April 2016 Credit Management magazine

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DEBT MANAGEMENT COMPANY REFUSED FCA AUTHORISATION DEBT Management Company PDHL Ltd has been refused authorisation by the Financial Conduct Authority (FCA), a decision that has sent shockwaves through the DMC and collections communities. The announcement follows legal action taken by PDHL challenging the FCA’s decision that has been subsequently withdrawn. According to the regulator, up to 16,000 customers will be affected. President of the CSA, Leigh Berkley, says agencies should be aware that customers may have already been contacted by a new debt management company (DMC) as some contact detail lists have been sold by firms looking to exit the market, rather than sell their portfolios. “Members should also be aware that PDHL and other refused DMCs may still be receiving money from customers under DMPs and the FCA expects all firms that are no longer authorised, to ensure funds are correctly applied as part of an orderly winding down of their activities. Protection of client funds is a high priority for the FCA.” The CSA will be examining the Court decisions made during the legal action pursued, but now withdrawn by PDHL, but details emerging already indicate that precedents have been set around the ability to continue to trade under an Interim Permission in the event of a decision not to grant authorisation. The association has suggested that other DMCs may be refused authorisation or withdraw their applications. fca.org.uk BEGBIES TRAYNOR ENTERS INTO CORPORATE PARTNERSHIP THE Chartered Institute of Credit Management (CICM) has signed an agreement with Begbies Traynor, one of the UK’s leading Corporate Rescue and Recovery practices, to become a new corporate partner. Begbies Traynor handles more than 1000 corporate recovery cases per year, operating from a network of more than 30 UK offices, with clients ranging from SMEs to quoted companies and global banks. Mathew Headland, the CICM national relationship manager at Begbies Traynor says the firm already has a close relationship with members: “We understand the key role credit managers play in the ongoing financial health of their organisations. We also understand the pressures that many face and have developed a creditor services offering to support their aims,” he says. “Whether this is utilised as a basic free consultation by phone, or a full suite of services to cover all claims in any insolvency, we can work with members to provide a tailored solution,” he adds. “Begbies Traynor is proud to be a partner of the CICM and supporting its members.” For information, contact Mathew Headland on 07711 898525 or Mathew. Headland@begbies-traynor.com. NEWS IN BRIEF MAS EXIT THE Money Advice Service, set up by Government to provide people with ‘financial education’, is to be scrapped less than six years after its inception. The service is considered not to have had enough uptake from the general public despite investing more than £100 million in developing and promoting its website. It will be replaced by a smaller body providing help for those in financial difficulty. moneyadviceservice.org.uk PSR SEEKS FEEDBACK ON MARKET THE Payment Systems Regulator (PSR) is seeking feedback from CICM members following publication of the provisional findings of its market review into the ownership and competitiveness of the infrastructure that supports the payments systems Bacs, Faster Payments System (FPS) and LINK. It fears that common ownership by the banks of VocaLink, the single infrastructure provider that they rely on to process payments, is having a negative impact on innovation and competition in the industry. PSR is proposing that these banks sell part of their stakes in VocaLink to open the market and allow for more effective competition and innovation. In the UK, VocaLink processes IN news destined to raise more than a few eyebrows, The Allied group of companies comprising Allied Global, Alliance iCommunications, and Neptune Innovations, has changed its operating name to Bill Gosling Outsourcing. The firm has confirmed that the AND FINALLY... over 90 percent of salaries, more than 70 percent of household bills and almost all state benefits. Nearly every business and person in the UK uses its technology and last year the company processed over 11 billion transactions with a value of £6 trillion. Hannah Nixon, Managing Director, Payment Systems Regulator, says now is the time to ask whether or not it is operating best practice: “The evidence we have gathered shows that common ownership is hampering competition and the speed of innovation in the market. “There needs to be a fundamental change in the industry to encourage new entrants to compete on service, price and innovation in an open and transparent way.” psr.org.uk name Allied International Credit (AIC) will continue as the brand for its Third Party Collection activity, and its bonds, licenses, and authorisations will similarly remain unchanged. CEO David Rae promises to share more of the Bill Gosling story in the near future. Should be interesting. CICM IN BRIEF This month's briefing includes Legal Proceedings and Insolvency review, details of the recent changes to the CICM Accounting Principles qualification, Legal Partner, Freeths, with an overview of penalty clauses in contracts and the latest Thinking Blog from Corporate Partner, Experian. 10 April 2016 www.cicm.com The recognised standard in credit management
INSOLVENCY NEWS DEAR MR BOND, I EXPECT YOU TO PAY! EVERY IP has a bond, like some sort of secret agent hiding in the background ready to step in and rescue the situation when things go seriously awry. In this case, a financial instrument designed to protect creditors, primarily, if the IP is found to have dishonestly or fraudulently removed money from an insolvency estate. But does it work, and do creditors benefit? The requirement is a statutory one, introduced in the ’86 Insolvency Act, and is regulated by the Recognised Professional Bodies (RPBs). IPs take out a general enabling bond annually, without which they cannot take appointments, and this is lodged with the regulator. Monthly, they then provide details of the cover required by making returns setting out case names and asset values etc. There is a maximum cover of £5m per case. So, what could possibly go wrong? How could creditors ever lose out? There are notable exceptions (not least where one successor practice has paid substantial funds to creditors), but how is it that in 30 years since its inception there have been several claims, and yet in too many instances relatively little paid to creditors in those cases. Claims are usually initiated by a successor IP. When an IP is found to have acted dishonestly, his cases will usually be transferred to someone who can take them over and investigate what went wrong, claiming under the individual case bonds where appropriate, and if necessary under the general bond which provides additional cover (up to £250,000). The bond provider (an insurer) will appoint loss adjusters and eventually decide what to pay. Their obligation includes paying the reasonable costs incurred by the claimant. But the claims process seems to be a long drawn out one, with strong resistance (perhaps understandably so) to both the principal claim and to agreement on costs. But what if those costs exceed the value of the claim? What if the bond value is inadequate? What if the misappropriation was by a person other than the IP (eg someone else in the firm, but not the licensed/bonded practitioner)? What if the IP hadn't paid the premiums? How is the successor remunerated for investigation work on cases where no claim arises? These problems have arisen, and have caused the Government's Insolvency Service to review the present bonding regime; they contribute to a sense shared by many that the system isn’t operating as intended – is it fit for purpose? There is likely to be a consultation on this in the near future, so if you have experience of cases involving bond claims and/or have an interest in this subject then look out for that. CICM’s Technical Committee will no doubt respond on behalf of members when the time comes, but will be better able to do so with member input. Solutions? Firstly, non-payment of premiums must not be allowed to invalidate a bond – at least, not retrospectively. If a bond provider extends credit to an IP, then they should use usual commercial recovery mechanisms to pursue their debts. A bond is a bond, and cannot be subject to payment conditions beyond the control of those who rely on it. Secondly, and most importantly, the question of costs has to be addressed. Some advocate extending the scope of the bond to include costs incurred across a portfolio of successor cases; maybe also increasing cover to better cater for the sometimes necessary high costs involved in proving fraud. Whether or not that is changed, there is certainly an issue around the extent of cover, as the amount of the bond is based on the value of the assets in the IP’s hands, without proper provision for even reasonable costs on top of that. However, whilst that might be possible at a higher premium cost (most likely to be met ultimately by creditors), the key issue is controlling costs overall so that part of the pay-out reaches creditors more often than not. Where the estate is replenished by the bond, it ought not to be the case that all those funds are eaten up by the successor's costs. Some of these adjustments are within the grasp of the parties involved – regulators, successor practitioners, bond providers and the Insolvency Service (which has produced an excellent paper on the subject and is keen to act). Legislation is an option. There will be change. The debate is what form exactly that will take, and when. Successor practitioners play a key role in supporting RPBs to fulfil their obligations as beneficiaries under the current scheme, not least in carrying out detailed investigations that they are best placed to undertake as office holders. But we need to find a better balance between the interests of the parties involved. Creditors will have their say – so make the most of the opportunity when it comes, for the purpose of the bond scheme (an objective sometimes seemingly lost in the melee) is to protect creditors from potentially significant (albeit relatively rare) fraud and dishonesty. David Kerr MCICM is the Chief Executive of the Insolvency Practitioners Association (IPA). The recognised standard in credit management www.cicm.com April 2016 11
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Page 3 and 4: CONTENTS APRIL 2016 www.cicm.com RE
Page 5 and 6: Are you on the right track to SUCCE
Page 7 and 8: NEWS IN BRIEF ACCOUNTING BODY WARNS
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Page 15 and 16: FEATURE SPECIAL I am detained momen
Page 17 and 18: BREXIT SHAKEIT ALLABOUT IN OR OUT?
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Page 21 and 22: Filter out the time wasters Finding
Page 23 and 24: OPINION THE CEO of the Australian I
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Page 31 and 32: Does my bum look big in this? Impro
Page 33 and 34: THOSE FACING A PARKING PENALTY CHAR
Page 35 and 36: INTERNATIONAL TRADE NEWS OPEN ALL H
Page 37 and 38: INTERNATIONAL TRADE NEWS BREXIT NI
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Page 45 and 46: THE JEWEL IN THE HEART OF BUSY LOND
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April 2016 Credit Management magazine

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