SIP should be and hopefully is self-explanatory.

Is the new IPA handbook coming out this year, and if so, will the new SIP be covered in this?

The fourth edition of our IPA Handbook contains the new SIP 9, along with the recently issued SIPs 1 and 16.

The revised SIP 9 can be found here and is effective from 1 December 2015.

Interviewed by Ioan Marc Jones.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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