Thursday, June 13, 2013

A radical approach to reporting requirements

One of the more common complaints we hear from creditors and IPs alike is that reports, especially annual and final reports, contain too much detail. When our own standard template now runs to some 11 pages without any case details in it, we have to admit that the requirements may have gone a little beyond what was intended. In a conversation with someone far cleverer than us a few weeks ago, we arrived at a possible, if radical, way to address the build-up. We know there are not an awful lot of creditor-side stakeholders who read this Blog, but we’d be particularly intrigued to hear their views.

Our thinking is that the current requirements have built up over time as the insolvency profession has attempted to react to criticism. On each occasion, rather than taking time to sit down, analyse the problem and address it properly, a new requirement has simply been bolted on over the top of the existing rules, regulations, SIPs and guidance. With everyone afraid of missing a requirement, egged on by detail-obsessed compliance firms (!), several issues are now being covered in more than one way in each report.

A lot of the detail is reporting time charged to date and actions taken to incur that time in cases where the creditors were never going to see a penny anyway. Most creditors are realistic enough to know that there is a cost of dealing with insolvency that has to be met and in a job with only a few thousand pounds in assets there is no chance of covering the costs, let alone thinking about paying dividends to creditors. Similarly, in a lot of other cases the secured creditor is owed so much that the unsecured creditors will only see the prescribed part at best.

Our thinking is that there should be a new approach to reporting. The current level of detailed justification and disclosure should only be required in the initial report to creditors in the case, which should set out the likely outcome for preferential and unsecured creditors, and even then only when realisations are over a specified level (say £10,000) which is deemed to be the minimum likely cost of that type of procedure. From then onwards, if the outcome remains within, say, 10% of the estimate, there should not be any further reporting requirement. We think it is unlikely that a creditor who has already been told that they will lose all of their money because only £5,000 in assets will be recovered then needs to be told exactly how the liquidator has incurred £30,000 in time costs that he will never be paid either. We think it is better to estimate the outcome early and explain properly why that is likely, then just report if things are much better or worse than expected. It might even be possible to reduce the reporting in stages, so that when unsecured creditors are not going to receive a distribution they get a final report and no more, while periodic updates continue to be sent to secured creditors or others who still retain a financial interest in the outcome until their interest is also extinguished.

This would reduce the number of reports and allow the remaining ones to be more closely targeted at the needs of the specific consumers reading them. That would, in turn, save unnecessary cost and quite a lot of trees.