Monday, March 10, 2014

CDDA and investigation – don’t get carried away

A couple of years ago, when doing one of his presentations, Bill encouraged IPs to submit D returns and reports as early as possible. At the time, the issue was that the investigation evidence in many case files started on the date that the Insolvency Service reminder to do a D return arrived, usually around month 5, and ended the same day with the report or return being submitted. What Bill was trying to say was that if you make prompt, evidence-based decisions in clear-cut cases as soon as you had completed your basic investigations as required under SIPs 2 and 4, and you were certain that they were just returns (no misconduct) or reports (evidence of misconduct), then you could focus your investigations on the marginal cases.

Some IPs took this to its limits and we have seen and heard of the monitors pushing back. Although our advice is still that you take prompt decisions early in the case to free up investigative resources where possible, you should note that the regulators expect you to wait until the creditors have had time to respond to your request for matters requiring investigation to be brought to your attention after any meeting and ideally for the directors to return their CDDA questionnaires, but don’t delay submission if the questionnaire is the only thing that is outstanding. One regulatory monitor is even suggesting that you should not complete your return or report until you have collected in the company’s records, but we are not convinced that is an appropriate requirement if you have recovered and reviewed the company’s electronic financial records. Clearly though, if the directors have not, and will not deliver up any accounting records, either electronic or physical, and you have an audit trail to show your requests to the directors to deliver them up, then that is a matter of misconduct.

In clear-cut cases, such as simple failures with no evidence of misconduct and where the director/shareholder is a major, or the main loser, and you have no objections back from creditors and a clean CDDA questionnaire returned promptly, it should be possible to issue your D2 return after around a month. In a case where you have evidence of misconduct, you have a statutory duty, reinforced by SIP 4, to issue your D1 report supported by the evidence that you have to date, as soon as reasonably practicable after you form that opinion, whether the creditors and directors have responded or not. In marginal cases though, our advice remains unchanged: start investigations early; evidence your investigations as you go along; and clearly document the reasons for any decision to report misconduct or abandon the investigation with no misconduct evidenced.