Every year, monitoring visits by ICAEW’s insolvency team identify common failings that can help IPs to learn from their colleagues’ mistakes. This year’s Quality Assurance Department (QAD) round-up webinar discussed some of these issues. It also flagged some recent changes that IPs need to be aware of and looked ahead at developments coming down the line, including a refresh of Statement of Insolvency Practice (SIP) 14, and new protocols and materials for IVA providers.

One of the most common issues raised on visits is in relation to the handling of employee claims, which is something the Insolvency Licensing Committee (ILC) has also raised as a particular concern. Although IPs have a statutory obligation to deal with employee claims, reviewers are still seeing IPs without appropriate procedures to deal with these.

“The main issue we’re seeing is that IPs are not sufficiently verifying employee claims,” says Victoria. “And where they haven’t been able to do this, they’re not informing the Redundancy Payment Service (RPS).”

“A lot of IPs provide checklists to directors pre-appointment, which include questions about outstanding employee claims and holiday entitlement,” she explains. “Some then simply use these figures as a basis for the RP14 A, without any further verification work, or they just rely on information employees have put in their RP1s. This is not sufficient; you need to be doing some form of verification and sense check to assess whether the information appears reasonable.”

Another employee-related issue is pension delays. “We know sometimes it can be difficult to get the information you need from a pension provider, but we continue to see cases where there is little or no activity by an IP in relation to pensions in the first place,” says Victoria.

“You can’t just rely on directors telling you there is no pension; you need to make sufficient enquires to identify a scheme and, if you find there isn’t a pension when there should have been an auto-enrolment scheme, you need to report it to the Insolvency Service and The Pensions Regulator.”

Problems with case progression are a recurring issue during QAD visits, and this year has been no exception. “We’re still seeing too many case progression and dividends delays,” says Allison. “The primary purpose of the insolvency regime is to return funds to those owed money, yet we too often see instances of IPs not taking proactive steps to return funds.”

“If we believe there have been significant delays that have prejudiced stakeholders when there are significant funds in hand, we will report that to ILC, which will consider whether a regulatory penalty may be appropriate,” she stresses.

“We also see case review after case review showing the same outstanding issues with no evidence of what’s been done during the period to progress them,” she adds. “The key purpose of a case review is to monitor progression so, if time after time, reviews show the same outstanding issues, then they aren’t meeting that purpose. We urge you not to simply sign off reviews, but to read them through and consider what, if any, action you need to take.”

Delays in IPs concluding their investigation work is another contributing factor to delays in case progression. There are two elements to investigation work – the work you need to conduct to comply with requirements under the Company Director Disqualification Act and your SIP 2 investigation.

“Generally, IPs have processes to comply with both of these elements,” says Victoria. “But we continue to raise queries around gaps and delays.” Most IPs have a SIP 2 checklist, which is usually completed by the case administrator and signed off by the IP. But reviewers are increasingly seeing cases of contradictory information on these checklists, and a failure to record conclusions or to follow matters up.

“The Insolvency Service is still interested in COVID support schemes, so this remains an area you need to be covering off as part of your investigations,” emphasises Victoria. “And don’t forget that COVID support schemes are wider than just Bounce Back Loans (BBLs).” While reviewers find IPs have processes to look at BBLs, sometimes they aren’t considering other schemes, such as furlough. “There is also some evidence that IPs are not always submitting Suspicious Activity Reports when they should be, particularly in relation to abuse of COVID support schemes,” she says.

Fees continue to be an area where too many issues are raised. “One of the positives is that we now very rarely see serious cases of purely unauthorised remuneration,” says Allison. “But we are starting to see some bad habits creep in around fee estimates and the information that’s provided in fee requests.”

One of the overriding principles in paragraph 11 of SIP 9 is that IPs need to give creditors sufficient information so that creditors can make an informed judgement about the reasonableness of the office holder’s request. “Despite this, we’re still seeing reports where there’s a real lack of detail, or a lot of generic narrative,” says Allison.

“Descriptions of some case administration costs will be generic from case to case,” she acknowledges. “But it’s important that you provide case-specific narrative, particularly in relation to asset realisation work and any category where you expect to spend a significant number of hours.”

Another frequent issue is fees reports including conflicting information. “This could be a template issue,” says Allison, “so make sure you read your reports, and that you’ve deleted any information not relevant to the case.”

The concept of providing a fair and reasonable explanation when seeking a fixed or percentage basis has been around since 2015. “Despite this, we continue to see it either not provided, or just a simple statement that ‘we think this is a fair and reasonable reflection of the work we’re going to do’,” says Allison. “That is not acceptable as it provides no explanation.”

The final issue arising from visits involves SIP 11. “Most IPs now have a process to ensure they are completing an annual review of their financial controls as required by SIP 11,” says Victoria. “But we’re still seeing reviews that don’t include any sample testing.”

“To be able to confirm processes are working, we will expect you to be completing some sample testing on your cases,” she emphasises. “And you also need to make sure the sample you’ve selected is sufficient to fully test your processes.” Earlier this year ICAEW produced a checklist IPs can use when completing the SIP 11 review, which is available on the ICAEW website, alongside the existing financial controls checklist.

The webinar concluded by flagging some recent and upcoming changes. The Joint Insolvency Committee (JIC), for example, has been reviewing the Insolvency Guidance Papers (IGPs). This has led to the withdrawal of IGPs on “Bankruptcy – the family home” “Retention of title”, and “Systems for control of accounting and other business records”.

The review has also resulted in two updated IGPs: one on succession planning and another on control of cases. “The revised IGP on control of cases takes into account the changing nature of an insolvency practice and the risks involved in delegation, use of specialists and accepting joint appointments,” explains Allison. “It includes a new section on volume practices.”

For IPs working in the IVA market, there are some important changes ahead. These include a revised, simplified IVA protocol, and a key facts document to help consumers understand what they’re signing up for. There is also going to be a new advertising protocol for IVA providers, and new materials for IVA firms to provide to consumers giving them factual, accessible and consistent information.

Lastly, the JIC is in the midst of refreshing SIP 14. “This removes the focus on receivership and stresses the need to properly allocate realisations and costs between fixed and floating charges, which we think will be very helpful,” says Allison.

In terms of ICAEW’s internal processes, there have been some changes to the monitoring visit process. For example, since early 2024 visits have moved to a more varied risk-focused cycle. And instead of a reviewer contacting you to agree a visit date, this will now come from the scheduling team in QAD’s head office.

You can find out more about the visit cycle on ICAEW’s website, and also find some tips on how you can help reviewers improve the efficiency and effectiveness of visits.

“We’re very conscious that we often talk about what IPs and staff have got wrong, but less often talk about the good things we see,” notes Victoria. “So, one of the things we now include in our closing record is examples of good practices we have seen during the visit. It’s also important to highlight that around 70% of insolvency monitoring visits each year are closed off as satisfactory, without the need for any follow-up or regulatory action.”

However, ICAEW and the ILC remain concerned that reviewers continue to see the same issues visit after visit. “Frustratingly, these might seem fairly basic,” she says. “So, we encourage all IPs to pay attention to the key issues we’ve outlined and think about their current processes, and whether they could have weaknesses that may result in any of these too common issues arising in their practice.”

• Watch ICAEW’s 2024 Restructuring and Insolvency Community Roadshows, including the 2024 Quality Assurance Department round-up
• Download our SIP 11 Checklist: annual review of financial controls and safeguards
• Learn about recent changes to the Insolvency Guidance Papers
• Find out more about the changes to the insolvency monitoring visits cycle
• Check out our tips on how IPs can help reviewers improve the efficiency and effectiveness of visits