A new SIP 13 will be effective for insolvency appointments from 1 December 2016, providing mandatory guidance about the sale of assets to connected parties, how this should be managed and how disclosed to creditors and other interested parties.
There are a number of differences between the new SIP 13 and the previous one that has been effective since March 2002. The earlier SIP 13 only related to corporate insolvency whereas the new SIP 13 includes personal and corporate insolvencies together with the advisory role undertaken by insolvency practitioners pre appointment. The new SIP 13 only excludes members’ voluntary liquidations. The earlier SIP 13 included information about directors’ legal obligations as regards the sale of assets to connected parties, even though company directors are not bound by SIPs, and the new SIP 13 is shorter, more to the point, and aimed solely at insolvency practitioners.
‘Insolvency practitioners’ and ‘office holders’ are defined insolvency practitioners acting pre and post appointment, respectively. Although it seems that the same principles apply to insolvency practitioners and office holders it appears that there are different key compliance standards for insolvency practitioners acting pre and post appointment.
An insolvency practitioner (acting in an advisory capacity pre appointment) should exercise professional judgement in advising the client whether a formal valuation is necessary. No comment is made about whether an officeholder should exercise professional judgement post appointment in deciding whether a valuation is necessary, even though professional judgement should be exercised both pre and post appointment.
The wording of SIP 13 seems to suggest that an insolvency practitioner (acting by definition in an advisory capacity pre appointment) should disclose if a valuation is relied on unless it is one undertaken by an independent valuer. It is not clear who this information should be disclosed to, or when, as the pre appointment advisor may not become an officeholder. SIP 13 does not give any guidance and in any event insolvency practitioners should not be involved in the pre appointment sale of assets.
The principles of the new SIP 13 include the provision of sufficient information by the officeholder to creditors and other interested parties such that a reasonable and informed third party would conclude that the transaction was appropriate and that the officeholder has acted with due regard for the creditors’ interests. No insolvency practitioner would argue with that but sufficient information would surely include information about any valuation, whether or not it was relied on and regardless of whether it was undertaken by an independent valuer or not, even though this seems to contradict with other sections of the new SIP 13.
It may be that the wording of the new SIP 13 is not sufficiently clear but in any event the inclusion of personal insolvency and the principles of clarity of the pre appointment role and sufficient disclosure are excellent. The new SIP 13 can be accessed by clicking on http://www.insolvency-practitioners.org.uk/regulation-and-guidance/england-wales.
A back door way to deal with insolvency.
An insolvency practitioner recently told me about some of the negative aspects of the application to strike off a company that can be made by a director by sending a form DS01 to Companies House together with a £10 fee. The process seems very simple, especially for directors who may not be completely honest. Directors of an insolvent company that had ceased to trade and that was sufficiently small that it did not attract the attention of HMRC could file form DS01 at Companies house, pay the £10 fee and have their company struck off. The directors would avoid the risks and investigations of liquidation and although legislation limits the occasions when companies can be struck off in this way it does not appear that there is any process for checking for DS01 applications to ensure that they are not fraudulent.
If you have queries about any aspect of insolvency compliance or the insolvency compliance consultancy service provided by RMCSC please do not hesitate to email me or phone on 07854 967976.