I was recently approached by an IP who was having problems with the new IP regulations, which require you to bond for the full expected assets in the arrangement from your appointment as nominee. In the case in point, he was expecting very high contributions and his bond provider required a relatively high premium when there were no up-front funds available. I suggested that the bond providers might be able to adjust their rates to reflect the lower risk they suffer earlier in an arrangement and I said I would raise the issue.
I contacted the two main bond providers, who were both kind enough to respond very quickly. It was apparent that their bond structures were different and would suit different practices. One provider has a range of premium rates tailored for IVA’s that reflect the reduced risk. This is combined with their annual renewal structure to break up the cost of a higher bond over the life of the arrangement. The other provider prefers to keep the bond simple and has no separate rate for IVA’s, instead adjusting its bond rates for all case types and keeping its single up-front premium competitive with the annual accumulated charge of its main rival.
There are advantages to both systems. A bulk IVA firm might well appreciate the simplicity of a single-premium system, while less specialised firms dealing with a relatively low number of IVA’s, mainly at the higher risk, higher contribution end of the scale might appreciate spreading the cost annually throughout the arrangement.
Whichever bond provider you choose to use, there is another way to deal with the initial query. The regulations require you to obtain your bond in accordance with your bond provider’s requirements. This replaced the old requirement to bond by the end of the month after appointment, but no later than the following month, effectively giving 60 days leeway. There is some doubt that the bond providers have picked up on this and their bonds may still be written in the old terms. If this is the case, you could reasonably wait to bond as nominee until the end of the 60 day period, by which time you may have been appointed supervisor and received the first contribution. I cannot say that I am keen on this as a practice policy, because of the risk that you might bond late, or fail to bond at all when the arrangement is not approved, but I can see situations when you could reasonably defer obtaining the bond, within the regulations, as long as there are exceptional circumstances and you keep a detailed file note of the reasons.
If the bond providers pick up on the new wording in the regulations and re-write the bonds to reflect their increased control over the process, they might even be able to help with the exceptional cases by formally granting permission for you to notify them of the bond and pay the premium only when the arrangement has been approved and sufficient contributions received to cover the bond. That would be a perfect solution to my initial enquiry, but the world just isn’t perfect…
