I am not a massive fan of the corporate Christmas card. It’s a personal choice but for me, whether traditional or electronic, they never quite seem able to strike the right note of sincerity; they are either too bland or too gimmicky. The fact that many of the electronic ones fail to display properly first time on a Citrix platform so you have to click through to a website, whilst others come through either unaddressed or addressed ‘Dear [Surname]’ only makes them even more underwhelming, in my opinion.
As a firm, Paris Smith prefers to make a donation to charity (this year the wonderful Rainbow Centre, which supports children and adults with debilitating conditions and injuries), but even that still leaves us with the conundrum of how to convey individual good wishes in a meaningful way. Whilst I do my best to email the majority of my contacts and clients, to get around to everyone I would be here until well into the New Year.
With this in mind, and as most of my contacts will know that my love of insolvency law is bested only by my love of music, I thought I would reach out this year with the ‘gift’ of a festive insolvency blog, with a musical feel.
I have thus far resisted my colleagues’ urging to bring my amateur dramatic talents (such as they are) into my professional life by recording a musical podcast or videocast (maybe next year) but the lyrics of the above-titled Christmas carol (which I would invite you for the moment to imagine being sung in angelic tones by the King’s College Choir) provide me with ample inspiration for a blog, when read against all that has been happening within the insolvency profession in recent months.
Why this particular carol? Well, because it has the unique distinction of being both (1) a musical setting of a female Victorian poetry competition winner (so we know all the words were carefully chosen, not just in there because they sound good when set to music), and also (2) (in the Harold Darke 1909 anthem setting) selected as the best Christmas carol in a recent poll of some of the world’s leading choirmasters.
The storyteller in the carol of course gives, in the absence of anything potentially more valuable or appropriate, his heart, but only after having said that if he were a Wise Man, he would have done “his part”. I would not profess to having much more true wisdom than the next man, but some kind souls were nice enough to elevate me to leading practitioner status in the legal journals this year, and with my commentator hat on and as Vice-Chairman of R3 in the Southern Region, I like to think I have something to say. I shall therefore share with you what may perhaps best be described as perceived wisdom.
There has been plenty for the insolvency profession (or at least a good proportion thereof) to moan about over the past 12 months; so much, of course, that no blog could attempt to summarise it. Suffice it to say that, from my perspective at least, the Government seems intent upon sending us a constant chill wind, albeit gusting from a number of different directions.
Telling us that in April 2015 they will be removing the insolvency litigation exemption such that IPs would no longer have the ability to recover CFA uplifts and ATE insurance premiums from opponents – a key lever in ensuring that creditors appoint liquidators and sanction claims with a view to dividends – is a prime example; it comes despite at least one relevant Minister expressly recognising R3’s figures for how much revenue the Crown stands to lose from this wholly unnecessary change.
Other, equally sound, reasons for us to moan include the Government pushing through legislation to encourage creditor engagement by doing away with creditors’ meetings, new regulations which mean that IPs are no longer able to give pure bankruptcy advice without separate FCA accreditation, further fee reform proposals and initiatives to extend the role of the already overstretched Insolvency Service into that of a regulators’ regulator. They never seem to tire of tinkering, either, with a record number of consultations being published, including how to ‘supervise’ pre-packs through a pool of individuals, and trying to open up the (already arguably over-supplied) profession to new partially licensed IPs who may be qualified to advise on either corporate or personal insolvency but who would not need to have any understanding of the other – inherently interconnected – discipline.
The rhetoric seems confused, the action inconsistent to say the least. One could even be forgiven for concluding that IP bashing, which of course does nothing to promote the public confidence the politicians claim to be championing, is regarded as some sort of acceptable vote-winning strategy. R3 and others continue to shout loudly and with confidence against this barrage with a view to protecting us from the worst effect of the frost, but they are shouting into the wind, and need us to take up the cry and bang the drum that our small industry makes an important contribution to the UK economy which should be both valued and respected. Needless to say, we are more likely to be heard when we sing in chorus and full company, as opposed to tenor solo.
In the face of such an onslaught, it is perhaps not surprising that the profession has continued to suffer a lack of liquidity, with firms having to huddle together for warmth by consolidation and/or shed excess body weight by engaging in large-scale redundancy exercises. It is quite saddening to see this happening in larger, national practices, where the effect of the freeze seems to have been to cause those teams for whom regional offices have served as work-winning outposts and/or lower-cost centres in the past to withdraw into the relative shelter of the larger commercial centres. I fear this sort of policy fails to recognise the inherently local nature of the market for insolvency services, which is so often built upon trust and local relationships fostered by regular contact, particularly at the SME / director led end. My own feeling is that such policies may ultimately be regretted, particularly where the larger financial institutions who once fed the larger firms have themselves been paralysed with a sort of institutional inertia. On the bright side, though, these changes may offer opportunities for lighter footed, smaller practices to flourish, away from the shadow of their larger competitors.
It is well known that a midwinter snow has preservative, even restorative effect. Successive blankets of snow form a shield for green shoots beneath, away from the storm raging overhead. Two particular developments have continued to precipitate this season which I hope will have a profound impact on the landscape once Spring finally arrives (perhaps after the General Election). One of these is a major piece of legislation working its way through as we speak, the other a jurisprudential trend upon which we need to keep a close eye.
At the legislative end, the big news is the Small Business, Enterprise and Employment Bill, which is now proceeding through the House of Lords, and must receive Royal Assent by 31 March 2015. Along with the well-publicised pure insolvency provisions, the less widely discussed changes which this seems set to bring about are to the disqualification and post-liquidation regime:
Whilst it is perhaps a little premature to count any Spring chickens when we do not know what amendments might yet be made to the Bill, in principle at least it has the potential to revolutionise a regime which has been broadly stable since 1986. If directors think they could be facing personal liability at the hands of the Secretary of State for such matters as breach of health & safety or environmental legislation, or of their obligations to employees, for example, these new risks (akin perhaps to current criminal and civil s.216 or acting whilst disqualified exposures) are likely to bring about a new caution, or at least a reason for professionals to find a way to sell their services by offering to help them manage those risks. By the same token, if currently unassignable causes of action become potentially saleable assets, that might restore the viability of what would currently be a problematic appointment.
In the courts, meanwhile, we have seen a trend in the High Court this year towards their taking a more robust stance on such issues as HMRC winding up petitions in the face of First Tier Tribunal appeals, mirroring a perceived hardening of HMRC’s own stance, which may lead to opportunities for appointments. However, we have also seen a bolstering of IPs’ powers under s.236 Insolvency Act 1986 to secure evidence with a view to supporting potential claims against third parties. As a keen student of this area, having previously spoken at the Guildhall Watershed conference on it and been published in R3 Recovery, I find a particular recent High Court development potentially very significant, especially bearing in mind that most s.236 and 366 applications are dealt with at first instance.
In Re Comet Group Ltd (in liquidation)  EWHC 3477 (Ch) aka Khan v Whirlpool (UK) Ltd, 27/10/2014 it was not considered a flaw that the liquidator’s requests for documents did not specify the precise documents relating to sales data they were looking for because the defendants knew which documents they held and the liquidator did not. It was enough that the liquidators described the classes of document by reference to what they contained. The respondents argued that the production of documents would have been oppressive, given that they would have been disclosed in litigation in the ordinary way, but that did not hold water because on the facts one of them had already admitted to cartel activities and it might have been said that advance disclosure would ultimately reduce costs. If it is not necessarily oppressive to compel the production of documents on pain of contempt of court where a quasi-fraud allegation is involved, I do not see how it can be oppressive where the information is with a view to assessing a less sensitive claim in, for example, contract or fraud.
The case serves as a reminder of the balancing exercise expounded in the leading House of Lords case of British & Commonwealth Holdings (1993) and to liquidators that their (generally underused) s.236 powers can cost effectively (with this authority), and should therefore, be legitimately used to evaluate the strength of any given cause of action available to a company in liquidation and/or its liquidators, whether with a view to its pursuit or sale/assignment.
And finally, before I wish you all a fond farewell for your Christmas / New Year break, I should draw your attention to the above phrase, the penultimate line of the carol. This line is often incorrectly edited by amateur choristers who claim it does not make sense to have a second ‘I’ in what they assume to be a question. Rather it is a statement; I give him what I can, which happens to be, in this case, ‘my heart’. At some level this may serve as a reminder of the need to draft a statement very clearly to avoid future misinterpretation, but what it says to me is that we should never be defeatist.
Taken together, the above highlighted developments reflect perhaps just the latest manifestation of public opinion which has never truly valued the insolvency profession, and which is always placed in starkest relief at times when cash is tight for others. Eventually someone – a Minister, a Judge, a trade body for another profession – speaks out about the benefits we bring, criticism falls off the agenda and the pendulum swings the other way. In the meantime, there are signs that our slowly improving economy is ready to sweep out the zombie companies. If we all give of our best in helping our contacts achieve this, and continue to promote best practice rather than just minimum standards, reporting examples of bad practice and passing details of our successes to R3 and others who can publicize them for us, there is every reason for us to be optimistic as we head into 2015.