The thought for today came up in discussion with a regulator and I thought that I would share it with you. These sorts of issues may, like the earlier money laundering points, be obvious to many who read this, but since I had forgotten it, I thought you might appreciate a reminder.
Some IP’s, for reasons that I never really got my head round (I think it has something to do with reducing administration costs or allowing you to close the estate account and produce your final receipts and payments account) choose to pay dividends from a separate dividend account, rather than direct from the estate account.
Some will say that they have been doing this for years ‘and the monitors never picked me up for it’. Some will never have tried this and won’t see what the fuss is about. I will explain how it works, not so that you can try it, but so that you can better understand why I am taking up Blog space on it.
Some IPs, especially those operating nominal hub accounts run by the banks, do not routinely have cheque books for each estate account. Instead, when they want to make a distribution, they calculate the distribution and draw the total down to a separate dividend account. All of the individual dividend cheques are then paid from this account.
There are two or three significant reasons why this is not compliant.
Firstly, SIP 11 (England and Wales, Scotland and Northern Ireland versions) says ‘Members should ensure that the funds (including any interest thereon) and other assets of each case for which they have responsibility as insolvency office holder are maintained separately and cannot be intermingled with those of any other case of the office holder or his firm.’. Unless you run that unique practice where only one dividend is outstanding at a time and every cheque is banked within days, there is every chance that you will end up with funds from more than one estate in the dividend account. You could argue, if they are from the final dividend, that you have had your release and they are no longer estate funds, but I am not sure that argument holds much water and it has no chance if the dividend is an interim one.
Secondly, in compulsory cases, this would be operating a local bank account without sanction.
Thirdly, in many cases, but not all, the administrative chore of keeping the account clear and reconciled would soon outweigh any perceived benefit from not raising individual cheques on the original estate accounts.
For those who insist that the original estate account is not the place to pay dividends from, I suggest that the only compliant way forward is that in all cases except compulsory appointments, you could set up a separate dividend account for each appointment where a distribution is possible. It seems to defeat the object, but I cannot see another way round it.
You are, as usual, invited to call me if you know different.
