Friday, September 26, 2014

How soon is “as soon as reasonably practicable”?


One of the first articles we put on our Blog dealt with the meaning of “as soon as reasonably practicable” and, because of its age and the fact that it is still a regularly quoted requirement, the original article is head and shoulders above the rest in terms of number of “hits” on the Blog. Partly as a cynical ploy to grab your attention, but mostly to remind you of this very topical issue, I have re-drafted the article to bring it up to date and incorporate some of the other mentions that this requirement has had on the Blog over the years.

One common term first added to insolvency legislation back in 2003 and now used across the board instead of the old term “forthwith”, is ‘as soon as reasonably practicable’. One example in the legislation is the requirement for an administrator to issue his proposals ‘as soon as reasonably practicable, but in any event in no more than 8 weeks’. It used to be quite common on visits to find IP’s working to the eight week deadline and ignoring the first requirement, but we have seen a steady improvement over the years, with any exceptions now attracting correspondingly greater attention from the regulators because they stand out more. 

Part of the rise in compliance with the requirement is down to the revised SIP 16, where the requirement is to issue the information about any pre-pack sale “as soon as reasonably practicable”. SIP 16 goes on to say that the disclosure should take place “in any event within 7 calendar days”. Any departure from the requirement to issue it early has to be supported by a “reasonable explanation”. We think that was just a different way of re-stating the requirement to provide the information “as soon as reasonably practicable”, but it seemed to get the message across far better than before. We pointed out in an article at the time that the statutory requirement to notify creditors of your appointment “as soon as reasonably practicable” would still take priority, so you should not delay giving notice to creditors just because you are unable to make the SIP 16 disclosure within the 7 calendar day timescale.

This then leads to what the term actually means. It replaced the previously used term ‘forthwith’. Various learned articles had addressed this term over the years, but for me the most succinct and technically accurate was that in an ACCA newsletter produced by my former colleague Barbara Mackenzie. I won’t plagiarise Barbara’s article although at the time of writing anyone who is interested could still find it here (at 2.5). Barbara’s conclusion was that ‘forthwith’ meant ‘without unjustified delay’. If the drafters of the new legislation had intended proposals to be issued, meetings held and statements of affairs returned without unjustified delay they could, therefore, have used the previous term, forthwith. However, they instead opted for the new requirement, which also uses more modern wording, ‘as soon as reasonably practicable’. At the time, we did not see that as a more stringent requirement than forthwith, and it was subsequently used as a straight replacement across the legislation. There are various examples throughout the legislation where a specific time limit measured in days, weeks or calendar months has been used. The drafters did not use these, so they clearly had no rigid limit in mind for “as soon as reasonably practicable”, other than in requirements like those relating to administration proposals and meetings, where they included a fallback position, as mentioned above and phrased as a last resort.

We think, therefore, that somewhere between “immediate” and any last resort time limit, the legislation seeks to inject a sense of urgency, but with a nod to practical considerations. Clearly, the drafters could have said ‘as soon as possible’, but they instead made a slightly less restrictive requirement, allowing time where you can justify or explain any delay to show that it is reasonable. What you have to do as IP's is stand back from the requirement and decide what is ‘reasonably practicable’ in the case you are dealing with. We have seen several instances of proposals being issued only one or two days inside the 8 week maximum time limit with no practical reason for the delay. In one case, the decision to cease trading and exit the administration via a CVL had been made within a week. It would have been far better to have issued the proposals immediately. This is not to say that there will never be a good reason for delaying issue, but you should be prepared to have to justify that decision and it would be better to record the reasons at the time in a clear file note, rather than to try to recall the reasons some months later for a monitor or regulator responding to a complaint. Try to bear in mind that the administrator’s proposals are supposed to be just that; what you propose to do. You don’t have to wait for everything to be completed and the statement of affairs to be submitted before you issue them. To comply with the statutory requirement you should issue them as soon as you can and where you have gaps in the information, say what you “propose” to do about them.

The increased scrutiny of your remuneration that we have seen over the last five or more years is also having a significant impact on how “as soon as reasonably practicable” is being viewed. When justifying your time charges in the early days of an appointment, you may find that failure to deal with matters expeditiously could be taken into account and a file note might make the difference between a reasonable delay and one that a judge could feel demonstrates a lower level of care justifying a reduction in remuneration.

We have now had over 10 years to get used to this term and over that time the interpretation of it has developed. If you are now dealing with any such requirement in more than three or four working days you should have a file note explaining the delay, and anything over the 7 days indicated in SIP 16 is likely to come under very close scrutiny. There may even be times where the delay of a day is unreasonable. That is not to say that there will never be a case when a longer delay is “reasonable”, but you will have to be able to evidence it very clearly and in such circumstances, it is a good idea to check with someone unconnected to the case to see if they agree with your reasons for the delay so that your own involvement does not cloud your perception of what is “reasonable” in the eyes of the creditors and regulators.