To be perfectly honest, IPs are a resourceful bunch and they could work around the new fee structure in our earlier article if it was just that being introduced. But no, problems come in pairs, and the second piece of bad news was the announcement of the OR’s revised policy as regards Secretary of State (SoS) appointments set out in Dear IP 72. Dear IP 72 says that the existing guidance about SoS appointments in the OR’s Technical Manual is inaccurate and does not reflect the “longstanding policy that the official receiver should remain as liquidator/trustee where asset realisations were reasonably achievable and the return to creditors would potentially be greater if the case were retained by the Official Receiver.” To be perfectly honest I am sure that IPs had noticed this policy steadily if inconsistently being applied to SoS appointments, but it is nice of the IS to finally come out and admit that they were doing so, and to update the publicly available guidance on the operation of the policy after the event. We thought that the buzz word in the Insolvency profession for the past few years was “transparency”, but clearly the IS does not agree, or rather they only want it to apply to IPs.
In summary, the approach to SoS appointments is that the OR knows best, and one will not be made unless the OR is convinced that it is a case “where the specialist skills of an insolvency practitioner are required.” That approach applies even if a majority creditor wants an IP to be appointed. It will be for the creditor, or the nominated IP, to convince the OR on a case by case basis. Effectively there has been an about face in policy, whereby there is now a presumption that the case will stay in the hands of the OR, unless the creditors can convince them otherwise. That policy has changed against a back drop of a situation where the OR has a vested interest to keep hold of cases in order to charge fees in order to fund the IS and help ensure their own survival.
Dear IP says “where an appointment is thought appropriate and there is a single majority creditor, other than HMRC, the official receiver will seek to establish a nomination from that creditor. In all other cases the official receiver will default to an appointment from their local office rota.” That seems to suggest that if HMRC are the majority creditor then it will be a rota appointment, yet we are aware of a number of IPs who have developed relationships with HMRC and undertake investigations on their behalf, particularly in respect of directors’ loans and antecedent recoveries since clearly they don’t trust the OR to do a good job. It remains to be seen whether or not HMRC are still allowed to nominate an IP.
What about where the creditor nominating an IP is not a majority creditor? Quite simply, it will be for them to get the support of other creditors, as is the case at present. If the creditor does not get the support of a majority, then there will be no SoS appointment. It will, of course, still be open to the creditor to requisition a meeting of creditors to remove and replace the OR as office holder if they represent the requisite majority, 25% of creditors. That is certainly an approach to consider in cases where there are known assets since any deposit payable to the OR to cover the costs of the requisitioned meeting can then be paid out of assets. It also puts pressure on the OR, something that the profession should certainly be doing at the moment.
IPs are resourceful people and have learnt to adapt in an ever changing market-place, so if it was just a matter of changing their approach to “compete” with the OR then it would not be a problem. The first issue of course is actually getting appointed given the change in SoS appointment policy and we have heard second-hand about an interesting case. We understand that even though a majority of creditors had indicated that they wanted a particular IP appointed, the OR allegedly contacted the creditors direct and as a result the support for the IP fell away so the case was kept in house. If this is true then that would be a Civil Servant actively competing with the private sector, and given the change in fee structure it will enable them to charge fees and keep their jobs, whilst also being in the position of controlling the mechanism that decides who should administer the case. If you have any further examples of this, or similar actions where the OR is abusing their position, then we would be interested to hear from you.
Secondly, when acting as office holders do IPs and ORs actually undertake similar jobs when it comes to realising assets? We are not aware of any independent research that has been done into the quality of the work of the OR, and they are not subject to external monitoring, although we think that this should change on both counts. Without research being undertaken and a stringent monitoring regime in place then no direct comparison between the work of the OR and IPs can be made, such that creditors cannot make a reasoned decision as to who they want to act as office holder to administer cases. It must also be in the interests of the IS to do this as otherwise the strongly held views of the profession that ORs just realise the easy assets and do not bother trying to realise the more complex assets or investigate other potential assets, will remain.
Thirdly, there is also a difference in the amount of work that IPs have to do compared with ORs, which leads to increased costs of compliance for IPs that the OR does not have to incur. Leaving aside that IPs have to pay for a specific penalty bond whilst ORs do not, IPs also have to comply with the SIPs, take positive action to obtain fee approval from the creditors, and report annually to creditors. The rules on progress reports do not apply to the OR, such that apart from their initial report shortly after appointment the OR then only has to report when closing the case, which certainly does not aid either transparency or creditor engagement. The IS are increasingly concerned about the lack of creditor engagement in cases, but clearly their concerns only extend to those cases involving IPs.
