Thursday, July 09, 2015

New fee rules and a rallying cry ahead of the new SIP 9

It is about time that I got back to our poor neglected Blog, but it is difficult in the current social media and CPD explosion that seems to be going on around us to decide what to write about. Despite a tendency to ramble on occasions, we try to keep the Blog for important technical updates and opinion pieces about movements in the regulation of the UK insolvency profession. So, this is the first of a series of articles we’ll publish in the next week or so. The topic, as you can tell from the title, is the new fee rules, but not just technical details that we have talked about and heard others talk about at CPD events since April. We intend to flag up the start of a campaign that will continue all summer until we batter the JIC into submission or get sick of banging our heads against the brick wall that surrounds the concept of principles-based SIPs. There will be at least two more articles that have links to this, but this is the one with the technical content and the big news.

Let’s start with a run through the technical requirements of the new fee rules, or the Insolvency (Amendment) Rules 2015 as they are more properly known.

The fee elements of the new rules come into force on 1 October 2015 and they say that when you are seeking remuneration on a time cost basis you will have to provide a “Fees Estimate” (explained below) together with details of expenses that will be, or are likely to be, incurred. The Fees Estimate will act as a cap and you will need further approval from whoever approved your fees to exceed it.

Even if you are not seeking time costs, you will have to say what work you intend to do and provide details of the expenses that will be, or are likely to be, incurred.

The Fees Estimate will have to say:
· The work you intend to undertake
· The hourly charge out rates you and your staff intend to charge for “each part” of that work
· The time that you anticipate that “each part” of that work will take
· Whether you anticipate having to ask for an increase
· The reasons why you think you may need to ask for an increase

If you subsequently want to seek an increase to the Fees Estimate, you will need to say:
· Why you have exceeded or are likely to exceed the estimate
· What “additional work” has been undertaken or is proposed
· What hourly rates you intend to charge for “each part” of the “additional work”

Anyone familiar with my writing style will know that when I start using quotation marks, I am getting ready to vent my spleen. I am really not sure how those involved with drafting the rules let such woolly terms get into the statute book. What do they mean by “each part”? Do they mean something task-related, like the categories used in the old SIP 9 appendix table, or could you use something broader and process-driven, like “opening”, “reporting” or “closure”? I suspect that something so broad was not their intention, but surely “month 1”, “month 2” and so on, are “parts” of the work. I suppose that I should not be surprised that after using such poor wording for the work to be done on a case, they should be equally imprecise about “additional work”. Is it enough to say that the work planned took longer and that it was additional to the work estimated, or does it actually have to be completely new work that was not included in the estimate? Using an example, will you just be able to estimate some time for book debt collection and go back for more if you exceed it, or will you have to estimate time only for the issue of a set number of chasers, so that “additional work” instructing solicitors, collating invoice evidence, etc. can be claimed?

When the rules refer to seeking an increase where you have exceeded, or are likely to be exceeding your estimate, is that referring to just your overall estimate, which makes sense, or does it refer to the estimates provided for the individual pieces of work, which would be far more onerous and likely to involve considerably more requests for increases?

These are all issues that we hope to see resolved in the new SIP 9 that is due to come out for consultation next week, but is it appropriate for statutory drafters to produce work that needs a SIP to make any sense?

All of that leads me nicely onto the biggest problem with the proposed SIP and the start of another Quixotic charge against the regulatory windmills. Everyone tells us this is cast in stone and won’t be changed, but we would do ourselves, the profession and stakeholders outside the profession a disservice if we did not try our damnedest to force change, right up to the last minute. What am I on about? The fact that the new SIP 9, as currently drafted, does not even include a suggested format for the Fees Estimate required by the new rules. We are absolutely sure that omitting a template will increase costs, reduce creditor benefit and generally undermine the whole Fees Estimate concept. The JIC, or some of those represented on it, consider that any such template would be prescriptive and contrary to the principles-based approach to SIPs that they think is sacrosanct.

Our belief is that a well-drafted SIP, or any good regulatory requirement or guidance, should be a balance between prescription and principle. It should have principles to set out the spirit and intent, but must also have rules and boundaries to maintain consistency in standard and application. For example, freedom of speech is a great principle, but we need laws against racism, bullying, etc. to set boundaries on the acceptable use of that freedom. We have heard people argue that even a “suggested format” would be taken as “prescribed”, as if that were necessarily a bad thing. We are not convinced that it is necessarily wrong to prescribe a degree of uniformity. We believe that if everyone uses roughly the same format and categories then it will enable creditors to compare estimates and understand the different costs between case types and firms of IPs.

We also think that having a suggested format could save the profession a fortune. We are not alone in designing templates for our clients to use if we are unsuccessful in our campaign. There are other compliance providers, in-house committees, individual IPs and their staff all coming up with different approaches. As a result, if we cannot force a u-turn on this, there will be a dizzying array of different layouts in October and creditors won’t have a snowball’s chance in hell of knowing the difference between two quotes for similar cases. This will only be compounded when IPs subsequently seek fees that exceed the estimate.

Surely it would all be so much easier if a basic template was offered up (we would suggest the old SIP 9 appendix D table and further breakdown for larger cases as a starting point?) and made available for the main software providers to code into standard software ready for the commencement of the rules. By making it just a suggested format and including some further narrative guidance, it should be possible to discourage IPs from slavishly following the standard where it was not fit for purpose. Variants would develop for use in complex cases or specific circumstances, but the broad overview would be similar and creditors would have a better understanding of what they were looking at.
The SIP comes out for consultation shortly and if, as we expect, it has no template, we will keep banging away to get one added until we succeed or burst a few blood vessels trying. We will look at a couple of other issues around SIP 9 and the new fee rules in our next article, but don’t expect us to leave the Fee Estimate template issue alone. To arms! To arms!