SIP16 – What difference has it made?

Being compliance focussed, I cannot comment on the questions asked by LG, but I do have three points to make. 

First, while the original concept of the SIP (greater transparency) may be admirable, it ignores both the cost of the extra reporting and the fact that merely disclosing it makes no difference.  If an unsecured creditor is going to get little or nothing from an administration because the banks have been more careful about securing the available assets over the last decade, telling the unsecured creditors more about it won't help them, unless it is done before the deal, which may well make the deal collapse anyway.

Second, it is disappointing, to say the least, that the Insolvency Service is complaining direct to regulators over deficiencies that they perceive in the disclosure.  In many cases they may be misunderstanding the IP's disclosure or the IP may not have understood a fairly onerous set of principles and it seems wholly unfair for the regulator of regulators, of all people, to bypass a practice's own complaints procedure.  Surely it would be more constructive and improve the understanding and implementation of the SIP if they raised their concerns with the IP, if necessary following his own complaints procedure if initial responses are not adequate and only resort to his/her regulator if the IP does not take action to correct the disclosure and address their concerns in future.  We have to remember that this degree of disclosure is a relatively new concept and, as we will soon (?) find when the SIPs are re-written to emphasise principles, IPs will need assistance with the interpretation of the principles, not super-complaints from the Insolvency Service when they inadvertently fall short of the new standard.  The IPA and ICAEW were admirably robust with the Pensions Regulator when similar direct approaches were made about S120 notices and I trust the regulators will be equally forthright in rejecting complaints from the Insolvency Service until they can show that they have followed the IP's own complaints procedures.

Finally, SIP 16 is likely to be beefed-up soon and the inevitable increase in cost will further whittle away at the little money that unsecured creditors can expect to receive.  In addition, the recent calls from the insurance industry to prevent the advising IP from taking the administration appointment will just result in two firms sharing the work and considerable duplication of effort. I think that it is about time that someone explained to politicians, the insurance industry and others that IPs work very hard to put these deals together, often saving jobs and giving viable businesses a chance to recover.  There is clearly some benefit in keeping regulation tight, but it must be appropriate to the appointment and not result in unnecessary cost just because a particular stakeholder has a louder lobbying voice.

Bill makes some interesting points. But do you agree?

Like it or not, pre-packs are the current bogey man of the insolvency world. Has the SIP helped? Unsecured creditors may have no financial interest in the outcome, but the argument in favour of disclosure must be that they can at least be certain that it was not as a result of the pre pack that their dividend prospects have diminished.

It seems inevitable that the Insolvency Service will want changes to be made to the SIP. Their report on the first six months of their monitoring of SIP 16 statements highlights the following areas where they believe the SIP should be amended:

• setting out a more explicit timescale for practitioners to provide the SIP 16 information;
• a formal requirement to provide the Secretary of State with a copy;
•  requiring details of any security to which the company’s assets were subject; and
• ensuring that both valuations and the directors’ financial interests are fully disclosed.

If there will be an increased cost of this, let us know, so we can pass that information on to the Insolvency Service – real quantifiable amounts would help. If I was playing devil’s advocate, and I’m sure others will make this point, won’t you have the information to hand anyway, so where will the increase in cost come from? We need real life examples. And, along similar lines, is it fair to say that this cost will fall on the unsecured creditors, when in many cases they won’t be receiving a dividend.

Whilst carrying out some annual compliance reviews, I have come across examples of SIP16 disclosures provided by different IPs.

The disclosures present information in respect of the categories set out in the SIP and were sent to the Insolvency Service well within the time periods recommended. They have not heard from the Insolvency Service.

Is the Insolvency Service contacting the IPs whose SIP16 disclosures do not meet their expectations? In the absence of feedback, would the IPs be wrong in assuming that their disclosures are compliant?

Suresh Aggarwal