Calculation of Initial Bond
(a) charged to a third party to the extent of any amount which would be payable to that third party; or
(b) held on trust by the insolvent to the extent that any beneficial interest in those assets does not belong to the insolvent.”
This means that, apart from any amounts needed to pay preferential creditors or unsecured creditors under the prescribed part, or otherwise by way of a dividend, you do not need to bond for charged or third party assets.
In Voluntary Arrangements, you are required to bond for the total value of the assets proposed to be paid into the arrangement (irrespective as to whether those assets are in the Nominee’s or Supervisor’s possession) which would include the total of the proposed monthly payments.
To ensure that you can properly demonstrate that you have complied with the regulations and the terms of your bond policy, you should place a bond calculation sheet on file. This should include reference to excluding charged and third party assets, except to the extent that the charged assets are needed for preferential creditors or the prescribed part. Remember that you can be criticised by your regulator for bonding at a higher value than necessary as this will increase costs to the estate.
Where your bonding requirements exceed the specific penalty sum automatic limit stipulated in your policy you should obtain the agreement of your insurer, before accepting the appointment, that they will cover you for the required sum. Evidence of this agreement should be placed on file.
In some instances, you may accept an appointment where the only asset (or one of the assets) is speculative in nature, such as an antecedent recovery or a misfeasance claim. In these instances, it may be appropriate to bond for the minimum amount (or an amount excluding the value of any speculative claim). However, if you do so, you should ensure that you have noted on your bond calculation the reasons for your decision not to include the claim in your bonding calculations.
Review of and Calculation of any Increases in the Bond
On appointment you will have only been able to obtain a bond to cover the value of the assets of which you were aware of and may have been working off very limited information. It is therefore important that, once your initial bond is in place, you conduct regular reviews of the level of your bond and consider; what monies you have received to date, what you anticipate the value of any remaining assets are and, whether an increase is needed.
We recommend that these reviews are conducted on a quarterly basis so that you can ensure that you are complying with the terms of your policy (see timings below). You should also conduct additional reviews of the bond on receiving a valuation of an asset, on receipt of any unanticipated sums, on discovery of new assets, on identifying any claims against the insolvent or other parties, on issuing proceedings against the insolvent or other parties, on obtaining judgement against the insolvent or other parties and on enforcing judgement against the insolvent or other parties.
Your periodic reviews should be evidenced on file and, as with the initial bond calculation, where the collection of any additional assets or monies identified are dependent upon the outcome of a claim or settlement negotiation and you consider that it may not be appropriate to increase the bond, you should ensure that you have noted the reasoning behind your decisions on your bond calculation.
Where, after review, your bonding requirements now exceed the specific penalty sum automatic limit stipulated in your policy, or the amount agreed prior to your appointment, you should, as soon as is reasonably practicable, inform your insurer of the increased amount, which will normally be covered upon its inclusion in your next bond return (check your policy for confirmation of this). Evidence of your compliance with the policy terms should be placed on file.
Relevant Dates
· The date of your appointment
· The date that you formed the opinion that the current level of bond was not adequate
· The date of your release
Remember that, where in corporate insolvencies under the England and Wales rules your release is dependent upon you delivering or filing a notice and final report with the Registrar of Companies, you are not able to rely on your normal deemed delivery provisions per Part 1, Chapter 9 of the Insolvency Rules and must wait until the document has been uploaded onto the Register to check the date stamped on the notice. This is the date of delivery to the Registrar of Companies and will be the date of your release.
Submissions to your Bond Provider and Regulator
The deadline for submission to your insurer is set out in the Insolvency Practitioners Licence Bond issued by your insurer. For example, with AUA Insolvency Risk Services this is the 15th day of the following month. Contrast this with Paragraph 13, Schedule 2 of the Insolvency Practitioners Regulations 2005 which states that; “Every insolvency practitioner shall submit to his authorising body not later than 20 days after the end of each month during which he holds office in a case, the information submitted to a surety or cautioner in any cover schedule related to that month ……”. It obviously makes sense however to submit the schedule and copy schedule to your bond provider and regulator at the same time.
Though some bond terms allow you to submit the particulars in respect of a case in the following month’s cover schedule, where it was not practicable to do so in the preceding month, the regulators will expect you to bond in the month of your appointment.
As well as being a regulatory issue, late notification of appointments, increases and releases may invalidate any claims on that case. You will therefore need to seek specific agreement from your insurers to their acceptance of the late notification. In the hopefully, very rare instances that there has been a late notification, you should ensure that this agreement is placed on file together with a note to explain why the notification was late, what you have done to rectify the situation in this case and, what controls you have put in place to prevent a reoccurrence in other cases.
VAT on Bonds
We still do see some instances where VAT has not been charged on the bond. You should charge VAT on bonds (and all other recharged expenses) unless you have some pretty weighty tax advice that contradicts HMRCs view that you feel you can safely rely on.
HMRC did confirm that where Insolvency Practitioners’ fees are exempt from VAT in voluntary arrangements and Scottish trust deeds, the exemption will also apply to the recharging of bonds premiums and other disbursements.
Please remember that bonding issues are a reoccurring theme at regulatory roadshows and always feature prominently on visits. Tight internal controls and periodic staff training to remind everyone of the requirements are therefore important to ensure and demonstrate compliance.
Finally, all of us at Compliance on Call would like to wish you and your loved ones a very merry Christmas and a happy and prosperous New Year.
