Annual conferences – as our Prime Minister learned somewhat to her cost this year – can be something of a challenge: The Association of Business Recovery Professionals’ (R3) first ever Southern Area Conference – comprising speakers and delegates from each of R3’s three southern regions – at the new Hilton hotel in Bournemouth on 21 and 22 September 2017 was certainly no exception in terms of its organisation, which saw the culmination of more than 12 months of planning. Thankfully, however, none of the letters fell off the signs and there were no pranksters with P45s, coughing fits or lost voices. The challenges in the room were – rather – precisely the challenges the conference had set out to address, namely the key challenges for the insolvency profession as it seeks to adapt and to deliver optimum value and results in the face of rapidly changing regulation, and in an era of impending Brexit.
In the run up to the conference, the R3 events team had been polling its Twitter following with various options as to which of a number of challenges were considered “most pressing” for the profession, with the final vote closing during the conference and giving a clear answer – that the key challenge is indeed Brexit, followed by the need for the profession to adapt to the recently introduced Insolvency Rules 2016, which was the single most significant legislative change the profession had seen in 30 years.
Brexit and the insolvency industry
That Brexit genuinely is considered a key challenge for the insolvency profession may come as a surprise to some, who perhaps would see the sort of economic uncertainty which inevitably bedevils such a major political and legislative upheaval as something of a positive boon to the profession. We are, after all, already reading reports and seeing in our professional lives instances of insolvencies – both major and minor – being triggered, in whole or in part, by factors rightly or wrongly attributed to ‘the Brexit effect’. However, for the insolvency profession to respond most effectively to changing times, to help lessen the impact of uncertainty and to preserve jobs, core businesses and productivity, it also needs to have all the right tools in its toolkit.
The reality is that insolvency procedures work best for all in times of legislative certainty, light-handed regulation and relative economic stability (or at least stable enough to ensure that funding options are not curtailed unnecessarily). Brexit currently threatens not only legislative uncertainty, new and complex regulation and economic instability, but also the world leading position which the UK insolvency industry has hitherto enjoyed. This is partly because companies and individuals who might previously have chosen to base themselves in the UK and/or to avail themselves of English procedures might well start to look elsewhere, but also because directly applicable European law and the harmonisation of laws across European borders has been so helpful to us in the past, whilst certain types of ‘no deal’ Brexit might bring an end to such vital tools as automatic recognition and enforcement across borders. Insolvency rarely if ever enjoys priority in the legislative agenda at the best of times, and the prospects of it receiving the attention it needs during the Brexit period, even with extensive lobbying, are slim. Even at the lower end of the insolvency market, we see assets and creditors located in other European jurisdictions on an almost daily basis now, so these tools really are vital to our everyday solutions.
In identifying Brexit as a key challenge, the conference brought together a number of strands of thinking and identified matters which can form the subject of continued lobbying from R3 with those who are looking to shape the Brexit deal and post-Brexit UK legislation, but should also have assisted delegates’ “grass roots” understanding of what is at stake, and how such matters can affect the viability of solutions being discussed with stakeholders.
Tip of the iceberg – 7 key lessons
Whilst Brexit may have been challenge number one, it was only one of many industry challenges tackled at the conference.
Over 125 delegates and speakers attended the conference, with some travelling from as far as South Wales, the Midlands and East Anglia (not to mention one from Berlin); a little over half of them were insolvency practitioner (IP) accountants, a third were insolvency lawyers, and the rest were from allied trades and service providers. This was therefore a very representative think tank, gathered together for the combined purposes of networking, learning and – above all – sharing of best practice. From this point of view, it was exceptionally helpful to have such a breadth of contribution from the vast majority of agencies who can actually have a real impact on the solutions our profession delivers.
A vast number of useful soundbites from the conference are available to view via the @R3_Events Twitter feed, but I thought it would be helpful if I were just to extract for you the 7 key learnings which I personally took away from our speakers during the course of the conference.
1. The insolvency profession and the Courts – working together better
His Honour Judge Rawlings and recently retired Former Chief Registrar Baister were there, in part, to represent the judiciary and to assist us to better understand how we can get the most out of the courts system. Delegates – especially IP delegates – were advised to be mindful of our firms’ reputations with the courts and with court staff (particularly in terms of the quality and timeliness of the evidence, bundles and skeleton arguments we file) and to be patient as the newly renamed Business and Property Courts get to grips with new systems such as CE-file, which is far from perfect but (with assistance from R3 members and their feedback) being continuously improved.
2. Directors loan accounts and HMRC – two sides of a coin
Verisona Law, New Square Chambers and Lesley Hilton (Evasion Team Leader at HM Revenue & Customs) steered delegates in a very practical way through the difficult waters of directors loan accounts and dividends, and the interplay of defences offered by directors and their personal taxation liabilities. Put simply, if monies or benefits received by a director are neither proper dividends nor a loan repayable to the company, they must by default be part of their taxable and/or challengeable remuneration package. By understanding how the tax system works and collating and analysing the evidence of what the director has suffered the company to do, and writing off unrecovered loans where appropriate, IPs can help to ensure that proper claims are pursued and all appropriate tax recovered, to the benefit of the wider economy.
3. The IP’s role in combatting the staggering impact of fraud on UK Plc
The numbers explained by Guildhall Chambers and R3 President Adrian Hyde helped to bring home to delegates the eye-watering impact which systemic fraud continues to have on creditors, and the vital role of the insolvency profession in combatting it. Their tips will have helped delegates to understand and identify some less obvious frauds, and reminded them of the tools currently available to help IPs in this ongoing battle. Delegates were also reminded of the potential availability of HMRC funding for investigations leading to improved tax recoveries in appropriate cases.
4. Litigation funding and insurance backed recoveries – no longer specialist tools
Our speakers from Credebt and Manolete helped bring home to delegates that for IPs who perhaps cannot command any funds or liquid assets in any given insolvency, help is more accessible than some might think, and that these markets are evolving all the time. The potential for securing insurance-backed support to de-risk debtor book recoveries and for attracting expert third party review, funding and/or purchase of (even low value) claims-based recoveries in appropriate cases have been real game changers for IPs in recent years. Inevitably, it is important that the insolvency profession is alive to these options, particularly where more traditional solutions might not succeed, and that we can at least demonstrate that we have considered them, so as to satisfy our professional duties. This should fuel improved results for stakeholders across the board.
5. The Insolvency Rules 2016 – imperfect but being improved
Our Rules panel session combined respected experts from R3, the Insolvency Service, the Compliance Alliance and the Insolvency Practitioners Association. Delegates were given an opportunity to put questions in advance, and an insight into the process by which the relevant legislation needs to be amended, and why therefore it appears to take an age, and there was broad agreement and acknowledgment as to the faults endemic to the Rules and recognition that – whilst the impact has not so far been “as bad as it might have been” and that IPs have been creative in their solutions – the Rules have yet to bring any of the desired benefits in terms of creditor engagement. During this difficult, and extended, period of adjustment the advice of the panel was to document the considerations behind every major decision even more assiduously than before, particularly where the new Rules do not necessarily appear to even contemplate a certain step being necessary. Encouragingly, however, there was also an indication that regulation of IPs is starting to move away from ‘wrist slapping’ and towards greater supportiveness.
6. Soft skills for IPs – not to be forgotten
Delegates were treated to a whirlwind presentation from Neil Taylor Insolvency which will have challenged established thinking about the way in which the profession’s managers look to encourage best results out of their staff. Increasingly, to deliver the desired service at desired budgets, IPs rely on well-trained and well-motivated staff, and these people are very often the public face of the profession, the people creditors, employees and so on engage with the most. The presentation will have delivered an improved understanding about how to create an environment in which their people can, if they wish, excel. Ultimately, this can only prove beneficial for all users of insolvency profession services.
7. More challenges gathering on the horizon
Our future issues panel, comprising speakers from the judiciary, from Deloitte, Kreston Reeves and 3 Paper Buildings looked at a range of forthcoming challenges to which we will need to be alive over the coming months including:
- impact of continuously rising professional fees on UK competitiveness;
- recognition of the limits of IT within profession and that human factor still vital;
- the need for us to identify and promote faster rescue and insolvency procedures;
- the need to align ourselves with sectors most likely to be in need of our services;
- the need to improve understanding between IPs, stakeholders and the press;
- the need to resolve inconsistent guidance from RPBs re SIP 9 and fees estimates;
- the need to be alive to ‘the next PPI’ duties to pursue, keen eye on Interchange Fees;
- continued issues with collective redundancy exposure & IP engagement in tribunals.
Why we should all support such conferences – communication
The common thread through the final session, and really throughout the entire conference, was that effective communication is itself one of the biggest challenges the profession faces. This may not be a new challenge, but it is becoming an increasingly fraught one.
As we head increasingly into an IT-driven domain in our interaction will all key stakeholders including creditors, the courts, the Insolvency Service, HMRC, our regulators, and (as we migrate our work increasingly to ‘centres of excellence’) each other, we must not lose sight of the very real risk that market and public perception of the value of the insolvency profession may be harmed. We are already widely regarded – even by those who regularly use our services – as a distress purchase, and for those who only interact with us rarely, or only from one angle (e.g. creditors) it is very easy to see how a bad impression can build up.
Worsening communication is partly the inevitable consequence of written and/or standardised communications losing the human factor. If the only side of the profession you see is a vast report you haven’t time to read, setting out decisions which have already been made, and which will be confirmed on a certain date if you do nothing like a car insurance renewal; if you receive a fees estimate which is so loaded with contingencies aimed at avoiding future recourse as to appear completely out of proportion to the assets being realised; if your only experience of an office holder is the Official Receiver who ignores your correspondence for months and doesn’t return any of your phone calls; if all you see in the press is complaint and criticism that employees were not consulted before a mass overnight redundancy, how can you help but form a bad impression?
As a non-IP who has acted over the past 18 years as often for creditors, directors, bankrupts and their families as I have for IPs themselves, I perhaps come at the insolvency profession from an ‘outsider looking in’ angle, and I see this negative perception of our industry almost daily. The first part of a typical meeting with most of these interested parties will be taken up disabusing them of misconceptions and/or explaining to them the value the IP and/or the solicitor acting for them is bringing to the given situation. I also experience many non-insolvency solicitors displaying a clear prejudice against IPs, perhaps because the only time they see them IPs in action is because a fee has been earned out of a distressed scenario, and I even see insolvency solicitors convinced – based on the evidence of the IP’s formulaic and/or defensive correspondence with the client – that this or that IP is being disingenuous, or even dishonest.
The answer to much (but by no means all) of this – or so it seems to me and to the Southern Committee who put so much effort into making this conference a success – is for the stakeholders to seek out every opportunity they possibly can to get together, face to face. It was therefore extremely gratifying to see people on all sides of the industry, from Southern, South West & Wales and London & South East and from all the relevant agencies, networking so effectively at the conference, and delegates so engaged in trying to understand the limitations within which the courts, HMRC, the Insolvency Service and others must operate. Of course conferencing is only one way to achieve this level of contact, but it is a particularly effective one.
Why we should prioritise R3 courses, conferences and events
Even the best conferences, dinners, golf days and meetings can only achieve so much, and the stakeholder groups with whom we always struggle to communicate are actual and prospective creditors, in short the general and commercial public who are most unlikely to attend our events, no matter how well we publicise them. We can of course – and do in each region – reach out to other organisations, MPs, focus groups and so on representing particular sections of that public, such as regional property associations to access landlords and agents, local chamber and IOD to reach company directors. However, when it comes to the wider public perception, and to the higher level relationships with the key stakeholders where a regional meeting simply will not be able to solve problems or clear blockages, there is really nothing else for it – we need a trade body who can give us a real voice, in the regional and national press, in the corridors of Westminster and Whitehall and everywhere else we need that voice to be heard. Our trade body – and “the Voice of Business Recovery”, as it says on the banners I carry around in the boot of my car – is R3.
The most common question I have been asked about my role as Chair of the Southern Region Committee since I took over in December of last year is why? Why would I want to give my time and my firm’s budget to an unpaid position? What’s in it for me? Wouldn’t I be better off spending more of your time on client matters and paying for my team to go on training sessions run by other agencies?
Of course I would be lying if I suggested that my involvement in my local R3 committee these past 10 years or so, including 4 years as Vice-Chairman, wasn’t partially self-serving, and I do definitely still think that working within R3 is a great networking platform in and of itself, but the main reason I personally sought out the position of Chair of R3 in the Southern Region is a simple one: underneath this mild-mannered exterior, I am in fact a seething mass of frustration.
As a profession, we are privileged to be able to touch the lives of many people and to effect positive change for those who come to us. However, we are also beset on all sides by constant legal, political and practical obstacles which inhibit our ability to deliver or achieve the sort of outcomes we would like to see. These obstacles take many forms, but they share one feature, in that the stakeholders and agencies who can actually make all the difference in terms of helping us to overcome those obstacles – the courts, regulators, the Insolvency Service, HM Revenue & Customs and other government agencies – are all in active and continuous dialogue with R3.
In the past year especially I have been privileged to gain a real insight into how R3 works in practice, and the value it is capable of delivering to members and the profession in general. Before this, my perception was probably the same as many members – it puts on some good events, like the international conferences and the annual Ladies Lunch, sends out a lot of polls and technical guidance and the rest of it happens in the regions, where volunteer committees work tirelessly to promote the industry at a regional level, whilst raising funds for central funds, which would be used to keep the lobbying and press machine working at a national level.
Since becoming Chair, I am pleased to say I have seen issues brought to me being passed up the line, receiving appropriate attention and resulting in valuable discussions and guidance, in tangible results, and where obstacles have remained, those obstacles have been added to the list of issues R3 is working at all levels to overcome on our behalf. To take one example, my recent blog about how the CE-file system in the Rolls Building is not working effectively for the insolvency profession was taken up, and we will shortly be attending a meeting fixed up by R3 with the CE-file system’s senior operations manager, Wilf Lusty. It feels like I am therefore making a difference, and I believe that if we are all alive to the issues which hold us back from doing what we are supposed to be doing, for so long as we have R3 to take up our cause we will make that difference. R3 is a true agent for change in a way which, frankly, each of us sitting in our ivory towers and shaking our fists can never otherwise hope to be.
Organising the R3 Southern Area Conference has been an important part of this journey. It was at my first RCC meeting (as Vice-Chair) about 18 months ago that I learned that the three Northern Regions had organised a rolling annual conference which would migrate across the North. Naturally, a bit of pride kicked in (although I am actually a Brummie by birth), and it occurred to me that “anything they could do…” but my primary driver in pushing for the Southern conference was the recognition that the industry in the South is capable of forming a cohesive unit and that we should have the same opportunity to develop and share best practice amongst practitioners in a format which was more accessible and cost-effective than the international conference or London-centric events.
We started pulling the 2017 conference programme together in earnest in September 2016, and as we worked together on this with R3’s excellent and efficient staff based in London, I really came to appreciate that it is the Council and Committee members, the volunteers, who more often than not make things happen on the ground, who drum up the support which keeps the funding coming to do more of the good works we heard about from Emma Lovell at the conference, and it is all of us as members paying our membership subscriptions, choosing to attend R3 courses and conferences and generally supporting the work of R3 in various ways, who are the engine room for such change which R3 is able to effect.
In summary, I would encourage all members, prospective members and other stakeholders in the insolvency industry to support and promote R3 events for a whole host of reasons, but primarily because I have seen that if the industry works together it is capable of making a difference. I am delighted to say that the feedback from the 2017 conference has been overwhelmingly positive and that R3 South West & Wales will be looking to hold the next conference, on a similar basis, in due course.