Statement of Insolvency Practice (SIP) changes from 1 April 2021

SIP 9, Payments to insolvency office holders and their associates from an estate – England & Wales

This new revised SIP has ruffled a few feathers in the industry. In particular, there has been a discussion as to whether a relationship with a solicitor could ever lead to the payment to the solicitor being viewed as a payment to an associate, and thus needing to be treated as a Category 2 expense. Commentary has been made that repeated use of the same solicitor, without reference to the open market, and where there was a close business relationship (which could be seen by an outsider as a personal relationship) with the said solicitor, could result in the solicitor falling under the definition of an “associate” under the SIP. Seeking to invite a tender for every instruction would negate any such challenges, but surely that is an extreme precaution?

We appreciate the concern that in using the same solicitor over and over again, without referring to the open market at any time, the solicitor could be charging rates which are excessive compared to the open market, and therefore the insolvent estate would be disadvantaged.

We understand that was never the intention of JIC that this would be the result of the SIP changes, and IPs should not be overly cautious. The IP does of course need to be able to demonstrate that they are paying a reasonable rate for services provided, and that argument needs to be made on a case by case basis.

Office-holders are specialised commercial service providers in their own right, and understand the market, the nature of the instruction and their duties to the estate. Creditors already have safeguards in the Rules, and there is no need (yet !) to fall prey to over-interpretation of this revision.

If you have any queries about this topic, please contact any member of the Restructuring & Insolvency team.

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