There have always been legal requirements for insolvency practitioners to work with unsecured creditors. Office holders have to report to creditors after appointment, at regular intervals and when cases are to be closed. The approval of creditors (or court) has always been necessary before officeholders could draw remuneration and the Insolvency (Amendment) Rules 2015 have increased officeholders’ legal obligations to report to creditors in order to obtain approval of their proposed remuneration. Appointment takers work in the best interests of creditors.
None of this is new but the legislation that effectively sets out how insolvency practitioners have to communicate with creditors has resulted in a bizarre statutory working relationship between unsecured creditors and insolvency practitioners that does not seem to benefit anyone.
This is much more than a principled debate about how people should communicate. Many insolvency practitioners questioned how their remuneration would ever be approved after 1 October 2015. More information had to be provided to creditors who had to be more involved in the approval process – all this at a time when it appears that creditors are just not interested in insolvency.
Insolvency practitioners who take appointments as trustees in bankruptcy or liquidators in compulsory liquidations are used to writing to creditors some time after the date of insolvency in order to ask for the basis of their remuneration to be approved – and the frustration that can result. Well written, succinct letters or reports increase the rate of success as does establishing working relationships with creditors in the same way that you would establish working relationships with any other stakeholders.
The idea that insolvency practitioners can work successfully with unsecured creditors is not new and it does not only affect remuneration. An article headed ’10 things you need to know about CVAs’ in the Autumn 2014 edition of R3’s Recovery magazine advised that ‘It is unlikely that all creditors will attend the meeting but they should all be encouraged to vote. Providing dedicated phone hotlines and email addresses means creditors have an efficient, easy way of lodging their proxies if they cannot attend’.
The increased requirements to market businesses for sale in prepack administrations can be seen as an opportunity for insolvency practitioners to communicate with creditors and others. Since 1 October 2015 it seems that some insolvency practitioners have started to send marketing emails to those on their contacts database, giving information about businesses for sale, complying with SIP 16 and taking advantage of an opportunity to raise the profile of their firms at the same time.
Establishing positive working relationships takes skill and time and it is not something that is achieved merely by complying with legislation or ticking a box on a checklist. Positive working relationships with creditors are however likely to assist in compliance with SIPs and best practice, as well as the proper approval of fair remuneration.
Caroline Clarks insolvency career started over 30 years ago and since 1994 RMCS has been handling insolvency compliance, specialising in regulation and compliance.
Contact: Caroline Clark
M: 07854 967976