This has been a hot topic amongst regulators for the last 18 months, but has taken on a new significance recently particularly in the context of VAs.
Monitors have always considered the age profile of an IP’s cases, focussing in particular on voluntary arrangements over 5 years old, new style administrations over 1 year old and other case types over 3 years old. The age profile is indicative of delays in progressing and closing cases. Historically, monitors have raised queries, examined a sample of such cases, requested a closure plan, or, in extreme cases, restricted an IP’s licence until their case numbers fell to an “acceptable level”.
Unfortunately there are no hard and fast figures as to what constitutes an accepted number of cases for an IP to hold, or indeed for the number or percentage of “old” cases that they can hold. As a very rough guide, we find that IPs who take cases of all types may have some progression issues if they hold over 250 cases in total, or if more than 25% of their caseload is over 3 years old. In IVA specialists, the number of cases is rarely as significant as the systems and controls that are used to administer them, particularly those dealing with monitoring of contributions, conducting income and expenditure reviews and adapting normal procedures to meet more onerous modifications (such as the so-called ‘50% uplift’ mod).
However, this is an area where monitors are now paying even greater attention. Where they find problems, such as delays in paying dividends where sufficient funds are held to justify one being paid, no action being taken on cases for long periods of time, and cases not being closed, they are now increasingly considering this to be a breach of the Insolvency Ethical Principles (the “Principles”). The Principle of “due skill” requires IPs “to carry out professional work with due …. expedition”, and clearly to do so they must have sufficient resources for the number, or indeed size of cases, they are undertaking. Consequently, since progression is being treated as a breach of the Principles, the regulatory action taken is more likely to be at a higher level, such as licence restriction. We have certainly seen several examples of regulators taking this approach.
How can you protect yourself against such regulatory action? Some suggestions are:
• ensuring that you undertake regular case reviews;
• giving staff instructions and setting them targets during case reviews, including deadlines for paying a dividend or closing the case;
• ensuring that action is then subject to diary reminders and actually taken between reviews;
• where there is a valid reason as to why a particular case is not either being progressed or closed, recording this in file reviews to show that you are aware of the position and that taking no action is a positive decision;
• setting time aside each month to close cases, and possibly giving staff a bonus for each case they close;
• preparing a realistic internal plan for the closure of cases each month, and then sticking to it; and
• printing out and reviewing a funds summary for all open cases on say a quarterly basis to identify cases where dividends need to be paid, and/or remuneration drawn!
An additional related issue for voluntary arrangements is ensuring adherence to the contractual terms of the arrangement. Monitors are currently paying more attention to the IP’s systems for the monitoring of arrangements and then checking that those systems are being followed in practice. IPs need to ensure that they have systems in place to monitor the receipt of monthly contributions and then take action where contributions are missed; to ensure that lump sums are received or assets realised in accordance with the terms of the arrangement; to ensure that any reviews are taken in accordance with the terms of the arrangement, such as business accounts, overtime or income and expenditure; and to take failure action promptly in accordance with the terms of the arrangement. IPs must allocate sufficient resources with sufficient technical knowledge to the supervision of arrangements to ensure that action is taken in accordance with their specified systems and to avoid suggestions that they are not carrying out work in accordance with the Principle of due skill.
