In our September 2010 update we mentioned about the need to include reference to being licensed to act as an IP “in the UK”. I have now had chance to look at the Regulations in a bit more detail and in this article I am covering the other main additional disclosure requirement required by the Regulations, relating to professional indemnity insurance. For information about the various other disclosure requirements in the Regulations, either have a look at the explanatory leaflet prepared by Department for Business Innovation and Skills which can be found at www.bis.gov.uk/files/file53100.pdf, or at the information provided by your regulatory body. These disclosure requirements apply to all IPs.
The Regulations require that the information that has to be disclosed by a practice, including that relating to professional indemnity insurance, must be made available to those who wish to use your services, e.g. to the Board of Directors in Administrations, CVAs, MVLs and CVLs and to the debtor in IVAs, before the service is provided, and that information is considered to be made available if:
• it is provided on the practice’s own initiative – e.g. on business stationery or in brochures;
• it is made easily accessible at the place where the service is provided by the practice or the contract for the service is concluded – e.g. by way of a notice at the practice’s offices;
• it is made easily accessible electronically by the practice – e.g. by providing the exact address where the information can be found on the practice’s website; or
• it is provided in any document supplied by the practice in which a detailed description of the service to be provided is set out – e.g. in the engagement letter.
As regards professional indemnity insurance, the Regulations require that the name and address of your professional insurance provider, together with the territorial coverage of the cover provided must be made available. You can satisfy the disclosure requirements of the Regulations by, for example, having a copy of the insurance certificate on the wall of the reception area at your practice or including reference to it in your engagement letter. The following is some suggested wording for your engagement letter:
“In order to comply with the Provision of Services Regulations 2009, the practice’s professional indemnity insurance is provided by [name of insurer], of [contact address]. This professional indemnity insurance provides worldwide coverage[, excluding professional business carried out from an office in the United States of America or Canada, and any action for a claim bought in any court in the United States of America or Canada].”
Monday, November 29, 2010
The flood after the drought!
We have finally found a day or two where we are not on visits or writing reports in order to prepare some Blog articles for your information.
Reporting of time costs in IVAs
It is very rare for a supervisor’s remuneration to be approved on a time cost basis in IVAs nowadays. A fixed monthly/annual fee or a fee expressed as a % of realisations is very much the norm. Unfortunately though, even though the remuneration is not fixed on a time cost basis the IP Regulations 2005 require the supervisor to keep time records in all cases and supervisors must ensure that those Regulations are always complied with.
But what about reports to creditors in IVAs? Does time cost information still have to be provided in those in cases where supervisor’s remuneration has not been fixed on a time cost basis? Our view is that there is no SIP 9 requirement to do so in such cases, but just to be certain we asked the ICAEW and IPA for their views. We are glad to say that they have both confirmed that in IVAs where supervisor’s remuneration has been fixed on a basis other than a time cost basis, then details of the time spent and charge out value need not be provided to creditors in annual or final reports.
I would, however, remind you that for IVAs commenced on or after 6 April 2010 the new rule 5.66 applies. This rule requires a supervisor to provide time cost information to any debtor or creditor who requests it.
But what about reports to creditors in IVAs? Does time cost information still have to be provided in those in cases where supervisor’s remuneration has not been fixed on a time cost basis? Our view is that there is no SIP 9 requirement to do so in such cases, but just to be certain we asked the ICAEW and IPA for their views. We are glad to say that they have both confirmed that in IVAs where supervisor’s remuneration has been fixed on a basis other than a time cost basis, then details of the time spent and charge out value need not be provided to creditors in annual or final reports.
I would, however, remind you that for IVAs commenced on or after 6 April 2010 the new rule 5.66 applies. This rule requires a supervisor to provide time cost information to any debtor or creditor who requests it.
Extensions of time in Administrations
Whilst this topic is being covered at almost every course that we are attending at the moment it is still worth repeating here. The Courts are becoming very frustrated with late applications for extensions of time in Administrations. In order to avoid the disastrous consequences of the Administration ending automatically before the date listed for your Court hearing for an application for an extension of time, the current advice from the Courts is to ensure that you make your application at least 4 weeks before the date the Administration is due to end automatically. Whilst you may consider the application urgent as you want your extension of time to avoid being in a nightmare situation, the Court will not if the only reason given is that you need the hearing to dig yourself out of a hole that could have been avoided by making an earlier application.
Disclosure of information about the Prescribed Part
We understand that the monitors from at least one regulatory body are requiring the inclusion of explanatory information about the Prescribed Part provisions in the information provided to a section 98 meeting and in a rule 4.49 report even in cases where there is no indebtedness to the qualifying floating chargeholder. As a result, taking this one stage further to ensure that you always make disclosure we suggest that whenever there is a floating charge, including in cases where it is not a Qualifying Floating Charge, you always include some standard wording explaining what the Prescribed Part provisions before then going on to explain how those provisions apply to the specific case you are dealing with. That disclosure should be made in the director’s report in CVLs, say as part of the explanation of the contents of the statement of affairs, in the proposals in Administrations, and as part of the first report to creditors in compulsory liquidations.
The following is some suggested standard wording:
“There are provisions of the insolvency legislation that require a liquidator/an administrator to set aside a percentage of a company’s assets for the benefit of the unsecured creditors in cases where the company gave a “qualifying floating charge” over its assets to a lender on or after 15 September 2003. This is known as the “prescribed part of the net property.” A company’s net property is that left after paying the preferential creditors, but before paying the lender who holds a floating charge. A liquidator/an administrator has to set aside:
• 50% of the first £10,000 of the net property; and
• 20% of the remaining net property up to a maximum of £600,000.”
In cases where there is no QFC you should then go on to say “There is no qualifying floating charge in this case so the prescribed part provisions do not apply.”
In cases where there is a QFC you should go on to say “The estimated net property in this case is £XX and the prescribed part is currently estimated at £YY, but creditors should note that the costs and expenses of these proceedings will be deducted before the net property is calculated so that both the net property and any prescribed part is likely to be significantly lower.”
The following is some suggested standard wording:
“There are provisions of the insolvency legislation that require a liquidator/an administrator to set aside a percentage of a company’s assets for the benefit of the unsecured creditors in cases where the company gave a “qualifying floating charge” over its assets to a lender on or after 15 September 2003. This is known as the “prescribed part of the net property.” A company’s net property is that left after paying the preferential creditors, but before paying the lender who holds a floating charge. A liquidator/an administrator has to set aside:
• 50% of the first £10,000 of the net property; and
• 20% of the remaining net property up to a maximum of £600,000.”
In cases where there is no QFC you should then go on to say “There is no qualifying floating charge in this case so the prescribed part provisions do not apply.”
In cases where there is a QFC you should go on to say “The estimated net property in this case is £XX and the prescribed part is currently estimated at £YY, but creditors should note that the costs and expenses of these proceedings will be deducted before the net property is calculated so that both the net property and any prescribed part is likely to be significantly lower.”
Pensions database
The feedback we are receiving about the PPF’s section 120 pensions database is that it is not very sophisticated and only gives a positive result if there is an exact match on the database for the name of the company you entered in the search box. For example, it would not pick up a company registered on the database as “A B C Ltd” if you entered as your search criteria “ABC Ltd”. As a result, in order to maximise your chances of finding a pension on the database you should undertake searches on all the different permutations where you have initials, and or & in the name of the company. For example, if the company you are dealing with is called “AB & C Ltd” you should search on that name plus as “A B & C Ltd”, “A.B & C Ltd”, “AB and C Ltd” etc. In any event, even if you get a “no results found” response you should still check with the directors and accountants and look at the company’s financial statements and bank statements to identify any potential pension payments.
Issuing notices by 1st class post – its official!
Well almost! Whilst we have not heard back from the Insolvency Service to confirm the comment in our September update that notices to convene meetings etc have to be issued by 1st class post or DX because the Civil Proceedings Rules on postal service apply, we did hear a representative of the Insolvency Service say at the recent SPG Forum that the intention is to amend the rules to permit 2nd class post to be used. Consequently we have concluded that our September update was correct. We await the legislative changes with interest, if indeed they will now happen at all given that the Insolvency Service seem to want the profession to tell them that further changes would not be welcomed at the moment.
Annual reports in post April 2010 IVAs
Whilst it will still be another 5 months before you will have to prepare your first annual report for an IVA commenced under the new rules I still thought that this would be an opportune time to remind you about a change introduced by rule 5.31A(4). When reporting to creditors on the progress of the IVA for cases commenced on or after 6 April 2010 you now also have to report on the prospects for the full implementation of the arrangement. Before preparing an annual report you will need to check to see if the debtor is fully complying with their obligations under the arrangement, or if there will be a reduction in the anticipated level of dividend for creditors for any reason. If the debtor is not complying or there is a reduction in dividend then you will need to ensure that you comment accordingly. Where there will be a reduction in dividend then ideally you should provide creditors with a revised outcome statement.
Company Directors and IVAs
A client has recently pointed out to us that Article 81 of the standard Table A Companies Act 1985 Articles of Association and Article 18 of the model Companies Act 2006 Articles require a director of a company to vacate office if they make “any arrangement or composition” with their creditors. As a result, if a director enters into an IVA then they will cease to be a director. This could potentially impact on their ability to be remunerated by the company and could also create problems in connection with their actions and duties in respect of the company, particularly if they were the sole director.
The fix for new IVAs involving directors is to check the Articles and if necessary get the members to pass a resolution deleting the offending clause. For existing IVAs where you have missed this requirement, the resolution should be retrospective, confirming that the debtor remained in post from the date of approval of the IVA and ratifying any actions he has taken in the period between approval of the IVA and passing the retrospective resolution.
The fix for new IVAs involving directors is to check the Articles and if necessary get the members to pass a resolution deleting the offending clause. For existing IVAs where you have missed this requirement, the resolution should be retrospective, confirming that the debtor remained in post from the date of approval of the IVA and ratifying any actions he has taken in the period between approval of the IVA and passing the retrospective resolution.
Friday, July 30, 2010
Destruction of books and records – part two – compulsory liquidation and bankruptcy
On the same theme as part 1 of this post, we have also recently seen resolutions relating to the destruction of accounting records being taken at the final meetings of creditors in bankruptcies and compulsory liquidations. Such resolutions are not appropriate and should not be sought as under the Insolvency Regulations 1994 the power to authorise the destruction of the debtor’s/company’s accounting records rests with the Official Receiver.
To obtain authority to destroy the records you first need to seek clearance from HMRC – the relevant Inspector of Taxes, VAT insolvency unit in Bootle, and the Inland Revenue’s claims handling unit at Longbenton – as part of your closing procedures prior to the final meetings and then send a completed BPDC (Books and Papers Destruction Form) to the OR. The form can be download from the Insolvency Service web-site.
To obtain authority to destroy the records you first need to seek clearance from HMRC – the relevant Inspector of Taxes, VAT insolvency unit in Bootle, and the Inland Revenue’s claims handling unit at Longbenton – as part of your closing procedures prior to the final meetings and then send a completed BPDC (Books and Papers Destruction Form) to the OR. The form can be download from the Insolvency Service web-site.
New R3 Representative on the IVA Protocol Working Party
Liz Pywowarczuk is now R3’s representative on the IVA Protocol Working Party. She used to work for a volume IVA provider and is now running her own practice that specialises in IVAs
Liz would like to raise at the Working Party meetings specific examples of problems IPs have found with the operation of the protocol in general, and with the voting and modifications by finance creditors in particular with a view to trying to get the finance creditors and their representatives to see sense when considering protocol compliant proposals. If you have examples of such problems please e-mail Liz at liz@liberta.uk.com.
Liz would like to raise at the Working Party meetings specific examples of problems IPs have found with the operation of the protocol in general, and with the voting and modifications by finance creditors in particular with a view to trying to get the finance creditors and their representatives to see sense when considering protocol compliant proposals. If you have examples of such problems please e-mail Liz at liz@liberta.uk.com.
Gazetting general meetings of creditors in liquidations commenced on or after 6 April 2009
Just a reminder that where a case commenced on or after 6 April 2009 – i.e. the winding up resolution was passed on or after that date, the winding up petition was presented on or after that date or the administration that immediately preceded the CVL commenced on or after that date – rule 4.54 was amended to require the liquidator to gazette any general meeting of creditors they convene. The rule also gives the liquidator discretion to advertise in such manner as they think fit.
Linked to the above, where a CVL commenced on or after 6 April 2009 there is no need to gazette the annual meeting of creditors as this anomaly, which we pointed out to the Insolvency Service, was fixed by the Insolvency (Amendment) Rules 2010.
Linked to the above, where a CVL commenced on or after 6 April 2009 there is no need to gazette the annual meeting of creditors as this anomaly, which we pointed out to the Insolvency Service, was fixed by the Insolvency (Amendment) Rules 2010.
Destruction of books and records – part one - CVLs
It is amazing how we won’t see a particular issue for months on end and then we suddenly see it on a number of visits in quick succession. We have recently seen a number of cases where resolutions were taken at final meetings authorising the liquidator to destroy the company’s accounting records. Such a resolution is unnecessary as the liquidator has the power to destroy them 12 months after dissolution under the Insolvency Regulations 1994, although you should as a matter of routine be seeking clearance from HMRC – the relevant Inspector of Taxes, VAT insolvency unit in Bootle, and the Inland Revenue’s claims handling unit at Longbenton – as part of your closing procedures prior to the final meetings.
Similarly, you should not be taking resolutions relating to the destruction of your own case records at the final meetings. The retention requirements for these are contained in the insolvency legislation, principally the Insolvency Practitioner Regulations, and since they cannot be changed by a resolution taken at the final meetings then a resolution should not be sought.
In both instances there is nothing to stop you from telling the creditors about the timescales for destruction in your final report, should you so wish, although there is no requirement to do so.
Similarly, you should not be taking resolutions relating to the destruction of your own case records at the final meetings. The retention requirements for these are contained in the insolvency legislation, principally the Insolvency Practitioner Regulations, and since they cannot be changed by a resolution taken at the final meetings then a resolution should not be sought.
In both instances there is nothing to stop you from telling the creditors about the timescales for destruction in your final report, should you so wish, although there is no requirement to do so.
Recovering postage costs
We have recently seen a number of IPs who have included postage as a category 2 disbursement in their practice fee recovery sheet. Just a reminder that as long as you are only recovering the actual postage costs incurred on a case – i.e. recording the number of letters issued and their cost – then postage is a category 1 expense that can be recovered without obtaining specific approval from the creditors.
Given the need to record information about the number of letters issued and postage costs, realistically it is only economic to recover postage when issuing circular documents to creditors. That way you can record the information about the numbers of letters and postage costs on the certificate of posting, which will also act as evidence as to whom the document was issued and the date of deemed service.
Given the need to record information about the number of letters issued and postage costs, realistically it is only economic to recover postage when issuing circular documents to creditors. That way you can record the information about the numbers of letters and postage costs on the certificate of posting, which will also act as evidence as to whom the document was issued and the date of deemed service.
Companies House Monitor Service
This useful service offered by Companies House has recently come to our attention. The Companies House Monitor Service works as part of their WebCHeck and Companies House Direct facility and enables you to ‘monitor’ when documents have been filed into Companies House. As soon as the documents are received and registered for companies that you have chosen to 'monitor' then you will receive an e mail. You then have the option to download the actual document.
Whilst there is a charge for this service, which is per company monitored, it is an easier solution in conversions from Administration to CVL than having to check Companies House daily to see when your notice of conversion has been registered and hence the CVL commences and you are appointed liquidator. It could also be used as a way of checking to ensure that the documents you have filed with Companies House have actually been received by them.
For more information visit www.companieshouse.gov.uk/infoAndGuide/monitor.shtml.
Whilst there is a charge for this service, which is per company monitored, it is an easier solution in conversions from Administration to CVL than having to check Companies House daily to see when your notice of conversion has been registered and hence the CVL commences and you are appointed liquidator. It could also be used as a way of checking to ensure that the documents you have filed with Companies House have actually been received by them.
For more information visit www.companieshouse.gov.uk/infoAndGuide/monitor.shtml.
Friday, April 30, 2010
The rules are wrong but the regulators carry on regardless
A bright member of staff at one of our clients has recently spotted an error in the new rules. Now, we know that drafting something that big was never going to be easy and we accept that errors will happen, but there has to be a system in place to deal with them. The reaction to this particular point, however, shows how ineffectual our current regulatory framework can be on occasions.
The error that was so cleverly spotted was that although non interim order IVAs no longer have to be filed at court, with notices now being sent just to creditors, rule 5.24(4) escaped the drafter’s attentions and that still requires that the report on an adjourned meeting of creditors to be filed at court.
We raised this with the Insolvency Service and suggested that if a legislative fix could not be put in place quickly, whether because of the election, Icelandic ash or other factors, then the regulators could agree to ignore any breach of the rule, given that it is patently incorrect, which has been acknowledged by the Service, and unworkable in practice.
After the Service met with the regulators, the response I received was that:
“Their collective view was that whilst practitioners should comply with the rule as it stands, a breach of it would normally be below the threshold for which disciplinary proceedings would be initiated.”
We consider this to be an entirely unsatisfactory response. If you tried to file the report at court when no other document had been filed on the case and no further document was ever to be filed on the case, the court would quite rightly return it saying that they did not have a clue what you were on about. It cannot, therefore, be right when the regulators know that the rule is wrong and is now on a list of rules to be “fixed” post-election, to treat failure to comply as a breach. We consider that the regulators should take a pragmatic approach in this specific instance and agree with the Service that failure to comply with it will not be treated as a breach given that the rule will be changed in the future, is of only minor import and is unworkable in practice.
There will always be errors in new legislation and we are not having a pop at the Insolvency Service who drafted it, but if any IPs have other examples of errors that they have spotted in the new rules, please feel free to let us know. We’d be happy to raise them with the Insolvency Service and the regulators and we will continue to push for a practical solution. It cannot be right for an IP to be in breach as a result of unworkable legislation.
The error that was so cleverly spotted was that although non interim order IVAs no longer have to be filed at court, with notices now being sent just to creditors, rule 5.24(4) escaped the drafter’s attentions and that still requires that the report on an adjourned meeting of creditors to be filed at court.
We raised this with the Insolvency Service and suggested that if a legislative fix could not be put in place quickly, whether because of the election, Icelandic ash or other factors, then the regulators could agree to ignore any breach of the rule, given that it is patently incorrect, which has been acknowledged by the Service, and unworkable in practice.
After the Service met with the regulators, the response I received was that:
“Their collective view was that whilst practitioners should comply with the rule as it stands, a breach of it would normally be below the threshold for which disciplinary proceedings would be initiated.”
We consider this to be an entirely unsatisfactory response. If you tried to file the report at court when no other document had been filed on the case and no further document was ever to be filed on the case, the court would quite rightly return it saying that they did not have a clue what you were on about. It cannot, therefore, be right when the regulators know that the rule is wrong and is now on a list of rules to be “fixed” post-election, to treat failure to comply as a breach. We consider that the regulators should take a pragmatic approach in this specific instance and agree with the Service that failure to comply with it will not be treated as a breach given that the rule will be changed in the future, is of only minor import and is unworkable in practice.
There will always be errors in new legislation and we are not having a pop at the Insolvency Service who drafted it, but if any IPs have other examples of errors that they have spotted in the new rules, please feel free to let us know. We’d be happy to raise them with the Insolvency Service and the regulators and we will continue to push for a practical solution. It cannot be right for an IP to be in breach as a result of unworkable legislation.
Sunday, March 28, 2010
Finding your way through the 2010 Rules and the Regulatory Reform Order
Like you, we have been ploughing our way through the new rules and the contents of the regulatory reform order that are coming into force on 6 April 2010. They are a dense, almost impenetrable mass of detail, particularly the transitional provisions, but the good news is that you do not need to have systems in place to deal with all of them on day 1.
This article is only designed as a brief overview of the key provisions to enable you to prioritise your action in implementing the changes, and so it should not be taken as a detailed statement of the content of the Rules and regulatory reform order.
From a compliance perspective, the most important set of provisions for IPs are those relating to gazetting as they have effect from day 1. The Rules prescribe the contents of gazette notices, and you must ensure that you comply with those provisions in respect of all cases that commence on or after 6 April 2010. The detail is set out at Rules 12A.33 to 12A.37 and you should contact your advertising agents or the London Gazette for assistance to ensure that your gazette notices are compliant. The Rules also cover the contents of all other adverts, even though such advertising remains discretionary, not mandatory. The detail is set out at Rules 12A.38 to 12A.41. Additional content particular to each notice is specified in individual rules but most of it is fairly logical; for example, if advertising your appointment you have to say that you were appointed and when you were appointed and what the company did.
Some of the other provisions that you need to be aware of from commencement of the new Rules are:
• Fee basis – the ability to take fixed fees, and to mix and match fee bases throughout an assignment, subject to committee or creditor approval.
• Standardisation of the period of notice for meetings of creditors – it appears that all meetings now have to be convened on 14 days notice, apart from final meetings which are on 28 days notice.
• Powers of liquidator and trustee – making the power to compromise exercisable without sanction.
• Pre-appointment fees in Administrations – in addition to the disclosure prescribed by the rules being made in the proposals, a separate resolution approving pre-appointment fees must be taken at the paragraph 51 meeting if held, or approval obtained from those responsible for approving remuneration if a meeting is not held.
• IVAs – various detailed changes, including no longer having to file documents in Court when using the non-interim order route. We are still considering where this places them under the EC Regulations. We are concerned that they may no longer be a court process recognised under the regulations so could be challenged by proceedings in other jurisdictions. We would love to hear from anyone who has had the chance to obtain a definitive opinion.
• Joint supervisors in IVAs/CVAs – where two or more IPs are to be appointed supervisor, a separate resolution needs to be taken at the meetings of creditors, and of the company, dealing with the basis on which they are to act, i.e. whether they are to act jointly, or jointly and severally.
• Committees – various detailed changes in all case types.
• Disclaimer – removing the Court from the process in liquidations, although we understand that some firms of solicitors have already indicated that there are pitfalls with the revised approach.
• Annual meetings – we raised with the Insolvency Service the wording in the 2009 Rules that meant that for CVLs and MVLs commenced on or after 6 April 2009 the annual meeting would need to be gazetted. This glitch has been fixed in the 2010 Rules so that there will be no need to gazette annual meetings for such cases.
The big headline provisions from the Insolvency Service’s perspective are those relating to electronic delivery of information to creditors, remote attendance at meetings, and annual/final reporting and remuneration approval. However, these either need not, or actually do not have any immediate impact for IPs.
Whilst the electronic delivery of information and remote attendance at meetings could see some cost savings for IPs, they are optional and so need not be implemented on day 1, if at all. With some potentially complex IT matters to overcome, we suspect that website-based reports may not become the norm for some time. In addition, the need for positive consent from individual creditors before notices can be given electronically may even mean that a willing IP with appropriate systems at his disposal may not be able to take full advantage in the face of creditor apathy or hostility to the concept.
The annual/final reporting and remuneration approval provisions will not have effect until the first reports fall due which will be at the end of the first year of operation of the Rules, unless a case commenced on or after 6 April 2010 is closed in less than a year.
We are currently working to update our review checklists and will let clients know when they have been completed.
Saturday, December 05, 2009
Various compliance issues
We recently had a discussion with an ACCA monitor and he raised a couple of compliance issues that corresponded with what we are finding during our visits.
First, IPs not gazetting their appointment as liquidator, or not doing so within 14 days of their appointment following conversion from Administration to CVL. The easiest way to ensure this is that once Form 2.34B, the notice of conversion, has been sent to the Registrar of Companies check the web-site daily until it has been registered, which then acts as a prompt to give instructions to gazette the appointment as liquidator.
Secondly, delays in filing Form 2.31B, notice of extension of the Administration with the consent of creditors, in Court and with the Registrar of Companies. The legislation requires the IP to file the notice as soon as reasonably practicable after consent was obtained from creditors. It is clearly imperative that this is done without delay so that those searching Companies House are aware of the status of the company, particularly where consent is obtained only shortly before the automatic end of the Administration.
First, IPs not gazetting their appointment as liquidator, or not doing so within 14 days of their appointment following conversion from Administration to CVL. The easiest way to ensure this is that once Form 2.34B, the notice of conversion, has been sent to the Registrar of Companies check the web-site daily until it has been registered, which then acts as a prompt to give instructions to gazette the appointment as liquidator.
Secondly, delays in filing Form 2.31B, notice of extension of the Administration with the consent of creditors, in Court and with the Registrar of Companies. The legislation requires the IP to file the notice as soon as reasonably practicable after consent was obtained from creditors. It is clearly imperative that this is done without delay so that those searching Companies House are aware of the status of the company, particularly where consent is obtained only shortly before the automatic end of the Administration.
A couple of old chestnuts
Those of you who have read ACCA's recent Insolvency Newsletter will have seen that a couple of old chestnuts have risen their ugly head again - mileage and VAT on bonds - and they merit comment.
Mileage:
Our understanding of the position is that the treatment of mileage being charged at approved Inland Revenue rates will be considered as part of the current review of SIP 9. We are aware that at least one regulator will not be changing their approach until the review of SIP 9 has been completed, and will continue to treat mileage charged at such rates as a category 1 disbursement.
SIP 9 will have to be changed given the changes to the remuneration regime being made by the rule changes in April 2010.
VAT on bonds:
Earlier this year Dear IP contained advice on the treatment of VAT on bonds, indicating that it should be charged as it is a disbursement being recharged to the case by an IP even though the IP themselves do not suffer VAT on the bond they pay. Given that this approach was based on advice from HM Revenue and Customs, and it is they who would check for the correct treatment of VAT during a compliance visit to your practice we recommend that you continue to follow that advice.
Mileage:
Our understanding of the position is that the treatment of mileage being charged at approved Inland Revenue rates will be considered as part of the current review of SIP 9. We are aware that at least one regulator will not be changing their approach until the review of SIP 9 has been completed, and will continue to treat mileage charged at such rates as a category 1 disbursement.
SIP 9 will have to be changed given the changes to the remuneration regime being made by the rule changes in April 2010.
VAT on bonds:
Earlier this year Dear IP contained advice on the treatment of VAT on bonds, indicating that it should be charged as it is a disbursement being recharged to the case by an IP even though the IP themselves do not suffer VAT on the bond they pay. Given that this approach was based on advice from HM Revenue and Customs, and it is they who would check for the correct treatment of VAT during a compliance visit to your practice we recommend that you continue to follow that advice.
Tuesday, October 13, 2009
Trustee’s fees in annulments
The recently decided case of Hunt v Yearwood-Grazette ([2009] EWHC B4 (Ch)) involved appeal against the Court’s determination of the trustee’s fees in an annulment case. The case report records that in response to the debtor’s request for details of his remuneration in January 2005 the trustee first indicated that costs should be no more than £2,100 including VAT, which appeared to have been based on the statutory scale. There was then a delay in the trustee providing precise information about the level of remuneration he was seeking, but in April 2006 he indicated that it was in the region of £10,000. The debtor took issue with this and ultimately the trustee applied to Court on various matters, but the principle issue for consideration was the quantum of his remuneration. The claim considered by the Court was for £19,611.75 comprising: £11,420.50 remuneration; £500 for closure; £891.37 trustee’s disbursements excluding legal fees; and £6,345.88 legal fees plus £454 legal disbursements. However, the Court only permitted the trustee to recover from the estate the sum of £2,100 in respect of remuneration and £1,296.43 in respect of expenses and disbursements. He also ordered the trustee personally to pay the debtor’s costs of the application, assessed at £4,840.75.
From reading the report of the judgement it contains some salutary warnings for IPs when dealing with debtors in such cases.
1. Ensure that you respond accurately to a request from the debtor as to the amount of remuneration you are seeking. Clearly a debtor will be more likely to take the matter to Court themselves, or complain to your regulator, if there is a significant increase in the amount that you are claiming as remuneration for no apparent reason.
2. In connection with the above, consider whether or not it would be cheaper and easier in the long run to “do a deal” with the debtor to avoid the matter being considered by the Court and possibly also your regulator, rather than seek to recover your remuneration in full.
3. Do not delay in responding to requests from the debtor for information about the level of your remuneration, particularly if it increases in the period between the first request being made and the final figure being given. Such a delay will clearly fail to impress the Court given that you are an officer of the Court in such circumstances, and will almost certainly lead to a complaint being found proved against you should one be made by the debtor.
4. The Court will apply the Practice Statement, “The Fixing and Approval of the Remuneration of Appointees 2004”. The judgement referred to the Court’s task as being “to balance all the various criteria, resolving any conflict between them arising in the particular case, in order to arrive at the proper level of remuneration. In doing so, it is settled law that the court has to reward the value and benefits of the services rendered rather than the cost of rendering such services. Thus, in fixing the remuneration, time spent is less relevant than value provided.” This is a timely reminder of the approach that the Court will take and it appears that in this case the Court concluded that there was little value provided by the trustee given the level of remuneration approved.
From reading the report of the judgement it contains some salutary warnings for IPs when dealing with debtors in such cases.
1. Ensure that you respond accurately to a request from the debtor as to the amount of remuneration you are seeking. Clearly a debtor will be more likely to take the matter to Court themselves, or complain to your regulator, if there is a significant increase in the amount that you are claiming as remuneration for no apparent reason.
2. In connection with the above, consider whether or not it would be cheaper and easier in the long run to “do a deal” with the debtor to avoid the matter being considered by the Court and possibly also your regulator, rather than seek to recover your remuneration in full.
3. Do not delay in responding to requests from the debtor for information about the level of your remuneration, particularly if it increases in the period between the first request being made and the final figure being given. Such a delay will clearly fail to impress the Court given that you are an officer of the Court in such circumstances, and will almost certainly lead to a complaint being found proved against you should one be made by the debtor.
4. The Court will apply the Practice Statement, “The Fixing and Approval of the Remuneration of Appointees 2004”. The judgement referred to the Court’s task as being “to balance all the various criteria, resolving any conflict between them arising in the particular case, in order to arrive at the proper level of remuneration. In doing so, it is settled law that the court has to reward the value and benefits of the services rendered rather than the cost of rendering such services. Thus, in fixing the remuneration, time spent is less relevant than value provided.” This is a timely reminder of the approach that the Court will take and it appears that in this case the Court concluded that there was little value provided by the trustee given the level of remuneration approved.
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