Friday, February 21, 2014

Pre-appointment advice – are CVLs next in the firing line?


Over our years working on the technical/compliance side of the profession, we have seen plenty of situations where the actions of one part of the profession appear to directly oppose the actions of another, but the latest policy twist seen on a regulatory visit seems to be an example of the Insolvency Service fighting itself!

On one hand, we have a significant investment of Insolvency Service resources in the Red Tape Challenge, helping to find ways to reduce regulation and cut unnecessary requirements from insolvency appointments. On the other, we have just seen an IP asked to improve their pre-appointment advice in a CVL to show that they have explained the relative pros and cons of CVL and compulsory liquidation. This seems to us to be an additional layer of advice to be added pre-appointment, which is bound to have an additional cost. In time, it seems inevitable that IPs will develop standard disclosure pre-appointment and wording in engagement letters to show that they have covered the main points and while that will bring the cost back down, we do wonder who will benefit from it.

 The director approaches an IP to explore his options. Having been told that the business is doomed, is there really any need for an IP to spend time explaining the differences between a compulsory liquidation and a CVL? Who really benefits? A cynical observer might even ask if the Insolvency Service is trying to increase their fee income by getting IPs to sell “their” solution at the IP’s cost. More to the point, where does it stop? Will you need to keep records for every option in every case type, such as making notes before an MVL to show why you have not recommended a sale to an investment vehicle, or the possibility of a management buy-out?

Maybe nobody has asked those questions yet, and when they do the issue may go away. However, for now, we have to do our duty and warn you that this is another area that you may have to cover off in your pre-appointment records and engagement letters.