Statements of Insolvency Practice are guides issued to licensed Insolvency Practitioners with a view to maintaining standards and ensuring consistency of approach. Statement of Insolvency Practice 13 (‘SIP 13’), which gives guidance to Insolvency Practitioners regarding the disposal of assets to ‘connected’ parties – the sale of assets of an insolvent company to a director of that company, for example – has recently been the subject of revisions which are due to take effect on 1 December 2016.
The issue covered by SIP 13 has long been a contentious one, and one which have caused aspersions to be cast over the integrity of the insolvency regime. It frequently gives rise to concerns as to whether assets disposed of to connected parties have been disposed of at less than market value, or on less favourable terms than might have been achieved in the case of disposal to a third party.
By far the most significant revision to SIP 13 is its broader application – whereas it previously applied only in the case of sale of the assets of an insolvent company to a director of that company, it will now apply to will now apply to any ‘connected party’ as defined by the Insolvency Act 1986. It will also apply to individual bankruptcies as well as corporate insolvencies. This would cover situations where, for example, a bankrupt husband sells his share in the matrimonial home to his wife, or to his adult children.
Another significant revision is the reduction of the distinction between the application of compliance standards to an Insolvency Practitioner’s preparatory work and that carried out after his appointment – instead of addressing the Practitioner’s responsibilities as an ‘advisor’ separately from his responsibilities as an ‘office-holder’, the new, slimmed-down SIP 13 simply says that an Insolvency Practitioner should be clear about the nature and extent of his role as ‘advisor’ prior to his eventual appointment.
The new SIP 13, weighing in at a svelte two pages, is in many respects less prescriptive than its 10-page predecessor, and in terms of the abiding principles it provides simply that an Insolvency Practitioner should ‘provide creditors and other interested parties with sufficient information such that a reasonable and informed third party would conclude that the transaction was appropriate and that the Office-Holder has acted with due regard for the creditors’ interests’, warning that the level of detail provided in transactions to connected parties ‘needs to be greater than in the reporting of a third party transaction’. In the same vein, the new SIP 13 requires Insolvency Practitioners to disclose both the existence of and justification for any sale to a connected party in the very next report to creditors following the transaction.
Despite its much shorter and less prescriptive form, the revised SIP 13 still imposes a significant burden on Insolvency Practitioners when dealing with transactions to connected parties, and that burden can perhaps be reduced to a single word – ‘transparency’, the need for which is of paramount importance in order to maintain confidence in the insolvency regime.
Whether you are an individual or a company subject to an insolvency procedure, or an Insolvency Practitioner looking for efficient, cost-effective legal services, Farleys’ Commercial team will be happy to assist in any way we can. Call us on 0845 287 0939 or complete our online enquiry form.
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