COVID-19/Coronavirus: Practical issues for insolvency and restructuring professionals
01 May 2020
- COVID-19/Coronavirus: Information for insolvency and restructuring professionals
- R3's Technical COVID-19 news page
The insolvency and restructuring framework is a vital piece of the economy's machinery, and underpins the confidence that supports trading, lending and investing. Especially in the current climate, the profession has a key role to play.
The COVID-19 pandemic has affected the working conditions of almost every type of organisation in the UK economy, and the insolvency and restructuring profession is no exception to this. From signing documents to holding creditors' meetings, to the difficulty in obtaining reliable asset valuations, there are many practical issues which insolvency and restructuring professionals are encountering.
In this post, we've collated some of the practical challenges our members have reported encountering as they go about their work. Some of these can be resolved by an insolvency practitioner using their discretion and recording their decision-making. Some, however, might require guidance from government or regulators. We've been in touch with regulators and government to pass these points on, and to seek clarification on behalf of our members.
- If you are a member of the insolvency and restructuring sector and have come across an issue not listed below, please email R3's Technical Manager, Ben Luxford.
Issues requiring official clarification
- Paperwork: In many cases, documents signed with electronic signatures will not suffice, and for signatures which must be witnessed by a solicitor, such as the swearing of a statutory declaration of solvency in a Members' Voluntary Liquidation, there is no approved protocol to deal with situations where signer and witness are not physically in the same room.
- Filing: It would be helpful for Companies House to prioritise processing documents to convert an administration into a Creditors' Voluntary Liquidation (CVL), as this only takes effect upon filing with Companies House. R3 has called for Companies House to accept electronic filing of all insolvency documents, and this has subsequently been introduced.
- Meetings: Creditors in some insolvency procedures have the right to request a physical meeting to make collective decisions. If an insolvency practitioner receives a request for a physical meeting, should this go ahead? The 2016 update to the Insolvency Rules made provisions for virtual creditors' meetings, which are vital under the current situation.
- Procedure deadlines: Any insolvency procedure is a highly prescribed process, with sequential steps that must be taken by certain dates in order to be valid. The delays and upheaval caused by the coronavirus pandemic are causing difficulties for insolvency and restructuring teams in meeting statutory deadlines.
- IVA modifications: On the personal insolvency side, many normally viable Individual Voluntary Arrangements (IVA) could be in danger of termination due to the effects of the coronavirus on an insolvent person's income; supervisors of IVAs need clear guidance on the steps they should follow in making emergency modifications to IVA agreements. Guidance has been produced by the IVA Standing Committee, to provide support for consumers who are currently in a protocol compliant IVA and to those who are proposing a new IVA during the COVID-19 pandemic. A key feature of the guidance is a three-month payment break can be granted without the need for a formal variation.
- AML: The insolvency and restructuring profession rightly has strict protocols to follow around anti-money laundering regulations (AML) - current working circumstances may make it difficult for staff to follow usual procedures.
- Staff salary arrears: If salaries are unpaid (e.g. the 20% company top-up for furloughed staff is not paid), but the company does not enter an insolvency procedure until some months later, will the four-month period for RPO claims be extended? There are practical difficulties for administrators seeking to furlough staff as part of the administration process.
- Data protection/SARs: Insolvency practitioners may receive Subject Access Requests (SARs) relating to data held on individuals by companies in insolvency procedures; if staff are on lockdown and without access to the premises where paper documents are stored, they may not be able to comply within set timelines. In welcome news, the Information Commissioner's Office has said that it will take into account mitigating circumstances during this period so that any company not able to comply with a SAR because of COVID-19 will be given some leeway if appropriate.
Issues requiring initiative and discretion from practitioners
- Paperwork: As part of insolvency teams' day-to-day work, it is often necessary to get documents signed physically, and send physical copies of documents to different parties. With many staff now working from home, this is more difficult, if not impossible, as staff may not have access to a printer, a franking machine or sufficient stamps, or other supplies needed - especially if large volumes of post have to be sent.
- Meetings: Along with creditors' meetings, mentioned above, there are other aspects of an insolvency practitioner's role which normally take place in person, such as consultations with staff who are to be made redundant, which will also be disrupted.
- Creditor communications: If creditors are operating away from their office addresses, they may miss posted notifications that further communications will take place via a dedicated website - insolvency and restructuring professionals should think creatively about how to ensure that creditors are kept 'in the loop' with normal channels disrupted. In addition, if creditors send objections to certain decisions made by an office holder to their business address, they may be missed if staff are absent, leading to uncertainty as to whether a decision is valid or not.
- Ethical issues: With staff working away from the office, normal procedures to manage ethical issues may be disrupted. Practitioners should take every effort to ensure that ethical oversight remains robust despite remote working and other practical challenges.
- Disposals: When assets need to be disposed of for the benefit of creditors, insolvency and restructuring professionals obtain valuations from professional, qualified sources - but in the current climate there is great uncertainty about what a fair valuation actually is. Valuation agents may also find it difficult to make checks in person due to travel restrictions or staff absence. Insolvency and restructuring professionals in the position of having to dispose of assets should continue to seek expertise from trusted agents, and document every decision made in case it is challenged at a later date.
- CVAs: Many companies in a Company Voluntary Arrangement (CVA) may find that the impact of the coronavirus pandemic has made it impossible for them to make their agreed payments, while for newly-agreed CVAs, SIP 3.2 states that the first meeting with directors should be face-to-face. Insolvency practitioners may have to use their discretion in deciding the best way to proceed, and R3 will continue to monitor the situation closely.
The issues highlighted above are not exhaustive - and as the situation evolves, new questions and difficulties may well arise (please contact us with anything that you have encountered which is not listed above). R3 is seeking clarification and guidance from the Government and other bodies where appropriate.
The profession also has a part to play in thinking creatively, adapting to unexpected circumstances, and keeping a good record of decision-making processes, in case of future challenges. Practitioners are already used to dealing with fast-moving and unpredictable situations in the normal scheme of events; these skills and experience levels will be called upon as never before as the insolvency and restructuring framework evolves to take account of the new realities imposed by the coronavirus pandemic.
R3 members can provide advice on a range of business and personal finance issues. To find an R3 member who can help you, click below.