Insolvency practitioners will now have new working systems, routines and procedures, many of which will have been put in place without time to assess how successful they will be and without any idea about how long the new systems will be in place. While planning for the anticipated increase in insolvencies as a result of the lockdown insolvency practitioners may have switched to a paperless office with just a few hours’ notice.
The IPA, the ICAEW and the Insolvency Service are meeting weekly to discuss how the coronavirus will affect regulation, which is continuing. The IPA and the ICAEW have issued a very useful joint statement regarding regulation that can be accessed at https://ion.icaew.com/insolvency/b/weblog/posts/joint-statement-by-icaew-and-the-ipa-regarding-measures-to-support-ips-during-the-covid-19-pandemic. The overall message is that insolvency practitioners are still expected to comply with legislation but it is recognised that these are unprecedented times and the RPBs will be flexible – although this does not mean that anything now goes.
The initial wave of uncertainty is over and it may now be possible to start to do more than firefight. Insolvency practitioners are anticipating a substantial increase in new insolvency appointments because of the pandemic and it is necessary to plan to deal with this. Insolvency practitioners could consider the following:-
- However informally the new systems were set up, document them to ensure that they are followed and not amended at will by different members of the team. By documenting the new systems you may discover ways of improving them.
- Are your files still being backed up reliably, are all members of your team using the correct filing system? Intelligent members of your team could hardly be blamed for using their initiative and setting up their own personal filing system when they first started to work from home but if this has continued it could mean that you are not able to manage and control your insolvency appointments as expected by the regulators.
- Are your decision making procedures secure? It is now more important than ever that decision making processes are documented, use emails ensuring that all relevant people are copied in. Remind agents and solicitors about your decision making procedures so that they know who must be copied into emails.
- If you have prioritised tasks to ensure that resources are used efficiently, ensure that all members of the team are aware of these priorities and that you are advised if any tasks become delayed. Continue to review your case diaries and keep them up to date. Keeping case diaries up to date may now include the reason for a delay and this is very important.
- There are already examples of how insolvency processes are changing because of the pandemic. The administration of Carluccio’s involves mothballing the restaurants during the lockdown. Light touch administrations have been suggested whereby the companies continue to trade and the directors continue with the management of the company. These light touch administrations may see companies continuing to trade after going into administration but insolvency practitioners should take care to avoid liability for post administration liabilities.
- The government is arranging a variety of financial support that is aimed at supporting individuals and companies experiencing financial difficulty because of the pandemic. The financial support itself is provided by banks. Be very wary of treating this financial support as funding that might be available for an insolvency procedure. The government loans, grants, furlough payments etc are not funding for insolvency procedures. It is understood that a successful application was made for the employees of Carluccio’s to be paid from a furlough grant. These funds were paid to the company but were used to pay the employees and were not available as funds in the administration.
- The lockdown has been in place for long enough for new procedures to be considered for different types of insolvency process. It is very useful to know that HMRC, frequently a major creditor, will support a three month break from contributions from people subject to an individual voluntary arrangement and that HMRC will not treat a delay in paying VAT as a breach of the terms of an individual voluntary arrangement. It is for the supervisor to make these decisions, however, based on the terms of the proposals, the facts of each case in the context of the pandemic and as ever, taking into account the benefit for creditors.
- Debt collecting will have been severely affected by the pandemic as cashflow problems become more widespread. If your policy for debt collecting was to send a statutory demand and threaten winding up procedures, this will now be less effective. A new debt collection procedure may now be appropriate that allows for the effect of the pandemic and the time taken for businesses to recover. This would probably result in insolvency cases being kept open for longer than in the past so the new policy should be documented.
- Review previous decisions to take legal action to assess whether the facts of the case have changed meaning that the legal action is no longer worthwhile. The value of assets may have decreased, for example.
- It will be more important than ever for insolvency practitioners to be able to demonstrate the options they have considered, the decisions they have taken and the reasons for these decisions. It is possible that many insolvency practitioners will be making decisions that would ordinarily be challenged by the ICAEW or IPA. Insolvency practitioners who can show the reasons for their decisions will be in a much stronger position than those who give the impression that they did not know or care what happened. Always make contemporaneous file notes.
- Maintain your anti money laundering procedures and do not categorise these as low priority. The NCA is concerned that criminals might take advantage of the pandemic and that money laundering offences might increase https://www.nationalcrimeagency.gov.uk/news/national-crime-agency-warn-that-organised-crime-groups-may-try-to-exploit-the-coronavirus-outbreak-to-target-the-uk. Your risk assessment and customer due diligence for new cases should continue as before, if not in more detail.
RMCSC has continued to work during the lockdown, assisting clients with insolvency compliance reviews and other aspects of insolvency compliance. The structure of insolvency compliance reviews has already changed although the importance of annual insolvency compliance reviews that consider the facts of the insolvency practitioner’s practice, commercial reality and compliance with insolvency legislation, will never change. Avoid delaying your insolvency compliance review unnecessarily.
But most importantly, please take great care!