The Service’s insolvency practitioner Compliance Unit (IPCU) has reviewed the processes for identifying practitioners who have failed to:

• pay monies into the Insolvency Services Account;

• lodge a disqualification report or return within six months of the relevant date, or

• lodge a final disqualification return or report within a reasonable period of time after lodgement of an interim return.

The processes for notifying the respective authorising bodies of these defaults has also been reviewed.

Office holders have a duty to submit a disqualification return or report within six months of the "relevant date" as required by section 7(3) of the Company Directors Disqualification Act 1986 and rule 4(2) and 4(4) of the Insolvent Companies (Report on Conduct of Directors) Rules 1996. IPCU will send any practitioner not lodging a return or report within six months of the relevant date a reminder letter, and a further reminder 14 days later. If no return or report has been lodged within a further 14 days after that then a third reminder letter will be issued. The authorising bodies will be notified of any of their practitioners who have received a third reminder. The failure to lodge a return or report may also lead to the Department referring the matter to solicitors to consider whether it would be appropriate to bring proceedings under rule 4(7), i.e:

"If an office-holder without reasonable excuse fails to comply with the duty imposed by paragraph (5) of this rule, he is guilty of an offence and:

1. on summary conviction of the offence, is liable to a fine…….. and
2. after continued contravention, is liable to a daily default fine ….."

If a practitioner lodges an interim return, IPCU now notifies the practitioner of the date by which he is expected to lodge a final return or report. Although the practitioner has met the requirement to lodge a return within the strict definition of rule 4, an interim return by its nature imposes a requirement on the practitioner to lodge a final return to complete his reporting duties. Practitioners are encouraged to contact Disqualification Unit at an early stage if they require any guidance or assistance with a particular case. This assists both the practitioner and Disqualification Unit by ensuring that investigation by a practitioner is targeted correctly, and allows for Disqualification Unit to have input at an early stage. It is important that Disqualification Unit receives returns and reports from practitioners at the earliest opportunity in order that it can have a reasonable period to carry out any further work required, and to ensure that proceedings are issued in appropriate cases within the two year deadline, i.e within two years of the relevant date.

Consequently, when an interim return or report is sent, practitioners will be encouraged to lodge final returns or reports within nine months afterwards. In most cases this will be sufficient time to complete the necessary investigation, but extensions can be agreed provided the practitioner has contacted Disqualification Unit in advance. Practitioners who fail to lodge a final return or report within the time set by IPCU will receive a reminder letter. If within 14 days no return or report has been lodged, or an extension agreed, a second reminder will be issued of which the practitioner’s authorising body will be informed.

A significant proportion of the Secretary of State’s costs in conducting disqualification cases under the Company Directors Disqualification Act 1986 is made up of costs charged by IPs. These are the costs of preparation of the evidence (settling Affidavits and exhibits) and sometimes attendance at trial (for cross-examination).

The Courts, when assessing the Secretary of State’s bill of costs after an Order has been made, often look closely at the IP’s costs. Because the hourly rates charged are relatively high, the Courts are concerned about the total bill charged by the IP, knowing it will have to be paid by the disqualified director. The Courts frequently disallow some of the IP’s charges because they believe the amounts charged to be too much. The amounts disallowed have to be borne by Disqualification Unit ("the Unit").

To try to reduce or eliminate the number of occasions on which this happens and to ensure that the Courts are satisfied with the levels of charging in disqualification cases, the Unit proposes to introduce a standard form, to be completed by all IPs involved in disqualification litigation. This will include the type of information the Courts are likely to find helpful in assessing the costs so that they can be satisfied the amounts charged (taking into account the actual hourly rate) are reasonable in the circumstances of the case.

The Unit would like the form to be completed as the case progresses and after each piece of work is completed. If a case is disposed of before trial the form can be called for at any time to evidence the work completed by the IP to that date.

The principles upon which the form has been devised are as follows:-

1. Reasonable Work

The work done must be reasonable in the context of the case. Relevant factors include the nature and complexity of the case, the amount of documentation, the number of Defendants, and so forth. The work should be performed at the appropriate (and no higher) level of seniority in the firm, taking such factors into account.

2. Reasonable Rates

The rates accordingly agreed with the Unit need to reflect the seniority of the people in the firm doing the work. The rates themselves need to be reasonable. In assessing what constitutes reasonable rates, the Unit recognise that disqualification work is litigation. However, the Unit, in setting rates, will take into account the following factors:-

1. the IP is already very familiar with the papers in the case;
2. the IP is supported by a professional client and their lawyers;
3. a great deal of work is done by Unit staff and solicitor agents, who are very experienced in this field;
4. only exceptionally does the IP attend Court for cross-examination. Whilst there may be, on occasion, the possibility of a Court appearance, the vast majority of disqualification cases settle or are disposed of at Court without the need for the IP to attend.

The firm’s standard charge out rates will inform the setting of appropriate rates, taking into account the above factors. Premium rates (if charged by the firm to other clients) will not be relevant to the Unit’s consideration for the reasons set out above.

3. Amount of Time

The amount of time likely to be spent by an IP on a particular piece of work needs to be accurately estimated. It will generally be inappropriate to set estimates by reference to ‘bands’ of hours (e.g. 4-8) or to the length of an affidavit. If more time is needed than provided for in the estimate the reasons need to be clearly identified. They may need to be produced to the Court (with any other relevant information as appropriate). The total time spent on a case needs to be reasonable and the actual work done needs to have been properly and necessarily performed.

4. Duplication of Work

The different roles performed by the Unit, its solicitors and the IPs need to be borne in mind. The Unit will be able to do much of the necessary preparation for an Affidavit and its lawyers will advise on whether the case, as drafted, is legally sound. The IP will wish to satisfy himself that the draft Affidavit accurately reflects his understanding of the position and exhibits the relevant material, but the material, both drafted and exhibited, is likely to be very familiar to the case-officer and should not therefore need to be approached as if it were new information. It is very important to avoid the misleading impression of any duplication of work, particularly since the bills fall, eventually, in successful cases, upon individuals. They are entitled to be satisfied, as is the Court, that what is charged to them in a Costs Order is fair at the end of the day.

The form for completion (see next page) in the future is intended to ensure that accurate records are kept of all work done by IPs. This will be presented to the Court in the future assessment or taxation of costs to explain and justify the total charges made by an IP for his work or any part of it.

Enquiries arising from the above should be directed to enforcement.technical@insolvency.gsi.gov.uk

NEW FORM

IPCU Monitoring Inspectors are carrying out a programme of CDDA guidance visits to insolvency practitioners, both those authorised by the Secretary of State and the other Recognised Professional Bodies, to discuss ways in which disqualification reporting may be better targeted and to provide guidance on the content and format of reports. These visits are currently initiated by IPCU.

These visits are conducted on an informal basis in order to provide an opportunity for an exchange of information on the disqualification process. The objectives are to improve the quality of reporting, assist insolvency practitioners with their reporting duties and improve The Service’s disqualification effort. A brief report of the visit will be provided both to the IP and to Disqualification Unit, although the report will NOT be passed to the relevant Recognised Professional Body.

During the visit our staff examine a number of recent cases, usually four to six, and a mix of D1 report/D2 final return cases. A review of the investigation work carried out by the IP takes place in order to ascertain whether allegations of misconduct are appropriate and well evidenced. In addition, in one or two cases the company books and papers examined. In cases where a decision not to submit a report was made, the reasoning behind that decision will be considered. Once the cases have been examined constructive feedback is provided on those cases. They will also deal with any particular matters which IPs may wish to raise. Each visit lasts around three hours and whilst IPCU will continue to initiate some visits, we also want to hear from any IPs who are interested in receiving a guidance visit.

To arrange a visit please contact: IPU.Email@insolvency.gsi.gov.uk

4.    INSOLVENCY ACT 2000 (IA 2000) AND THE COMPANY DIRECTORS DISQUALIFICATION ACT 1986 (CDDA)

The various amendments to the CDDA brought about by the IA 2000 come into effect on 2 April 2001. Those principally affecting office holders are set out below:

The form of the report to be made under Section 7 (3) of the CDDA has been amended (by The Insolvency Companies (Report on Conduct of Directors)(Amendment) Rules SI 764 of 2001) to include the details of the insolvent company’s registered office in the 6 months prior to the office holder’s appointment as administrative receiver, the making of the administration order or the passing of the resolution to voluntarily wind up. This is because of the changes to Section 6 in particular the court in which the disqualification proceedings are issued. In effect the disqualification proceedings will now generally be issued where the company traded rather than where the office holder is located. Also in calculating the date for the registered office in S.6 (3A)(a) it is important to know the date that the company passed the resolution for winding up.

It is now possible for a defendant to offer to the Secretary of State a disqualification undertaking rather than the case having to go to court. This will enable proceedings to be conducted more quickly and cheaply. However, if it is going to be quicker there is a need for office holders to adhere to the reporting guidelines and comply with section 7 (3) which requires unfitted conduct to be reported forthwith to the Secretary of State.

Another advantage for a potential defendant will be that if a disqualification undertaking is offered prior to the issue of proceedings the Secretary of State will not usually seek to recover his costs. It will still be possible for the Secretary of State to accept an undertaking after proceedings have been issued, but in that situation the Secretary of State would normally seek his costs.

A disqualification undertaking will normally include a schedule setting out the basis on which it has been accepted by the Secretary of State and will be a public document in the same way as a court order.

It will normally come into effect 21 days after acceptance by the Secretary of State. .

Section 1(A)(b) of the CDDA as amended absolutely prohibits a person who is subject to a disqualification undertaking from acting as an insolvency practitioner as is the case where a person is subject to a disqualification order (see section 1 CDDA as amended). The court does not have any power to give leave. In addition S.17 CDDA has been amended. The amended section also provides that only the Secretary of State is required to appear on any application for permission. It will also be open to a person who has been disqualified by giving a disqualification undertaking to apply under S.8 (A) of the CDDA for the court to reduce the period or discharge the undertaking.

Limited Liability Partnerships (LLP)

When the legislation introducing LLPs comes into effect a disqualified person will also be unable to be a member of an LLP.

General enquiries may be directed to enforcement.technical@insolvency.gsi.gov.uk

5.   Update on procedures where an IP needs an extension of time for submission of a final disqualification return/report and clarification of roles of IPCU and Disqualification Unit 

Article 1 of this Chapter covers the procedures followed by IPCU to ensure compliance with requirements to report on the conduct of directors under the Company Directors Disqualification Act 1986.  Office holders are reminded that where they submit an interim return they are encouraged to submit a final disqualification return/report within 9 months of the relevant date.  If a longer period is required a request must be made to Tony Dakin of Vetting Section in Disqualification Unit, either by email, or by fax (contact details below).  Requests for extensions of time sent to Tony Dakin should explain the reasons for the delay and include a note of the expected date by which a final return/report will be submitted. 

IPCU, based in Birmingham, receives all disqualification returns/reports from IPs and enters information from them on to The Service’s database of cases, the Central Index.  In maintaining the Central Index, IPCU also monitors statutory compliance, such that it is IPCU that issue reminder letters should an initial submission not be received within 6 months or, following an interim return, a final return/report is not received within 9 months, or such longer time scale agreed with Tony Dakin. 

Information from disqualification returns/report is usually entered on to the Central Index by IPCU on the day of receipt, and all disqualification reports are then sent to Disqualification Unit, 21 Bloomsbury Street, London, again generally on the day of receipt.  Once an IP has been submitted a final report then all further contact should be with Disqualification Unit rather than IPCU. 

Upon receipt of a D1 report by the Vetting Section of Disqualification Unit, the case goes through a pre-vetting procedure, in order to look into the financial history of the directors, and to identify links with any previous or current insolvencies in which they may be involved.  The case is then vetted using a grading system, and a decision is made.  The decision is to either “take forward” for further investigation, which happens at present in about 36% of cases, or to “not take forward” for further investigation, if the vetter does not consider that it is appropriate use of Disqualification Unit’s resources.  This can happen for a number of reasons, the most common being: the unfit conduct is criminal in nature and the matter will be referred to, or is already being dealt with by, another government department; the evidence to support an application for disqualification is not available; the Official Receiver is already involved and dealing with the matter or a related matter; or the allegations are not serious enough on their own. 

If you disagree with the Unit’s decision, we are happy to review it, provided you contact us and make available any additional evidence you may have.  Vetting cases is not an exact science, and sometimes we can reach the wrong conclusion. 

6.    D Return Reminder Letters

During June 2003, IP Unit in Birmingham will be piloting new workflow software covering the submission of D reports and returns, the initial sifting and targeting of cases, through to the final investigation stage (but only within the Birmingham Investigation Team).  The Savvion software has been customised especially for The Insolvency Service.   

If no D return has been received 6 months after the Insolvency date, an initial letter advising IPs that the D return is late will be produced by the system.  If no return/report is received within 2 weeks of this notice a further letter will be sent and the failure by the IP will be reported to their licensing body.  A reminder to the IP is then produced every fortnight until a return is received. 

Extensions to the time allowed for submission of a full D report of up to 9 months will usually be granted.  An extension over 9 months may be granted but only after discussion with staff in IP Unit and only if the extension is justified and appropriate.

The software will allow various performance reports to be obtained.  This information in terms of quantity and quality will be used as part of the process of monitoring IPs.  The consideration of D reports now takes place in Birmingham.  The manager in charge of this is Tracey McLean, Tracey.McLean@insolvency.gsi.gov.uk.  The aim of the section is to decide, within 3 months of the receipt of a report in the majority of cases, whether or not to further investigate.  IPs will continue to receive a letter advising of the initial decision and giving some feedback.

7.    Company Director Disqualification Act 1986 – "D" Forms

Following on from the Enterprise Act 2002, there are some consequential amendments to be made to the D Forms. The references to "administration order" in these forms should be read as to include all appointments of an administrator.

IPs are also reminded that there were changes to the D form brought about by the Insolvency Act 2000, article 4 Dear IP March 2001 refers, and that from now on, any incorrect forms submitted will be returned.

Any enquiries may be addressed to the disqualification team in Birmingham – see Dear IP no.11 for contact details.

8. Update on the procedure on disclosure of the D report or decision 

All enquiries, made direct to insolvency practitioners about the D decision and requests for copy returns or reports must be referred, in the first instance, to Disqualification Unit, Case Targeting Section in Birmingham, Tracey McLean on 0121 698 4109 or e mail Tracey.McLean@insolvency.gsi.gov.uk, and the Unit will arrange for disclosure if appropriate.  This also includes all requests made under the Data Protection Act for report or return. 

This includes all requests from creditors, licensing bodies, regulators and investigating authorities such as the Police and the Inland Revenue.  This is because the report is produced in compliance with a statutory obligation under section 7 (3) and the purpose of the statutory regime under which that duty arose was to enable the Secretary of State to use the report in considering whether or not to procure the institution of disqualification proceedings.  That being so, it would appear that in the ordinary course the SoS could not make use of the report for other purposes.

The Secretary of State’s current policy on disclosure of D reports to defendants in Director Disqualification proceedings, both in England and Wales and Scotland following the decision in Barings is that  

1. Legal professional privilege is no longer claimed for D-Reports 

2. Public interest immunity will only to be claimed for D-Reports in very exceptional circumstances

3. In each case where access to the D-Report is sought disclosure will be made so long as:

i) express Undertakings were given to the effect that the D-Report will only be used for the purpose of the proceedings i.e. the disqualification proceedings, and

ii) the D-Report was provided on the basis that it is not conceded that it passed the threshold test for relevance in legal proceedings.

D reports may also be passed to other regulators where there is an appropriate gateway.  However the disclosure of all reports is cleared by solicitors to check for any Data Protection Act issues, particularly about sensitive personal information, but this is not a check to see whether the report may contain defamatory matters. 

The Secretary of State has successfully resisted, on appeal, an application for disclosure by the defendants to a liquidator’s action on the basis that the report was not relevant to the action and merely reflected the liquidator’s personal view (see In Re Harris Adacom Limited 19 September 2000 unreported) 

Whilst it may be possible also to claim some form of immunity from suit as practitioners are reporting as part of a statutory duty (see latterly the decisions of the ECHR in the cases of  Taylor v United Kingdom and Mond v United Kingdom both on 10 June 2003) practitioners should bear in mind that disclosure of D report is more likely than not, in cases where proceedings are contemplated and therefore a report should contain only facts, not speculation, and only contain relevant and pertinent information and should not be a means for passing secret or dubious information.   

General enquiries may be addressed to ctt.email@insolvency.gsi.gov.uk

9. Extensions for Submission of D Reports/Returns 

Enforcement Directorate, Case Targeting Team, welcomes Allan Mohan as the new Compliance Manager, replacing Ian Evans. IPs should contact Allan (email Allan.Mohan@insolvency.gsi.gov.uk) in the first instance where they become aware of difficulties in achieving the six-month deadline for submission of D returns.   

IPs are reminded that there is no statutory power for any extension and that they should submit returns as soon as possible, ie as soon as they are able to make a decision.  It is not necessary for all lines of enquiry to have been exhausted if sufficient information is already available, and in particular where there are strong indications that the return will be a D1, then the earlier it is submitted the better.   

IPs are also reminded that any extension over six months must be justified and merely stating that enquiries are continuing will not be sufficient.  The request should provide details of the outstanding enquiries, how these will be progressed and what benefits they will have to the final report.  In future extensions will only be granted in retrospect where there are exceptional circumstances. 

When deciding whether to request an extension, consideration should be given to the nature of the outstanding information, eg the receipt of a director’s questionnaire is unlikely to influence the decision whether disqualification proceedings are appropriate and the submission of the report/return should not be delayed for this reason. 

It should also be noted that it is the IP’s responsibility to decide whether disqualification proceedings could be commenced; it is the Secretary of State’s decision whether any such proceedings are in the public interest.  Therefore any D2 submitted with accompanying documents will not be considered as a potential D1, it will be assumed that the IP has reached a decision to submit a D2 based on this information and it will not be reviewed further by the Case Targeting Team.  The only exception to this is where notice has been received that there is a particular interest in an investigation of the case where a D2 has been submitted, this will then be reviewed and queries may be raised with the IP. 

Exceptionally, where there is very strong public/media interest in a case IPs should advise the Case Targeting Team as soon as such interest becomes evident. 

10. New Reminder Letters 

The Insolvency Service is increasingly aware from court judgments, from legal advice and in applying the principle of fairness required of the Secretary of State, of the need to reduce the time taken to bring disqualification proceedings against unfit directors.  From a wider perspective this also makes sense as earlier action against culpable directors will remove them from the market place and therefore reduce the risk to the public from future misconduct.  It should also allow a comfortable period before the limitation date to allow defendants more time to make representations to the Secretary of State with a view to establishing all the facts of a case and so avoiding inappropriate proceedings. 

One element of the time taken to bring proceedings is the time taken for the officeholder to report to the Secretary of State.  The Service is currently reviewing all its investigation processes to identify efficiencies and must seek the co-operation of IPs in reporting within the statutory six-month period. 

To assist IPs in their case management, from 1 April 2004 the Case Targeting Team will issue a reminder letter to IPs five months from the date of their appointment if they have not submitted a report or return by this time.  A further letter will be sent if no submission is received, or extension agreed, by one week before the expiry of the six-month period. 

If no report or return is received by the six-month deadline, and no extension has been agreed, a further reminder will be issued and the failure to comply with the statutory reporting duties will be reported to the IP’s authorising body at that time.  The authorising body will be asked to deal with that issue as a formal complaint.

IPs’ attention is drawn to the guidance regarding the circumstances in which an extension will be considered set out in Article 9 of this chapter. 

If an extension has been granted, but the report/return is not submitted by the agreed date, the IP’s authorising body will be notified of the breach without further reminders. 

IPs are reminded that they may contact the Case Targeting Team (0121 698 4109) to discuss a case if they are unsure whether particular conduct warrants submission of a D1 report, although the Team will not direct the IP’s enquiries/investigation and the responsibility for the decision to report either fitted or unfitted conduct remains with the IP.

General enquiries may be addressed to ctt.email@insolvency.gsi.gov.uk

11.     Disqualification Undertakings In Northern Ireland 

Legislation recently introduced in Northern Ireland allows disqualification undertakings to be accepted from directors, which will have the same effect as if they were disqualification orders made by the court.  Those whose undertakings are accepted in Northern Ireland are banned from being involved in the management of a company in Northern Ireland.  

Parliament anticipated that this legislation would be introduced in Northern Ireland, and section 7(2) of the Insolvency Act 2000 incorporates a power to allow the Secretary of State to make an Order to provide that a person subject to a Northern Ireland disqualification undertaking is also prohibited from running a company in Great Britain.  

This power has now been exercised and The Insolvency Act 2000 (Company Directors Disqualification Undertakings) Order 2004 (S.I 2004 No. 1941) came into force on 1 September 2004.  This will provide a greater degree of protection for the public by preventing those considered “unfit” in Northern Ireland from running companies here.  The effect of this new Order is to mimic provisions that already exist here (section 12A Company Directors Disqualification Act 1986) which prevent those subject to disqualification orders made by the courts in Northern Ireland from acting as directors in Great Britain. 

Simultaneously, The Companies (Disqualification Orders) (Amendment) Regulations 2004 (S.I 2004 No. 1940) have been made, which permit information about disqualification undertakings accepted in Northern Ireland to be kept on the disqualified directors register at Companies House.  This means that those searching the register will be able to obtain information about persons who are banned from running companies in both Great Britain and Northern Ireland.   

12. Changes to the procedure for filing D returns/reports in respect of Scottish registered companies 

With effect from 1 April 2005, the Enforcement Directorate, Case Targeting Team, Ladywood House, 45-46 Stephenson Street, Birmingham, B2 4UP will be responsible for receiving and dealing with all disqualification returns/reports from IPs, including those reporting on the conduct of directors of Scottish registered companies.  

IPs reporting on directors of Scottish registered companies should note that reminder letters are issued by the Case Targeting Team, Birmingham at earlier intervals (i.e. at 5 months after date of appointment, 1 week prior to 6 months after date of appointment and a final reminder at 6 months) than those currently issued by the Edinburgh office. After 1 April 2005, reminder letters will be issued to IPs reporting on Scottish registered companies, as per the time frame identified above. If no report or return is received by the six month deadline and no extension has been agreed with the Case Targeting Team, the final reminder will be issued and the failure to comply with the statutory reporting duties will be reported to the IP’s authorising body at that time. 

For guidance on full guidance on the issuing of reminder letters and on requesting extensions for submission of D reports/returns, please refer to Dear IP issue no.17 – March 2004.

General enquiries may be directed to dit.edinburgh@insolvency.gsi.gov.uk; Telephone 0131 316 5656  

13. Submission of Conduct Reports under the Company Director Disqualification Act 1986 

With effect from 3 April 2006, two changes come into force which will affect the submission of director conduct reports to the Case Targeting Team . 

1) The reference number for the submission of conduct reports by DX has changed to: DX 713901, Birmingham 37.  

The previous address (DX 713897) remains effective for all correspondence to the Insolvency Practitioners Unit in Birmingham.

2) The Case Targeting Team will take over the vetting of all conduct reports for cases located in Scotland. These reports were previously submitted to, and vetted by, the Disqualification Investigation Team in Edinburgh.  

Insolvency Practitioners appointed in Scottish cases are therefore reminded that from 03 April 2006 they should send conduct reports to the Case Targeting Team in Birmingham, using either the new DX number shown above, or the following postal address:

The Insolvency Service, Case Targeting Team, 5th Floor - West Wing, Ladywood House, 45-46 Stephenson Street, Birmingham B2 4UZ.

Any queries in respect of these changes should be directed to CTT.email@insolvency.gsi.gov.uk

14. Targeting D1 Conduct Reports for Investigation  

The Company Directors Disqualification Act 1986 places a duty on liquidators, administrators and administrative receivers to report suspected unfit conduct by company directors to the Secretary of State, those reports being prescribed by The Insolvent Companies (Reports on Conduct of Directors) Rules 1996 and The Insolvent Companies (Reports on Conduct of Directors)  (Scotland) Rules 1996. In all instances the Conduct Reports/Returns should be sent to the Case Targeting Team at Ladywood House, Birmingham. Current projections are that approximately 3900 D1 Conduct Reports will be submitted in the year to 31 March 2007.  

The principal role of the Case Targeting Team (CTT) is to consider all D1 Conduct Reports with a view to identifying those cases that are appropriate for investigation. Each review includes a detailed consideration of the conduct report, supporting documentation, any other available information and usually includes telephone contact with the practitioner and searches of Companies House and other databases.  

The decision whether or not to target a case for investigation takes account of the seriousness and timing of the alleged misconduct, the reasonableness and impact of the alleged misconduct on the solvency and failure of the company, the profile of those who have lost as a result of both the misconduct and the insolvency, the human rights and ability of the directors to defend themselves, and government policy towards both encouraging enterprise and detecting and deterring fraud and other misconduct. 

Once the case has been targeted for investigation (usually within 8 weeks of submission of the D1), the case, complete with the D1 and supporting documentation, is forwarded to the Initial Investigations Team (IIT – see article 15) (for English and Welsh cases) and to the Disqualification Investigations Team in Edinburgh (for Scottish cases). Given the creation of IIT and in order to avoid nugatory work for insolvency practitioners CTT will no longer notify them that cases have been targeted for investigation or request letters of authority. CTT will notify insolvency practitioners in those cases not targeted for investigation in the usual way. 

General enquiries may be directed to initial.investigation.team@insolvency.gsi.gov.uk

15. Creation of the Initial Investigation Team 

Background

The Department of Trade and Industry has suffered some unforeseen demands on its budgets in 2006/07 and as a result has been required to cut its expenditure on some of its activities. This in turn has impacted upon The Insolvency Service where the enforcement budget has been reduced by 7.5%. The consequence is that the Service will be unable to investigate as many disqualification cases as originally planned.  

This means that The Insolvency Service has had to reconsider its priorities for taking cases forward and, to that end, the Initial Investigations Team (“IIT”), has been created within The Investigations Directorate. Based at Boulton House, in Manchester it is managed by Anthea Barker, Senior Examiner, and will be responsible for ensuring that available resources are allocated most effectively. 

IIT will be responsible for the management of prospective IP disqualification cases in England and Wales, in the time between the selection of cases by CTT and the allocation of cases for investigation to the Disqualification Investigation Teams based in Birmingham, Manchester and London and Official Receiver’s offices.   

Scottish IP disqualification cases will be categorised and investigated by the Disqualification Investigation Team in Edinburgh. 

Classification of Cases

Once cases are received by IIT from CTT they will be classified according to the seriousness of the misconduct and the incidence of factors determining the “public interest”. Cases will be allocated to three categories, A, B or C. 

Category A cases (which will be given the highest priority) will be those with high public interest criteria – for example fully listed public companies, cases which have attracted widespread media attention etc. The public interest decision is affected by numerous factors, including the seriousness of the misconduct, the number of complainants, prevailing case law, media interest and The Service’s overall investigative powers. 

Category C cases will be those which, after some further limited investigation, experience suggests, taking account of mitigating factors, would be unlikely to result in any disqualification. 

The remainder of the cases (the majority) will be classified as Category B cases, being cases that require investigation, and those cases will be further sub-categorised as cases likely to attract periods of disqualification of 2-3 years, 4-6 years and 7+ years. 

The Investigations Directorate currently has sufficient resources, to investigate all Category A cases, all Category B(7+years) cases and a minority of the Category B(4-6 years) cases. The Secretary of State has therefore agreed the following guidance: 

• All category A and B7 + years cases will be further investigated. 

• All category C and B (2-3 years) cases and a majority of the B (4-6 years) cases will be concluded by IIT, with no further investigation carried out by the Investigation Teams. 

The cases that are investigated will be selected so that they are drawn from all areas of England and Wales to ensure that there are no “disqualification free zones”. In addition the cases selected for investigation will contain a broad range of possible unfit conduct. 

The initial classification of the cases by IIT will be based on the evidence and information in the D1. If necessary, IIT will request additional information from insolvency practitioners. Case categories and/or periods may subsequently alter if and when new evidence and/or information is received. 

Shortly after the classification of the case by IIT, insolvency practitioners will be notified, in respect of Category A and B7+ cases, that the case is likely to be allocated for investigation and a letter of authority and some limited further information, as previously obtained by CTT, will be requested. 

In respect of Category B2-3 and C cases, insolvency practitioners will be advised that no further investigation is likely and therefore no further information or documentation will be sought at that stage. 

As regards Category B4-6 cases, most will be not be allocated for further investigation and no further information will be requested from insolvency practitioners. Such further requests will only be made where it becomes apparent that further investigation is likely. 

As and when the Investigation Teams have capacity to investigate new cases, these will be allocated appropriately by IIT. 

The Future

This policy will be kept under continual review, but the early conclusion of some cases targeted by CTT, with little or no further investigation, will continue until such time as more resources become available. Those cases will however be reconsidered if the director(s) is/are involved in any future company insolvency. Expenditure on enforcement work will be restored to planned levels in 2007-08 thereby increasing our capacity for investigating cases next year. 

These decisions in no way reflect the quality of the conduct reports submitted by insolvency practitioners and insolvency practitioners are requested to continue to report unfitted conduct in the same manner as previously. 

Once IIT has become fully established, it is envisaged that it will make some focussed initial enquires in relation to the potential misconduct identified in the D1, whether by way of telephone calls or correspondence and possibly even by visiting insolvency practitioners. The purpose of such enquiries will be to facilitate the decision-making process and/or promote the progress of the investigation and/or conclude cases at an earlier stage, in appropriate cases, in order to further prioritise the use of resources.  

General enquiries may be addressed to ctt.email@insolvency.gsi.gov.uk

16. Changes in procedure affecting Scottish cases 

Since April 2006 the Insolvency Service’s Case Targeting Team, based in Birmingham, has reviewed all D1 full reports, including all those reports submitted by insolvency practitioners in Scotland. Centralising the targeting resource has lead to efficiency gains while also allowing the Disqualification Team in Edinburgh to focus on their core activity of investigating disqualification matters in Scotland.  To this end, the Insolvency Service has been looking, where possible, to further unify the targeting, investigation and post section 16 letter processes irrespective of whether the case originated in Scotland or in England and Wales.  

As a result, from 1 April 2008 cases originating in Scotland, England and Wales will be subject to the same vetting, investigation and review procedures. This will mean that once an investigation is complete, cases will be submitted to the Authorisation Team in London who will take the decision as to whether misconduct is made out and whether it is in the public interest to issue proceedings. Thereafter the Defendant Liaison Team in Birmingham will progress the matters to completion of the case (with reference to the investigation team). Defendant Liaison Team will negotiate undertakings and, where appropriate, instruct Solicitors to bring proceedings at court.  

A further change within the process will see the Chief Examiner in Edinburgh take the role of the principal witness in disqualification matters. This change properly reflects the different roles of the investigator and the insolvency practitioner, and as has happened in English and Welsh cases (where it has been in operation since 2002) it will result in a reduction in the need for insolvency practitioners to review and swear affidavits and reports, or to attend court as a witness. 

However, there will continue to be cases where the Insolvency Service would like the insolvency practitioner to act as witness of fact, particularly where the alleged misconduct occurred during the course of the insolvency administration and may have caused difficulties to the insolvency practitioner or losses to the estate. As now, where an insolvency practitioner is fulfilling such a role beyond his/her statutory duty the Insolvency Service will pay the cost of the practitioners’ time, although we would wish to discuss and agree the detail with the practitioner beforehand for cost control purposes. 

Any enquiries regarding the above should be directed toward Enforcement.Technical@insolvency.gsi.gov.uk

17. New approach to “D” conduct reports 

From 1 September 2008 the teams formerly known as Case Targeting and Initial Investigations will combine to bring a new approach to dealing with D Reports. 

The new team, "Conduct and Complaints" will deal with all D Reports from receipt to allocation to an investigator, and will continue to operate the complaints 'Hotline'.  Their working processes have been designed to handle the targeting of investigations in a more timely manner on a one-team basis; to reduce the contact with the insolvency practitioner to just one occasion prior to the usual visit from the investigator; to give a more in-depth consideration to potential investigation cases; and to give better quality and more detailed feedback to insolvency practitioners if cases are not to be taken forward. 

The team will be looking to insolvency practitioners to submit substantive D Reports at the earliest possible date within the usual six month period, reducing the use of interim returns to a minimum.  It would also be useful if a letter of authority could be sent with every D Reports as this would assist in the enquiries that will be made to facilitate future decision-making. 

This change flows from recommendations made in the recent review of The Insolvency Services’ investigation and enforcement activity and should reduce the time insolvency practitioners are called upon to answer queries in the early stages of a case, improve the cases received by investigators so enhancing the likelihood of an effective outcome and improve the understanding between The Insolvency Service and insolvency practitioners about decisions relating to whether to take a case to investigation.  With regard to that understanding the team will be happy to be contacted by insolvency practitioners who wish to discuss individual cases, find out what we are looking for in a D Report or if they wish to attend liaison meetings on appropriate subjects. 

 Any enquiries regarding this article should be directed towards  Karen McConnell, Head of Conduct and Complaints Team, Insolvency Service, 3^rd Floor, Cannon House, 18 Priory Queensway, Birmingham B4 6FD; telephone: 0121 698 4236 email : Karen.McConnell@insolvency.gsi.gov.uk  

General enquiries may be directed to cct.email@insolvency.gsi.gov.uk

18. The Secretary of State’s investigations of insolvency practitioner disqualification cases

A vital part of the disqualification investigation carried out in cases administered by insolvency practitioners is the visit made to the insolvency practitioner.  Such investigations are carried out by The Insolvency Service on behalf of the Secretary of State.  During these visits information crucial to the investigation is obtained from the insolvent company’s records and the insolvency practitioner’s own working files. The  information obtained is also persuasive in the decision of whether to proceed with the investigation.

Authority for the provision of this information is found in section 7(4) of The Company Directors Disqualification Act 1986, which provides. 

“The Secretary of State or the Official Receiver may require the liquidator, administrator or administrative receiver of a company, or the former liquidator, administrator or administrative receiver of a company –

a.      to furnish him with such information with respect to any person’s conduct as a director of the company, and

b.      to produce and permit inspection of such books, papers, and other records relevant to that person’s conduct as such a director,

as the Secretary of State or the Official Receiver may reasonably require for the purpose of determining whether to exercise, or of exercising, any function of his under this section.”

Latterly The Insolvency Service’s investigators have experienced resistance from some insolvency practitioners and their administrators regarding entitlement to view, in particular, the contents of the insolvency practitioner’s working files. The Insolvency Service has therefore sought legal advice regarding the authority given by Section 7(4). The advice  received is summarised below:

·        Section 7(4) is expressed in the widest terms and requires an office holder to provide all documents to the Secretary of State which are relevant to a person’s conduct as a director. 

·        Relevant information and documents include the provision of any confidential documents, although insolvency practitioners may wish to consider notifying anybody to whom the confidential information belongs. 

·        Section 35(1) of the Data Protection Act 1998 permits the disclosure of personal data in these circumstances.

·        Section 7(4) does not require an office holder to provide any documents created in the insolvency proceedings that are subject to legal professional privilege (LPP). 

The advice provided took into account available case law on the subject, and in particular;

• The case of in re Pantmaenog Timber Co Ltd [2003] where the House of Lords noted that the provision of all relevant information (by the insolvency practitioner) is required in order to enable the Secretary of State to perform his duty to take proceedings if it appears that a disqualification order should be made.
• The Pantmaenog case endorsed the view of Vinelott J in In re Polly Peck International plc [1994] BCC 15, 16, In that case the administrators had interviewed individuals and, in doing so, had provided assurances that the information disclosed in the interviews would not be disclosed by the office-holder.  The court stated that the Secretary of State did have the right to the information disclosed in those interviews as well as other documents provided in the administration.

In summary, the legal advice received stated that the Secretary of State is entitled to be provided with all documents from the company’s files and from the insolvency practitioner’s working files which are relevant to a person’s conduct as a director with the exception of those which fall into the classification of legal professional privilege.

It is not anticipated that insolvency practitioners will seek to withhold all documents which fall into the classification of LPP. When LPP is claimed it would be helpful to receive a list of those documents, particularly when they relate to contemplated litigation as they may impact on the decision to bring disqualification proceedings.

Any enquiries regarding the above should be directed towards Clive Tranter at clive.tranter@insolvency.gsi.gov.uk or 0779 1118726.

General enquiries may be directed to: Enforcement.Directorate@insolvency.gsi.gov.uk

19. Advertising of appointment and submission of a conduct return in CVL following administration 

Corporate Conduct Team has noticed a marked increase in the number of omissions in the submission of a conduct return following appointment as liquidator when this is preceded by an appointment as administrator. 

Insolvency practitioners are reminded that section 109 of the Insolvency Act 1986 states :- 

“The liquidator shall, within 14 days of his appointment, publish in the Gazette and deliver to the registrar of companies for registration a notice of his appointment in the form prescribed by statutory instrument made by the Secretary of State.” 

Failure to provide relevant notification may subject the liquidator to a fine and daily default fine.  In addition, the lack of notification means that The Insolvency Service’s central index system will not be updated and therefore the necessary entries on the estate account and enforcement management systems will not be made. 

Rule 4 of The Insolvent Companies (Reports on the Conduct of Directors) Rules 1996 sets out the reporting duties of insolvency office-holders and applies to each appointment held.  Insolvency practitioners are therefore required to submit a separate conduct return in relation to each insolvency appointment held. 

Insolvency practitioners are reminded that failure to comply with reporting obligations may render them subject to fine as per rule 4 (7) of these Rules and may result in referral to their regulatory body by the Corporate Conduct Team.  

Any enquiries regarding the above should be directed towards Elizabeth Pigney Corporate Conduct Team, Third Floor, Cannon House, 18 Priory Queensway, Birmingham, B4 6FD. Telephone: 0121 698 4397,  email: elizabeth.pigney@insolvency.gsi.gov.uk  

General enquiries may be directed to: Enforcement.Directorate@insolvency.gsi.gov.uk

20. Submitting a D2 conduct return with additional information 

The Insolvent Companies (Report on Conduct of Directors) Rules 1996 sets out an insolvency practitioner’s obligation to report to the Secretary of State on the conduct of directors.  These reports should be received within six months of the date of appointment or within fourteen days if vacating office prior to the six month deadline. 

The insolvency practitioner is required to submit a report, D1, when it has come to the attention of the office holder that the conduct of the director(s) renders him/her unfit to be concerned in the management of a limited company.  If, however, there is no such evidence of unfitness then a return, D2, should be submitted.  

The Corporate Conduct Team has noted an increase in the number of returns submitted with additional information.  If  insolvency practitioners believe that there is unfit conduct on the part of the director(s) then the appropriate submission is a Report D1.  It is NOT appropriate for the insolvency practitioner to submit a return with additional information thus leaving the Secretary of State to decide if there is unfitted conduct on the part of the director(s).   

In exceptional circumstances information may be brought to the attention of the Secretary of State by other parties which, once considered with the insolvency practitioner, may result in investigation following the submission of a return.  However it could be difficult for the Secretary of State to justify to the subsequent respondent why investigation and ultimately disqualification action has been taken by the Secretary of State when the insolvency practitioner involved in the insolvency considered there to be no evidence of unfitted conduct.   

Insolvency practitioners are therefore advised that the Corporate Conduct Team will not routinely review additional information received with a D2 return. 

Any enquiries regarding the above should be directed towards Elizabeth Pigney, Corporate Conduct Team, 3^rd Floor, Cannon House, 18 Priory Queensway, Birmingham, B4 6FD; telephone: 0121 698 4397 email: elizabeth.pigney@insolvency.gsi.gov.uk  

General enquiries may be directed to: Enforcement.Directorate@insolvency.gsi.gov.uk

21. Conduct return reminder letters issued by Corporate Conduct Team 

Insolvency practitioners will be aware that The Insolvency Service has launched a new IT system under a comprehensive change programme.  The launch of this new system has given rise to a number of “business as usual” issues, one of which is the production and posting of the conduct return reminder letters to insolvency practitioners during months five and six of their appointment as officer holder. The letters remind insolvency practitioners of their obligation to submit a conduct return to the Secretary of State.   

Unfortunately, no reminder letters have been issued by the Secretary of State since 7 October 2010 and the problem is ongoing.  The Insolvency Service is working to resolve this issue but in the interim period insolvency practitioners are advised not to rely on the receipt of a reminder letter to prompt the production of their conduct returns. 

 Any enquiries regarding the above should be directed towards Elizabeth Pigney Corporate Conduct Team, Third Floor, Cannon House, 18 Priory Queensway, Birmingham, B4 6FD; telephone: 0121 698 4397, email: Elizabeth.Pigney@insolvency.gsi.gov.uk   

General enquiries may directed to: cct.email@insolvency.gsi.gov.uk

22. Conduct and Complaints Directorate changes 

Following a review of the structure of, and work carried out by, the Conduct and Complaints Directorate of The Insolvency Service’s Investigations and Enforcement Services business, a number of changes are to be made.  

The changes to the Directorate, which handles complaints and referrals about live companies as well as receiving reports from insolvency practitioners, are intended to emphasise the Directorate’s approach to a range of proactive and intelligence based decision making functions that have a clear role in the wider regulatory and enforcement community. 

These changes were implemented on 1 April 2011. The Directorate will be rebranded and its new name will be the Intelligence & Enforcement Directorate. 

The current Corporate Intelligence Team within the Directorate will also be rebranded as Intelligence Operations and will continue the liaison work currently undertaken by the Corporate Intelligence Team. Intelligence Operations will also be the reception point for all insolvency practitioner reports and for referrals and complaints concerning live companies. 

From 1 April 2011, all D1 reports, D2 Final and Interim returns and Section 218 reports should be sent to: 

Intelligence Operations Reception
Investigations and Enforcement Services
Insolvency Service
3^rd Floor
Cannon House
18 Priory Queensway
Birmingham
B4 6BX 

Fax: 0121 698 4095 

E mail: ctt.email@insolvency.gsi.gov.uk 

Any referrals or complaints concerning live companies should also be sent to Intelligence Operations by using the Online Complaint Form and associated guidance available on our website (www.insolvency.gov.uk), or alternatively sent to: enquiry@cib.gsi.gov.uk 

The Directorate’s e-mail contact points and website details are also to be updated and further information will follow in due course. 

Corporate Conduct Team within the Directorate was also rebranded from 1 April 2011 and will be known as Intelligence Targeting.  This team will be responsible for carrying out the substantive assessment of all D1 and Section 218 reports and any post decision enquiries should be directed to the relevant manager on this team, as will be detailed in the outcome letter. Intelligence Targeting will also assess referrals and complaints concerning live companies. 

All Outreach Presentations will be dealt with by Intelligence Targeting team and to discuss or request a presentation please contact Karen McConnell at karen.mcconnell@insolvency.gsi.gov.uk, or by post to Intelligence Targeting at the address above or by telephone on 0121 698 4236. 

Any enquiries regarding this article should be directed towards Michael Ashford, Corporate Conduct Team, 3^rd Floor Cannon House, 18 Priory Queensway, Birmingham, B4 6BX, telephone: 0121 698 4348, email:     michael.ashford@insolvency.gsi.gov.uk 

General enquiries may be directed to ctt.email@insolvency.gsi.gov.uk