Giving notice to the FCA

We were at the R3 Northern Forum recently, talking to a couple of representatives of the FCA and they mentioned that they were seeing an increasing number of cases where the prospective officeholder had not given notice of the impending liquidation or administration to the FCA even though the company was FCA registered. Reading between the lines, I think that their patience is wearing thin and one option open to them would be to complain via the Complaints Gateway. That is something that IPs need to avoid happening. The Insolvency Service as the regulator of regulators within the insolvency profession is likely to respond badly to another regulator raising complaints, meaning that they will want to make sure that the RPBs treat such complaints seriously. As a result, we thought that it was an opportune time to remind you of the requirements to give notice to the FCA.

The FCA have issued some Guidance for IPs, and if you are dealing with an FCA regulated business this is something that you need to be familiar with. It can be found at FG21/4: Guidance for insolvency practitioners on how to approach regulated firms (fca.org.uk). The Guidance emphasises early contact with the FCA to discuss and consult on the proposed approach to dealing with the regulated business of the company or debtor. As regards the statutory requirements to notify the FCA prior to commencing the insolvency procedure, these are set out in part XXIV of the Financial Services and Markets Act 2000, but in summary are as follows:

• Administration – under section 362A the specific consent in writing of the FCA is required where the company or directors intend to appoint an Administrator in respect of a company or partnership: that is, or has been, an authorised person; is, or has been, an appointed representative; or is carrying on, or has carried on, a regulated activity without authorisation. Such consent from the FCA is a pre-requisite to being able to validly place the company or partnership into Administration. You certainly do not want to be in a position of having to explain in Court or to your regulator why you did not give the required notice.

  ·       CVA – under section 356 the FCA has a right to make representations at Court and creditor meetings in respect of a CVA proposed in respect of a company or partnership that is an authorised person. As a result, the nominee should give the FCA notice of the decision procedure to consider the proposal. 

  ·       CVL – under section 365 the FCA has a right to attend any decision procedure relating to the appointment of a liquidator where the company or partnership is an authorised person. As a result, notice of the section 100 decision procedure should be sent to the FCA. 

  ·       MVL – since creditors are not involved in the process to appoint a liquidator, where the company or partnership is an authorised person, the only requirement under section 365 is to send notice to the FCA once the company or partnership is in liquidation. That is, however, subject to the overarching comment about discussing and consulting on the proposed liquidation with the FCA. In practice, it is extremely unlikely that a company that is currently authorised will be entering into an MVL. 

  ·       IVA – under section 357 the FCA has a right to make representations at Court and creditor meetings in respect of a CVA proposed in respect of a debtor that is an authorised person. As a result, the nominee should give the FCA notice of the decision procedure to consider the proposal.

The FCA Guidance mentioned above also deals with how the FCA expects the IP to interact with them post-appointment. That includes sending them a copy of everything that the IP sends to the creditors and seeking their comments on draft progress reports prior to issuing them in Administrations and liquidations.

One other point we want to draw your attention to is the need to report the company, partnership or debtor to the FCA where you find that it is carrying on, or has carried on, a regulated activity without authorisation. While notice of the proposed insolvency procedure has to be given to the FCA in such circumstances where an Administration is proposed by the company or directors, there is no requirement to give notice to the FCA in such a situation where a VA or liquidation is proposed. Instead, there is simply a statutory requirement to notify the FCA post appointment. Having said that, if you become aware that the company, partnership or debtor is carrying on, or has carried on, a regulated activity without authorisation prior to being appointed Supervisor or liquidator, you should discuss the situation with the directors. You will want to raise this with the FCA given the comment in the FCA Guidance about discussing and consulting on the proposed insolvency procedure with the FCA, but obviously you cannot do so pre-appointment without the directors’ consent. If the directors will not give consent, you should consider whether it is appropriate to take the appointment and to what extent any other action might be appropriate given the AML implications of the company having undertaken such activities.
 
Finally, as our Work Programme indicates, you should always undertake a search of the FCA register of authorised persons (https://register.fca.org.uk/s/) as part of your pre-appointment KYC obligations in order to identify cases where there is likely to be FCA involvement.