Wednesday, April 13, 2016

CDDA online reporting regime – a further update

Yesterday we met one of the developers of the Insolvency Service’s (IS) new CDDA online reporting system.  The first bit of good news is that the questions used in the trial are not being changed. The IS intend to wait to see how the system works in practice before making any changes, and it is unlikely to be until late Summer that they will have sufficient completed returns to enable them to assess how the questions are working in practice.  Remember that the ORs will be using the same online reporting system as you.  The IS understand that you want stability as regards the questions, and they will not take changing them lightly.  Where they do change them we stressed the need for a suitable lead-time before the changes come into force to enable you to change your systems, and also the need for good communication about those changes.

There is currently no guidance to assist with the completion of the questions, but that will change in the future.  Most of the questions are straight forward factual questions, although there are some questions where you have to express an opinion on a specific matter.  These are questions such as, is there evidence that the director benefited directly or indirectly in an unreasonable or excessive manner from the company's trading? And, having regard to the size and nature of the company's trading, are there material deficiencies in the company's available books and records?  We stressed the need for guidance on those questions in particular, but in the interim the IS indicated that you should take a common-sense approach when responding to such questions, considering in particular the position from the perspective of the case in question.  How does it look to you, as an experienced IP?  They appreciate that there is always an element of subjectivity when responding to such questions, and acknowledge that whilst there are cases where all IPs would respond in the same way, there are also cases where different IPs will have different views and so respond differently.

It is clear from our discussions that the IS consider that a review of the company’s books and records and bank statements is fundamental to completing the online CDDA report.  You need to recover and review those records in order to undertake your initial level of investigations under SIP 2 in any event.  Given the problems that you can have in getting copy bank statements from banks, we suggest that you ensure that one of your initial actions on appointment is to ask the bank for them, and also ask the directors for the books and records if they have not already been delivered up to you.  You also need to ensure that you have systems in place to chase for them, particularly given that you now only have 3 months to complete your CDDA reporting obligations.  Chasing for the information will then both protect you from criticism on a monitoring visit and justify your request for an extension of time to submit the online CDDA report.  

If you have not managed to obtain copy bank statements and the books and records, then you will need to apply to the IS for an extension.  The IS do not want you to leave it to the last minute but would rather that extension requests were made say a couple of weeks prior to the 3 month deadline.  As a practical point, it is generally easier to get the directors to co-operate and provide records pre-appointment, when they want you to help them out of the situation.  If you only ask for the records after you have been appointed, you are more likely to face delays.

The IS are looking at the possibility of sending reminder emails 10 weeks’ after appointment, but they will, in any event, send you an email as soon as the 3 month deadline has passed.  If that does not elicit a response, then they will be on the phone to you. 

The new CDDA reporting legislation makes it an offence for you not to submit an online report within 3 months of appointment or to fail to provide additional information that comes to light.  The IS indicated, however, that they would rather work with you to get you to submit the online returns on time and to provide the additional information, than punish you for failing to do so.  Linked to that, at present they have not yet had any discussions with the Regulators as to what information they will provide to them about late online returns or delays in providing additional information.  We made the point to them that it would be more likely to encourage IPs to buy into the new system if they were to provide that information to the regulators as desk top monitoring information, rather than to make a formal complaint that would invoke disciplinary procedures.  We are not saying that complaints will not be made at some time in the future, but you can help yourself by minimising the number of late submissions, and having a diary prompt say 10 weeks after appointment so that you can then obtain an extension at that time if you are unable to submit your return on time.  Avoid routinely making requests for an extension and only do so where you are unable to obtain the information to enable you to complete the return, which other than in exceptional circumstances should only be if you have not been able to recover and review the books and records and bank statements. 

Finally, as per my last Blog post, don’t forget to register for the new reporting regime.  You need to register before you can use it for the first time, and at present only about 250 IPs out of the 1,200 appointment takers have actually registered.  You can get to the registration screen by clicking here.