This is the first of two articles about new questions being asked on monitoring visits. In this article we look at paragraph 35 of SIP 8. Although personally I think it is sad that the monitors feel it necessary to focus on the detailed application of a minor disclosure point in a 12 year old SIP, we have seen it picked up on a number of recent regulatory visits, and since it includes a potentially unfair booby-trap for IPs we have to bring it to your attention.
Paragraph 35 (d) of SIP 8 says that you have to disclose details of monies paid or estimated to be paid in the following categories:
1) Preparation of the Statement of Affairs;
2) Arrangements for the creditors’ meeting; and (the big trap…)
3) Advice to the company or the directors.
Historically, IPs have fallen out of the habit of disclosing the details and now generally just quote a figure for “The SA fee” or similar. Although there are a few exceptions where a practice habitually splits the fee, it has pretty much become industry standard to just quote the one figure. After all, if there is only £5,000 or less available in the whole case, who really cares how you allocate it?
However, we have seen several visits recently where the regulators are requiring the IP to split down the disclosure and stick strictly to the SIP 8 requirements. That would not be a problem were it not for the booby-trap built into such disclosure.
On at least one visit, where the IP was making the correct separate disclosure, it was pointed out that only 1) and 2) above can be reclaimed from realisations post appointment. Rule 4.38 allows the SA fee to be drawn from realisations with creditor approval and rule 4.62 says much the same thing for the costs of arranging the creditors’ meeting. The trap is that there is no statutory authority for you to pay any general advice element; i.e. point 3) above, from realisations post appointment. It was suggested that the IP might have to refund any general advice element to the estates of all his open CVLs.
We think it is unfortunate that a modern regulator should find it necessary to enforce the details of an old SIP to such an extent when it would almost certainly not be an issue under a modern, principles-based SIP. Modern SIPs refer to appropriate and transparent disclosure and in cases when the only assets available in the liquidation are a few thousand pounds that are inevitably going to be used up in costs, where is the benefit in splitting it down into fractions in some artificial allocation?
Realistically, the fee is what it costs to take the job on and do the basics. In many cases there are no further assets to realise and the liquidator will end up writing off post-appointment time, so what is the point of picking apart the pre-appointment element?
Since they are applying the SIP rigidly and there is a regulatory risk in not complying, you have to be careful with your pre-appointment costs. If you can only describe something as pre-appointment advice, then you have to be paid up-front for it (which just requires disclosure under SIP 8, not approval) or write it off. If you have to split a single fixed fee into separate categories just to keep a regulator happy over SIP 8, make it clear in your disclosure that you are only charging for the SA fee and meeting elements and that any general advice has not been charged, but make sure that any pre-appointment time records support this, even if you are looking for a fixed fee rather than one based on time costs. In marginal cases, look at the work you are doing and decide whether it is really general advice. For example, if you are tempted to allocate time to general advice on say, employment issues, consider how much of it really is general advice. We would argue that you have to resolve the employee claims position in order to prepare the SA and you have to know their details to contact those that are creditors in connection with the creditors’ meeting. We suspect that very little of it is actually general advice in the short time leading up to a normal CVL appointment.
Hopefully, someone with more clout than us will pick up the baton and revise the SIP along modern lines before this gets too silly, but in the meantime, you should be aware and consider how you draw and disclose any pre-appointment costs in CVLs very carefully.
