SIP 7 Presentation of Financial Information in Insolvency Proceedings

Transcription

1 SIP 7 Presentation of Financial Information in Insolvency Proceedings y Joanne Harris of JOH by Joanne Harris of JOH How to Rock n Roll

2 SIP 7 Timeline 6 April 2010 Insolvency (Amendment) Rules May 2011 New SIP 7? Oct 2014 New Harmonised Rules 1 September 1998 previous SIP 7, revised March 2002 Transition from prescriptive SIPs to principles based SIPs PRESCRIPTIVE PRINCIPLE

3 SIP 7 Principles TRANSPARENT PROVIDE UNDERSTANDING SUFFICIENT FINANCIAL INFORMATION CONSISTENT USEFUL PROPORTIONATE SIP 7 Principles Transparent you need to disclose sources of funds received and paid out clearly. You also need to disclose relationships between the individuals you sell assets to and the individual you instruct Consistent you need to ensure when you report that the information is not different from information previously given; are the SOA figures the same as the last report? Useful spending ½ a page explaining that you received 2.50 interest tis not useful. Explain the steps taken to sell the assets and the costs involved with the process and difficulties that arose

4 SIP 7 Principles Proportionate Again, if there are no assets to realise and no fees to be drawn then the information will reflect this, as will limited realisations and restricted fee Sufficient if you spend a significant sum on purchasing insurance due to the high risk involved with the particular assets, then an explanation needs to be given unless you want your actions challenged Provide understanding remember the purpose of reporting financial information is to reassure the creditors that you have acted tdin an appropriate it way because you are in control of the money being received and paying yourself and others. If creditors see large sums of money being realised and equally large sums being paid out without the prospect of a dividend, then you need to be very clear about what went horribly wrong! Insolvency Amendment Rules 2010 Reports and Period Accounts Annual reports now required on BKYand CL No more annual meetings for MVL & CVL

5 SIP 7 Para 4: Period Reporting This period Cumulative total The new rules introduced annual reports on almost all case types but more importantly the requirement to just report in respect of matters that arose during the period of the report It was therefore natural for the SIP to require financial information to be provided on a period and cumulative basis

6 SIP7 Para 5: Separate document or note The SIP states that the financial information does not have to be on the R & P but may be detailed in a separate document or note This is not new and was in the previous SIP. However, the 2010 Rules requires in certain circumstances that specific information is detailed on the summary Receipts and Payments only: CVL final report R4.126(1E)(a) MVL final report R4.126A(4)(a) CVL final report R4.126(1E)(a) (a) a summary of the liquidator's Receipts and Payments, including at least the following items separately specified (except where the amount for an item is zero): (i) the total of all receipts, with separate specification thereunder of (aa) receipts from trading carried on by the liquidator; (bb) payments made in the course of trading carried on by the liquidator; (cc) the source of all other receipts; (dd) payments to redeem securities; (ee) costs of execution; and (ff) net realisations; (ii) the cost of employing a solicitor;

7 CVL final report R4.126(1E)(a) ctd (iii) other legal costs; (iv) the liquidator's remuneration; (v) the cost of employing an auctioneer; (vi) the cost of employing a valuer; (vii) the costs of taking possession of and maintaining the company's property; (viii) the cost of advertising in the Gazette and other newspapers; (ix) incidental outlays; (x) a statement of the total of costs and charges incurred; CVL final report R4.126(1E)(a) ctd (xi) the amount paid to holders of debentures of each class of debenture, setting out the amount paid per debenture, the nominal value of each debenture in each class and the total amount paid in respect of each class; (xii) the aggregate numbers of preferential and unsecured creditors and the aggregate amounts paid out to them, the aggregates for preferential and unsecured creditors set out separately unless all creditors have been paid in full; (xiii) statements of the aggregate dividend paid on each pound of preferential and of unsecured debt and of the estimate of the value of the company's net property which h hdb had been made under Rule 4.49(2)(a)(ii); (xiv) the amount of interest paid under section 189; (xv) the amount paid to contributories in respect of each class of share, setting out the amount per share and the nominal value of each share in each class;

8 CVL final report R4.126(1E)(a) ctd (xvi) a statement of the total amount paid to holders of debentures, preferential and unsecured creditors and contributories; (xvii) a statement of assets which have proved to be unrealisable, including the value of those assets which had been made for the purpose of Rule 4.49(2)(a)(ii); (xviii) the amounts paid into the Insolvency Services Account, set out separately, in respect of (aa) unclaimed dividends payable to creditors in the winding up; (bb) other unclaimed dividends in the winding up; (cc) moneys held by the company in trust in respect of dividends or other sums due before the commencement of the winding up to any person as a member of the company; MVL final report R4.126A(4)(a) The only difference between this and the CVL final R & P requirements are that (a)(xii) ()( ) and (a)(xiii): ()( ) (xii) the aggregate numbers of preferential and unsecured creditors and the aggregate amounts paid out to them, the aggregates for preferential and unsecured creditors set out separately unless all creditors have been paid in full; (xiii) statements of the aggregate dividend paid on each pound of preferential and of unsecured debt and of the estimate of the value of the company's net property which had been made under Rule 4.49(2)(a)(ii)

9 Presentation of financial information Case specific MVL R4.49F 49F arrangements under s110 R & P or report must provide details of property transferred property received property distributed and the basis of the valuation Presentation of financial information Case specific MVL R4.49G 49G other distributions to members in specie R & P must state the estimated value of the property distributed amongst the members of the company during the period to which the account or report relates, and as a note to the account or summary of Receipts and Payments, provide details of the basis of the valuation.

10 Presentation of financial information Case specific The distribution of assets in specie to creditors has always been available BUT the 2010 Rules introduced the requirement to disclose specific information in both the R & P and the report ADM R2.71 Division of unsold assets LIQ R4.183 Division of unsold assets BKY S326 & R6.78D Distribution of property in specie I have listed below the disclosure requirements: R & P state the estimated value of the property divided amongst the creditors Report provide details of the basis of the valuation

11 SIP 7 Para 6 R & P show categories of items under headings follow headings used in any prior Statements of Affairs or estimated outcome statements Or an analysis should be provided to enable comparison with the estimated to realise figures in any prior document There is nothing new but is very consistent with the principles based approach in giving information which is useful and provides understanding Rules & SIP 7 Para Rules The 2010 Rules introduced not only period reporting and accounting, but also progressed the concept a step further by requiring reports to detail expenses incurred As a profession we had been doing this with respect to our remuneration but had never extended this to other costs SIP 7 para 7 A statement of expenses incurred should adopt, as far as possible, the principles of this statement but need only provide information for the period under review.

12 SIP 7 Para 8 & 9 PAYMENTS TO INSOLVENCY OFFICE HOLDERS AND THEIR ASSOCIATES disclosed, either separately in the Receipts and Payments account or by way of note whether incurred, accrued or paid: Remuneration pre & post appointment Remuneration for trading Amounts required to be approved in the same manner as remuneration Subcontractors fees Remuneration paid by third parties The overlap between the new SIP 7 and 9 Overlap Remuneration pre & postappointment Remuneration for trading Cat 2 disbursements Subcontractors No overlap Remuneration for trading incurred, accrued or paid Remuneration paid by third parties the requirement to provide this information is surprisingly not in SIP 9, but SIP 7

13 Insolvency Amendment Rules 2010 ctd Requests for further information ADM R2.48E Liquidations R4.49E BKY R6.78C Requests for information about time spent CVA & IVA R1.55 & R5.66 SIP 7 Para 10 & 11 REPORTS TO CREDITORS AND OTHER INTERESTED PARTIES Para 10 If significant, then IP should explain why the expenditure was incurred since the 2010 Rules introduced the right to challenge expenses Para 11 no requirement for repetition of information previously provided, unless statute specifies

14 SIP 7 Para 12 & 13 REQUESTS FOR ADDITIONAL INFORMATION Para 12 Creditors may request further information and may challenge excessive costs. The office holder should provide creditors and other interested parties with sufficient information to enable them to consider whether to exercise those rights to challenge any payments made by IP Para 13 bring the rights of creditors and other interested parties to their attention. Provide information on how to access a suitable explanatory note setting out the rights of creditors should be given SIP 7 Para 14 Receipts a) Realisations shown gross, costs of realisation shown separately b) Realisations subject to charges should be shown gross above with amounts to the charge holder shown separately c) When assets subject to charges are sold by or on the instructions of the charge holder (or other person with a legal right to do so), the net amount received should be shown in the account (even if nil ) with the gross realisation(s), costs of realisation and the amount retained by the charge holder shown separately by way of note.

15 SIP 7 Para 15 Payments Payments should be stated by category, distinguishing payments made: under duress, in settlement of reservation of title claims, to secured creditors, to preferential creditors and unsecured creditors as dividends (dates and amounts of dividends (pence in the ) should also be stated) SIP 7 Para 16: Trading account and how this should be presented The presentation of trading information is about accountability and whether an IP has traded at a loss and if he has, did this enhance other realisations sufficiently to justify? Remembering the principles of the SIP of giving information which is useful, sufficient and provides understanding And understanding the reason why the information provided is important, to ensure the information is presented in a meaningful way

16 SIP 7 Para 16: Trading account and how this should be presented ctd A separate trading Receipts and Payments the balance should be shown as a single item in the main Receipts and Payments Information detailing: a) The assets in existence upon appointment (e.g. stock and work in progress) that have been used in trading. b) Any uncollected debts and unpaid liabilities in respect of trading. c) Trading assets (e.g. stock and work in progress) still to be realised. As well as the remuneration in respect of trading para 8 Hive down Definition: To effect a hive down the insolvency practitioner establishes a wholly owned subsidiary of the company, the share or shares of which are normally held by the company in insolvency. The assets from the main company are usually transferred into the subsidiary company. A mechanism which used to be frequently used in receiverships

17 SIP 7 Para 17 Hive down Consideration should be shown according to the categories of assets transferred and apportioned as provided for in the hive down agreement. Sale of the shares in the hive down company should be shown separately. A trading account for a hive down company should be prepared adopting the same principles as set out in paragraph 16 above. SIP 7 Para 18: Third Party Funds Funds do not form part of the estate Paid to third parties Amount should be noted Any fee charged to third party should be disclosed. d

18 SIP 7 Para 19: Statement of funds held Disclosure should distinguishing i between funds held on: non interest bearing accounts interest bearing accounts in the office holder s or the insolvent estate s name Insolvency Services Account Treasury Bills other forms of investments. SIP 7 Para 19: Statement of funds held ctd If the IP holds bank accounts in different currencies then he may present: multiple Receipts and Payments accounts But should explain: a) Why funds have been held in currencies other then Sterling; b) The impact of currency holdings on the estate; c) An indication of the Sterling value as at the date of the account.

19 SIP 7 Para 20: Value added tax (VAT) VAT is a topical issue at the moment, however for the purposes of SIP 7 : The treatment of VAT adopted should be consistent and the implications of that treatment made clear y Joanne Harris of JOH

20 Recommendations documentation and reports Check to ensure that your final R & P in an MVL and CVL has the information required by R4.126(1E)(a) ) and R4.126A(4)(a) MVL reports are you reminding staff of the additional disclosures for s110 transactions and distributions in specie? Do all your R & Ps have comparison figures from the SOA or estimated to realise information provided? Do all your reports require staff to consider and detail what costs had been incurred during the period but not paid? Is remuneration split by pre, post appointment, for trading, subcontracted and paid by third parties? Detailed explanation of large amounts of expenditure Recommendations documentation and reports ctd Provide information on how to access a suitable explanatory note setting out the rights of creditors Realisations shown gross Are staff able to distinguish between when to show realisations for charge holder gross and net? Payments specifically made under duress, in settlement of reservation of title claims, to secured, preferential and unsecured creditors p in Trading separate account, assets used, assets to be realised incl. Book debts, stock and WIP and liabilities to be paid Hive down same principles as trading and sale of a business

21 Recommendations documentation and reports ctd Third party funds do you put this though the R & P or does your proforma report have a small paragraph p about third party funds? Does your R & P state what account the funds are being held in or distinguish between funds invested or just held on interest bearing? When providing an R & P in a different currency does your report detail the information to be provided under para 22? How do you treat VAT in your R & P? Clarification Should you wish clarification on any of the issues covered today please do not hesitate to contact me: Joanne Harris jo@johconsultancy.co.uk Tel: Mob: COMPLIMENTS OR FREE HARLEY DAVIDSONS: JO HARRIS c/o R3 COMPLAINTS ABOUT THIS WEBINAR TO: SANTA CLAUS, THE NORTH POLE

22 THE END y Joanne Harris of JOH Joanne Harris jo@johconsultancy.co.uk Mob: Tel: