Friday, March 01, 2024

Onerous passwords to open PODs

We have recently heard that there is a growing trend with certain creditors to submit proofs of debt and proxies for decisions, but in a password-protected format, requiring the IP to telephone to obtain the password. That is a pretty silly way to work for a number of reasons, so we have put this article on our Blog and we will refer to it on LinkedIn and X (formerly Twitter), in the hope that the numpties who thought it was a good idea will reconsider or find an alternative that does not have the potential to increase costs exponentially across the whole insolvency profession.

For a start, it simply is not necessary. The justification being used is “Data Protection” or “GDPR”, but that just does not apply here. The debtor, whether corporate or personal, is insolvent and their details are available on Companies House or the Individual Insolvency Register. The claimant/creditor will generally be a company, or at least the ones that are currently using password protected proofs of debt are companies. Therefore, the only personal data on the form either relates to the insolvency proceedings and is being submitted under a statutory requirement, so is outside the scope of GDPR, or it is the signature and name of the creditor’s agent. If the person signing multiple thousands of proofs of debt, electronically, on behalf of a range of corporate creditor clients, feels unable to consent to their name being shared with insolvency professional firms, then maybe they need to find a new role.

Second, if the individual that is signing the proof of debt form is concerned about their personal data, or the agent wants to attach documentation that may include personal data and is unable to get consent from the individuals at their client that may be affected, there has to be a better way than requiring an IP to phone and ask for it every time. Just this week we heard of a case where the creditor failed to answer after 10 minutes. That may not sound like much in one case, but some of these creditor agents submit thousands of proofs of debt per week. The costs of every IP making thousands of unanswered calls and then following up to finally obtain a password will run into millions of pounds. Given the nature of insolvency, a large amount of that money will not be recovered by the IP and, if it is, the creditors will suffer.

We think that there needs to be some debate across the profession. As yet, I am afraid that we don’t have the answers, but these are some of the questions that we think could be relevant:

1) Is there a real need to password proofs of debt at all?

2) Can an IP treat a proof of debt as undelivered if it is password protected?

3) If the answer to 1) is yes, and the answer to 2) is no, is there a cost-effective alternative?

4) Is there a way that proofs of debt and proxies can be submitted without the sort of data that would necessitate password protection?

One idea that might work would be to have one password for each IP firm, so that the claimant creditor can use it whenever they submit a proof to that firm. Alternatively, could passwords be delivered automatically using a text message or WhatsApp message, so that the IP does not have to phone the creditor?

We are not convinced that passwords are needed at all, but if they are required, someone needs to find a solution that won’t just increase costs. Of course, it would have been nice if they had thought about it first, rather than issuing password protected proofs and assuming that the additional work and cost would be somebody else’s problem.

On that happy note, have a lovely weekend!

MVLs, tax clearance, and arguably unnecessary insurance

We have had a couple of queries recently about HMRC, tax clearance, and as a result of the recent article in Recovery magazine, insurance. The fact that the article was written by someone who works for an insurance broker should tell you a lot. Our view is that this is just a marketing piece, trying to create new demand for an existing product in a sector that has not traditionally used it.

If you have taken sensible steps to confirm that there are no outstanding tax matters, then you should be happy to close the case. Clearance was never worth much on top of that and if you are happy that the directors, members, and accountants have been honest with you, you have checked with the company’s records, and everything seems to be above board, you should have no worries. Even if HMRC subsequently found something, they would restore the company and go after the members, as long as there was no suggestion that you were reckless or negligent. If you were reckless or negligent, I am not sure that tax insurance would cover you in any event.

There will always be exceptions, and you may want to keep details available if the product is still available in the right circumstances. However, by then the furore around clearance may have died down and they may have pulled the product due to lack of interest. I cannot see any way that you could justify using it regularly across your MVL cases, but the cynic in me thinks that it might be useful in the right sort of case. I can imagine a case where you are receiving all the right assurances, but you feel that something isn’t right. You could suggest getting insurance then and see what their reaction is. If they argue against it and show that they have made full disclosure and it isn’t needed, your hunch was probably wrong. If they agree to pay it, they may well be hiding something and you’d be better to walk away, as the insurance probably won’t help much if they are hiding something deliberately.

Because this is a developing area, it is always worth seeking out alternative views, so I have just signed up to Malcolm Niekirk’s coffee break webinar on Monday, 4 March. If you are interested, Malcolm can be contacted through Frettons. I’ve not put a link in this article, as it can generate a bit of spam, but if you google Malcolm or Frettons, you’ll be able to get a link to register.

Thursday, February 01, 2024

NCA - SARs reporter booklet Issue 24

 You can read Issue 24 of the NCA's SARs reporter booklet by clicking here. These booklets contain some interesting information about the use to which SARs are put.

Thursday, December 21, 2023

External review of “eligibility” or “whole firm” issues

We could not have failed to notice the increased regulatory attention to “eligibility” or “whole firm” issues over the last few years. Central to that has been the requirement to complete annual reviews of your client monies and SIP 11 systems, together with the requirement in Regulation 21 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“MLR17”) to conduct an independent audit of your AML systems. However, there are other areas, such as training, professional indemnity insurance, licence requirements, and complaints that should be checked regularly outside the sort of insolvency case review work we have traditionally carried out. For the rest of this article, I’ll just refer to them as “whole firm issues”.

We have always tried to do as little as we can get away with for each client. We want you to be reasonably compliant, but we recognise that you have to be commercial, so if we are taking up your time and resources, you are not earning money. Maybe we have taken that a bit too far with whole firm issues, relying on you to know that you have to review your AML, clients monies, and SIP 11 systems annually and assuming that you keep evidence of the other whole firm issues as you complete renewals, annual returns, etc. Unfortunately, feedback from the regulators over the last couple of years suggests that some of you are not doing reviews, or are not being sufficiently rigorous when trying to critically review your own systems.

As a result, we have designed a review to cover whole firm issues, either as a stand alone visit early in the year or added onto a regular annual review of your insolvency work. In short, we have taken our usual detailed, risk-averse, compliance approach to whole firm issues and designed a range of checks that should initially cause you some concern, but ultimately should help you improve to a level where your regulator will be confident that you are staying abreast of such issues.

We will be contacting clients direct, but if you are not a client and you would like a review, please contact Bill.

Saturday, December 16, 2023

NCA - SARs reporter booklet Issue 23

You can read Issue 23 of the NCA's SARs reporter booklet by clicking here. These booklets contain some interesting information about the use to which SARs are put.

Thursday, November 30, 2023

Companies House changes

As you may be aware the Economic Crime and Corporate Transparency Act received royal assent on 26 October 2023. The Act gives Companies House the power to play a more significant role in tackling economic crime and supporting economic growth. Companies House envisage that over time there will be improved transparency and more accurate and trusted information on their registers. The Act will have implications for IPs, but at present, since many IPs are part of practices that are limited companies or LLPs I just want to flag up a microsite that Companies House have created that sets out a summary of the changes as they impact on directors and people with significant control of companies. The website can be founds at Changes to UK company law - Changes to UK company law

Thursday, November 02, 2023

Is HMRC about to say that they will not give tax clearance in MVLs?

At today's R3 SPG Forum, Myrtle Lloyd, Director General of Customer Services at HMRC announced that HMRC has decided that they will no longer give tax clearance in MVLs. At the end of her talk, in the Q&A section, her colleague (sorry, I did not catch her name or title) said that although it was something that HMRC were considering in the light of the ICAS technical update published earlier in the year here, in which ICAS explained that tax clearance was not a legislative requirement in MVLs, it was not yet policy and was just something that was being considered. Requests for tax clearance had dropped off after the ICAS article and HMRC is deciding whether to stop giving tax clearance. In our experience from talking to clients, part of the reason for clearance requests dropping off is that HMRC were way too slow responding, if they responded at all, so liquidators had simply decided to take the risk, after taking the facts of the case into account and deciding when it was safe to do so.

If HMRC turns its current thinking into policy, which seems likely based on today’s talk, it will be up to liquidators to decide when to release any final balances and close MVLs that they had been keeping open pending tax clearance. It is early days to be advising on the possible implications of something that may not happen, but any indemnities may take on additional significance, so we suggest that you seek legal advice to tighten them up if necessary. You are also likely to need to keep a detailed file note justifying any decision to release monies and close the case or retain funds until further investigation is completed and/or indemnities are strengthened. We might even see IPs looking for other protection before releasing any final balances, such as some form of bond or surety against future claims.

Although it was nice to get the heads-up at SPG, we will watch out for any announcement of it becoming formal policy in Dear IP or wider communication channels.

Monday, September 18, 2023

New SAR portal

 

The new SAR portal is operational from today. At the moment the portal is running alongside the SARs Online System, but that will be decommissioned later in the year and thereafter you will only be able to use the SAR portal. You will need to register for the SAR portal so it is worth taking that step now. You can find out more information about the SAR portal, including how to register, at SAR Portal | Landing page (nationalcrimeagency.gov.uk)