So…a politician changed his mind. I am not sure that should be a particularly huge surprise to anyone and it would probably be more of a surprise if the position remained unchanged until you read these notes. Davey has departed and Lamb has yet to feature on the menu (sorry!), so I get the chance to ruminate on whether change is needed, what any change that is needed could be and whether, in the grand scheme of things, it will make any difference.
Far
be it from me to belittle our profession, but I think that we are sometimes
given more credit for chaos than we really deserve. It would appear from the moaning arising from
lobbyists and credit insurers that it is the IP who is personally responsible
for them losing money. This overlooks
the fact that they made poor credit risk decisions in an extended boom market
based on incomplete and unreliable information and then continued to lend to
shore up untenable positions while secured lenders protected themselves by
taking a charge over the kitchen sink .
It may be galling to them to see directors set up afresh after abandoning
their debts, but in the absence of a decent debtors’ prison policy and with
public floggings being so passé we have to accept that IPs will do what they
perceive to be best for the body of creditors in a given situation. Over the last 10 years banks and asset based
lenders have become much more effective at covering their positions with the
result that many insolvencies now have few unsecured assets of any realisable
value left. This usually leaves the IP
with a fairly simple choice between a burial liquidation with negligible
realisations and a more rescue-focused administration with enhanced
realisations and, often, preserved job and future prospects for a wide range of
staff and suppliers. Under the
circumstances, it is a bit harsh to criticise the professional for taking the
higher offer just because it is from the old management and creditors have not
been told about it beforehand.
The
perception within the profession is that the perception outside the profession
is that all IPs are bad and intent on abusing the pre-pack process. In reality, a small minority of vocal
interests and a few influential politicians believe that all IPs are the same
as a couple of bad apples that the regulators have failed to root out to
date. I have a degree of faith in our
regulatory system to catch up with the bad boys sooner or later, but from what
I have seen when dealing with complaints, the internal and external perception
is often very different from how the appointment taking IP sees it in the heat
of the moment. Some of those who
constantly moan about rogues in the profession could do worse that realise that
a badly drafted report or, worse still, taking a case off you off the floor that
you thought was in the bag, does not make an IP a bad IP or rogue. Every time an IP alleges weakness in the
system, he undermines the work that R3 and others do on our behalf to raise the
profession’s profile and emphasise how effectively it is regulated.
So,
even though change may well not be needed, the vocal minority have probably
done enough that something will have to be done and with the coalition
government firmly committed to blocking new regulation for micro-businesses,
which includes a lot of IP businesses, it appears that SIP 16 will come back
into the spotlight. I have tried to have
a guess at what changes we might see, although it should be made clear that
these are just my guesses, are not backed by any inside knowledge and could be
complete hogwash. I have started by assuming that the SIPs will remain under
the control of the profession. It is not
beyond the realms of possibility that if the Service stops regulating IPs
directly and redefines its position as regulator of regulators we could see new
binding guidance from them which could replace SIPs, or at least those where
the Service perceives that there is a higher level of public interest. If you consider the impact of Dear IP 42
which did not have that enhanced status and is not supposed to be binding, how
much more interesting could life be with binding non-statutory guidance from
the Service?
So
assuming that SIPs stay with us, I would not be surprised if a new SIP 16
proposed catching all related party transactions in a new super-SIP to replace
SIPs 16 and 13. I would expect it to
cover CVLs as well as ADMs and I don’t think that we have seen the last of the
idea of some form of notice to unsecured creditors if the business is not
marketed. I think that we can expect to
see the principles more clearly stated, but with the detail expounded in Dear IP
42 repeated within the SIP so that there can be no doubt that you have to get
it right. What I hope for, and I
realise that you have to be careful what you wish for, is a clearer statement
about what a pre-pack is. I suspect,
however, that the definition may just be widened so that the SIP applies to all
pre-existing deals, even if the pre-existing element was only an expression of
interest and that all related party transactions will be caught, whether
pre-existing or not and whenever they complete.
The
bit that caused the greatest debate in the abandoned legislation was the idea
that unsecured creditors would have to be notified a set period before any
appointment if the business was not being marketed. Although opposition in the profession was
vocal, it is noticeable that the reason given for abandoning the legislation
was the government policy of avoiding new regulation and if the Service are
looking for a new way to appease the more vocal creditor lobby, it is quite
possible that some sort of “market or give notice” provision could be included
in any new SIP. Unless marketing is
clearly defined in the SIP, I think that most IPs who are looking at a pre-pack
ADM will simply market as they do in most cases already: an advert for an
unnamed business in local or trade press; a quick email check with their own
contacts in a similar business; and getting their agents to put feelers out to
their clients in relevant sectors. Where the IP is looking at a pre-pack CVL,
if the new SIP defines such an animal and tries to regulate it, I would expect
most to avoid the marketing by giving notice of the proposed sale in the
covering letter sent with the S98 meeting notices.
So,
if SIPs remain and if SIP 16 is revised and if SIP 13 is included in it and if it is expanded to include CVLs and
increase the number of transactions that could be termed as pre-packs, the
changes to what an IP already does should be fairly minimal. Equally, the changes would not, in my
opinion, change creditor attitudes because I think that they are complaining to
compensate for their own deficiencies and tweaking IP disclosure will not hide
that fact that they lost their money. If
SIPs were subject to coalition government policy, they would not be changed at
all because the marginal “public” benefit (I emphasise “public” because it is a
noisy but pretty small portion of the public that wants change) would not
outweigh the inconvenience and cost of changing the SIP in the first place.
Unfortunately, SIPs are not subject to such a common sense limit and with a few
creditors screaming and the Service looking for areas to exert its influence, I
suspect that one or two of my guesses may turn out right for once.
