Every year, monitoring visits by ICAEW's insolvency team identify common failings that can help IPs learn from their fellow practitioners' mistakes.

Our 2023 round-up webinar discussed some of these failings, highlighted recent developments that IPs need to stay abreast of, and outlined some changes to quality assurance visit processes.

The main areas covered in the webinar included:

• ICAEW's Code of Ethics and the need for IPs to document their considerations when appointing third parties;
• employee claims, including holiday pay and pension contributions;
• IVA issues and alterations to SIP 3.1;
• bonding;
• delays in case progression;
• misconceptions about insolvency compliance reviews (ICRs); and
• changes to ICAEW's continuing professional development (CPD) regime.

"Under ICAEW's Code of Ethics, if you engage third parties to assist you with any work during an insolvency engagement, you need to evaluate whether that advice or work is warranted, and consider whether best value is being provided," explains Allison Broad, Insolvency Senior Manager at ICAEW. "You must also document this process, and review any such arrangements periodically."

"This year, we've seen some IPs who have completely overlooked that requirement," she says. "And, in other cases, we've seen some very poor documentation of the decisions."

"What we'd expect to see is that you're documenting your decisions at least at the same time you're asking the third party to assist or when you're preparing to do so, but certainly not several months down the line."

"We'd also expect your rationale to reflect the key elements of the code," she adds. IPs should be documenting:

• why the advice or work is needed; and
• how the proposed costs reflect best value and how the IP has established that.

"When work relates to ongoing services across your portfolio, we'd also expect you to have a process to ensure those arrangements are reviewed periodically," emphasises Allison. "And that those reviews are documented."

Monitoring visits are also revealing failures to deal with employee claims properly. "We're still seeing cases with large claims, which are usually for holiday pay, that the IP hasn't been able to substantiate and has then failed to inform the Redundancy Payment Service (RPS) of that fact before, or when, they submitted the claims," says Allison.

QAD visits have identified several cases where employees and directors have had more than 24 days of outstanding holiday and the IPs have largely relied on confirmation from directors as to their accuracy.

"It's for you, as the IP, to satisfy yourself as to the accuracy and eligibility of employee claims," emphasises Allison. "Where we see large claims that haven't been checked or where the RPS hasn't been notified that they are not substantiated, we will refer your visit to ICAEW's Insolvency Licensing Committee (ILC) for its consideration."

"If you haven't already done so, we recommend you listen to our previous webinar on this subject, where you can hear directly from the RPS," says Allison.

Monitoring visits in 2023 also revealed some unacceptable delays in obtaining information about outstanding pension scheme contributions and in submitting claims.

"One of the pension scheme providers is now making complaints to our Conduct Department about such delays," says Allison. "So now is definitely the time to review your processes around this."

The webinar also covers the latest reforms in the IVA sector. "The Financial Conduct Authority has recently banned (from 2 October 2023) payments to debt packagers by any debt solutions provider," says Allison. "And that's led to considerable changes in the market."

"We've been engaging with IPs specialising in this area over the last few months to support them in understanding the changes and making appropriate adjustments to their businesses so we can be satisfied they're compliant," says Allison.

Guidance for monitoring volume IVA providers has also been revised and, while this is aimed at the recognised professional bodies (RPBs), anyone specialising in this area needs to familiarise themselves with the changes.

In addition, a revised version of SIP 3.1 came into effect on 1 March 2023. The main changes to this relate to an increased emphasis on the IP's responsibility to ensure debtors have received suitable advice before entering an IVA and during its implementation.

"We understand the Insolvency Service may be carrying out a thematic review of SIP 3.1 take on processes in early 2024," says Allison. "So please take this opportunity to ensure you're fully compliant."

Another issue identified during monitoring visits in 2023 has been bonding. "We've seen a couple of cases this year where IPs' processes in this area haven't quite worked as they should have," says Allison.

As a result, ICAEW has introduced a few changes in the information it requests from IPs. "Now, when we provide you with the case list for your visits, we're asking you to obtain evidence from the bond provider of cover for the cases we've selected for review," says Allison.

"You may also want to introduce a periodic comparison of your portfolio with the bondsman's information," she adds.

Delays in case progression are raised every year during QAD visits, and such delays continue to present risks to IPs.

These risks are heightened when delays cause, or may cause, stakeholder prejudice. The risks, or potential prejudice, might not be immediately obvious. But delays can make it more difficult to address issues, and that can adversely affect the outcome.

For example, it's common for IPs to have to chase debtors, often sending multiple letters or even instigating additional collection actions. Ultimately, some of these are written-off, and sometimes that happens because the debtor has entered insolvency and can't pay.

ICAEW's reviewers will be concerned if they think it's possible a debtor might have paid if the IP had promptly and regularly chased them before they entered insolvency. And if they now can't pay, that can prejudice the estate.

The insolvency team has also seen a number of cases where there has been a delay starting or continuing with a potential investigation matter, and these types of delay can also affect realisations.

IPs taking on too many cases to administer with available resources is another problem for case progression. There have been cases where the mismatch of resources is obvious, but the IP has continued to take appointments and allowed existing ones to stagnate.

When IPs document their ethical considerations in taking on an appointment, they're confirming they've got enough resource and expertise to appropriately administer the work. Therefore, if reviewers find material and ongoing case progression issues, the ILC may find not only has there been a breach of the regulatory objectives but also of the ethical code.

In addition to addressing case progression during file reviews or when sending progress reports, IPs should consider it when completing their insolvency compliance review (ICR).

The requirement for an ICR is set out in the Insolvency Licensing Regulations. But reviewers have come across IPs who are failing to conduct both parts of the ICR process.

As well as conducting cold file reviews, IPs also need to be considering and documenting their continued eligibility. Some of the main providers of ICR services already include both elements, but others are only engaged to do cold file reviews.

As an IP, if your provider doesn't include the eligibility aspect, you need to find another way to ensure you consider and document your eligibility, or you need to extend the scope of your provider's work.

During future monitoring visits, reviewers are going to be asking for evidence of these eligibility considerations, and will not just be accepting the cold file review outputs alone.

CPD is another aspect of IPs' continued eligibility requirements and, as most IPs will already know, ICAEW has recently revised its CPD requirements.

The changes are designed to give greater clarity on the amount of CPD people should be doing to ensure their professional, technical and business skills stay up to date.

ICAEW does not expect this to result in a material change to the kinds of CPD, or numbers of hours, most IPs are already doing. But you may need to change how you're recording the hours and keeping evidence of the CPD you've done.

• Find out more about how the changes affect you by visiting the CPD hub

This year's webinar also covered the latest changes QAD is making to its review processes. One of these relates to the closing record that reviewers draft after they've concluded the on-site element of the work.

"This record now includes some feedback to you on good practice points we've seen during the visit," explains Allison. "And we've also amended the template for multiple IP visits, so that it now includes a firm-wide section separately highlighting any systemic issues we've found with the practice."

This section acknowledges that while IPs retain responsibility for these issues, they may want to seek input from their internal compliance team, or their external compliance provider, when finalising their response.

"In addition, we're now including individual IP issues in separate sections," Allison says. "That means you can more easily see issues that relate to your own individual cases. It also means that when the ILC is looking at a closing record for a visit referred to it, it will only see issues that relate to IPs whose reports it is looking at."

Alongside the closing record changes, QAD has extended some of the pre-visit information it requests. "Earlier this year, we amended that to ask you to identify any cases with employee claims or bounce back loans," says Allison. "We are now asking you to identify fees drawn on your open cases and provide your latest SIP 11 review ahead of the visit."

Concluding the round-up, Allison highlights two issues brought out in earlier webinars in the 2023 roadshow programme.

The first relates to difficulties and uncertainties when dealing with the potential administration of a company with a sole director, particularly where there are unmodified articles and there have been multiple directors in the past, and where there are bespoke or modified articles that don't set a quorum.

"If you're not aware of this issue, I recommend watching our legal update webinar, which covers the cases of Fore Fitness Investment Holdings Limited and Re Activewear Limited," says Allison. "You may need to seek advice on individual cases, unless there is further case law in this area."

The second point, which was raised in the compliance update webinar, relates to fees. "Where you're charging your fees on a time cost basis, you need to ensure that an appropriate grade of staff is carrying out the work," says Allison. "If you use more senior staff than is appropriate for the task, we'd expect you to reduce the charge-out rate that's applied, so that it's fair and reasonable for the work carried out."

The insolvency team's roadshows will be back later in 2024. If you missed any of last year's webinars, they are all available on demand.

• Watch ICAEW's 2023 Restructuring and Insolvency Community Roadshows.
• Save the date for ICAEW’s 2024 roadshows.
• View the insolvency team's webinar on compliance reviews.
• Read more about how to make the most of compliance reviews.
• Visit the new CPD hub.
• See Statements of Insolvency Practice.
• Access the 2023 ICAEW Insolvency Monitoring Report infographic