Different disclosure requirements apply under SIP 9 where you use a sub-contractor to undertake work on a case, rather than instructing a professional advisor. SIP 9 sets out the different disclosure required, but does not actually explain the distinction between sub-contracting work and instructing a professional advisor. That had been the position for a number of years, but some clarity was finally given in the FAQs issued when SIP 9 was last updated in April 2021, and we thought that a year later was an opportune time to remind you of that guidance.
FAQ 24 asked for guidance regarding “what is a sub-contractor?” and received the answer that “a sub-contractor may not necessarily be providing services to multiple practices, but is likely to be providing services that creditors would typically expect to be included in an IP’s charges. The disclosure of work that has been sub-contracted is needed so that creditors understand whether the officeholder’s proposed fees are fair and reasonable reflections of the work undertaken. It also allows creditors to understand what, if anything, is likely to be charged in addition to the IP’s remuneration that they are being asked to approve. Examples of sub-contracted work that the RPBs typically see include where cashiering work, ERA work and or routine, non-specialist debt collection work is outsourced, but there may be other examples”. Feedback from a recent monitoring visit to a client demonstrated the current approach of the monitors and indicated that where the work in respect of dealing with say employee claims or pensions was of a routine nature that an IP could undertake themselves, then if a firm of ERA or pension specialists was to undertake that work, they would do so as “sub-contractors”. In contrast, where dealing with the employee claims or the company’s pension is not routine in nature, the ERA or pensions specialist would be instructed as a professional advisor. The monitor envisaged that in most cases the work would be routine in nature, such that the work would be sub-contracted to the ERA or pensions specialist. While we do not necessarily agree that any ERA or pensions work is routine given the increasing complexity of the legislation surrounding employee rights and pensions, we recommend that you take the approach set out in FAQ 24 to avoid regulatory problems.
So what does that mean in practice? The first point is that before you instruct a sub-contractor or a professional advisor, you are required by the Code of Ethics to consider whether it is necessary and appropriate to instruct someone to undertake that particular piece of work on the case. You also have to record the reasons for both that decision and the decision to use the particular sub-contractor or professional adviser you instruct. To our mind that is the appropriate time to formally record on the case file whether the person being instructed is a sub-contractor or a professional advisor. To assist clients with that, we will be updating the Record of Decision to Instruct Professional Advisors in the next version of our document packs to include a prompt to record that decision, and the reasons for reaching that conclusion.
The next point is that whether the work is being done by a sub-contractor or a professional advisor, their costs are paid as an expense of the insolvency procedure. As a result, when you seek a decision from creditors to fix the basis of your remuneration you will need to provide creditors with an estimate of their costs. You will also have to explain what work they will be undertaking on your behalf and their fee basis for such work. Similarly, in annual and final reports to creditors after fee approval has been obtained, you will have to explain what work they have undertaken on your behalf in the reporting period and the charges they have made for that work, including in the receipts and payments account the amount paid to them.
That means that the only practical difference is where you use sub-contractors you also need to draw that to the attention of creditors and explain why you are doing so. This is set out at SIP 9, paragraph 16, which says in full that “Where an office holder sub-contracts work that could otherwise be carried out by the office holder or their staff, this should be drawn to the attention of creditors and other interested parties with an explanation of why it is being done, what is being done, and how much it will cost”. Given that information about what is being done and how much it will cost has to be provided regardless of whether sub-contractors or professional advisors are being used, that just means that the only extra disclosure you have to make when you use sub-contractors is that you will need to explain why you are sub-contracting the work.
