Wednesday, January 06, 2016

ICAEW Webinar on fees estimates, SIP 9 and SIP 16 – Part one

Our first Blog post of the year is on fees, which is something that we think will continue to feature heavily this year, along with the Modernised Rules when they are eventually released and our whole world turns upside down!

In early December Allison Broad, Head of the insolvency monitoring team at the ICAEW presented a webinar on fees estimates, SIP 9 and SIP 16. We summarise below what we see as the key points of the SIP 9 part of the webinar, but if you want to listen to the whole webinar then click here.

Fees Estimates:

Only a limited number of examples have been seen on monitoring visit to date, but the best ones:

- used plain English; provided a breakdown of expected costs by SIP 9 categories;

- broke down the information provided for the asset and creditors categories into different aspects of such work; and

- included comments about the work to be undertaken that were both generic and case specific.

The bad points found in fees estimates to date were:

- not making it clear where the work was generic in nature;

- not providing any context about the case, e.g. the number of creditors or employees involved;

- not making it clear that a lot of the generic work was required by statute, the SIPs or that it was just required in order to practically administer the case; and

- just providing a total number of hours spent and not breaking it down by grade of staff used, which made it difficult for the monitor to assess whether the appropriate grade of staff was being used to undertake the work, particularly when it was coupled with the IP not providing details of the charge out rates for grades. There was positive comment about one IP providing a breakdown by reference to 9 grades of staff and another by reference to 4 grades of staff.

Some comments were also made about errors seen to date in respect of fees estimates sent to creditors:

- not providing details of expenses to be incurred on a case;

- not explaining to creditors what is meant by bonding since it will be included as an expense; and

- not making make it clear what period the fees estimate relates to – i.e. is it for the whole of the case? Or just to a particular milestone, such as the first anniversary?

We will continue to review our various pro formas in the light of this and any other regulatory comment as they are very much a work in progress given that this is a complete sea change in approach to fees. In particular, whilst the “workings” tab of our pro forma fees estimate includes a detailed breakdown of time spent on particular tasks by different grades of staff to help calculate the total hours spent and charge out value on tasks, that is not carried forward into the summary sheet sent to creditors. Our understanding from commentary on the fees rules, and SIP 9 in particular, was that the blended rate was the key piece of information that needed to be provided to creditors, hence the approach we have taken, so this is something that we will discuss with the regulators.

There were also some useful reminders and practical tips linked to fees estimates:

- Consider fees estimates as part of your file reviews, both to ensure that fees drawn are within the fees estimate provided and also to use it as a check to see whether an increase in the fees estimate will be required.

- Where you are using a mixed fee basis you will need to undertake a thorough review of time costs before billing to ensure that you do not inadvertently recover time costs for work that is being charged as part of a fixed fee or as a % of realisations or distributions made.

- You will still need to maintain time records for all work done, even if it is for work for which you are being remunerated on a fixed fee basis or as a % of realisations of distributions made. That is because there is a separate requirement to keep time records under regulation 36A of the Insolvency Regulations 1994.

Fees Estimates in CVLs:

Our view has always been that, notwithstanding what Dear IP and SIP 9 say, the 2015 Fee Rules make it clear that you have to be in office before providing a fees estimate to creditors. However, clearly the regulators have to take account of Dear IP and SIP 9, and the monitors will not criticise IPs for sending out the fees estimate pre-appointment, although they will be pointing out to them the risks of doing so.

SIP 9:

Turning now to the impact of the revised SIP 9. There was a reminder about needing to provide creditors with information about their rights in the first communication with creditors as well as each subsequent report, e.g. by directing them to the SIP 9 Guidance Notes, although SIP 9 permits you to use a suitable alternative instead. There was also a comment on the Guidance Notes you should be directing the creditors to, which should be those most aligned to the date of appointment. This is something that we have already covered in one of our last Blog posts of 2015, which you can read by clicking here.

There was also a reminder about the new SIP 9 requirement of providing a dividend estimate to creditors when seeking fee approval, in cases where it is practical to do so. We have seen commentary that suggests that you may need to issue an estimated outcome statement, but we do not feel that the SIP requires this and we think it may create unrealistic expectations if creditors are presented with a detailed outcome statement too early in the proceedings. We advocate a more general indication of the dividend prospects, carefully qualified to reflect the inherent uncertainty of recoveries and costs in insolvency proceedings.

Finally, the need to provide suitable and sufficient narrative in reports was emphasised. It is necessary to tell the story to explain how and why time costs were incurred, and ensuring that there is sufficient information to explain the work done for each category of work dependent upon the level of time costs incurred, or the level of the fixed fee or % of realisations charged.


The webinar is a useful first insight into the approach of the regulators, but regulatory comment in a further 3/6 months when a far greater number of fees estimates have been reviewed will be even more useful. We think that it is important that each of the regulators provide information and commentary to IPs on these topics over the coming months, whether it is by way of webinars, presentations at conferences or by publishing articles. Well done to ICAEW for getting it out there early. Getting it right on fees is important, both to IPs in the context of their individual cases, and to the profession as a whole given the emphasis placed on them by The Insolvency Service.