If you’ve ever sat across from a Liquidator or an Administrator, you might have felt like they were speaking a totally different language. It’s all "prescribed parts" and "preferential creditors." But behind the jargon, there’s a set of rules that actually keeps the whole UK insolvency industry from turning into the Wild West. These are the Statement of Insolvency Practice—or SIPs, as the insiders call them.
Honestly, SIPs are the unsung heroes of corporate rescue and liquidation. They aren't just suggestions. They are mandatory standards issued by the Joint Insolvency Committee (JIC) that tell Insolvency Practitioners (IPs) exactly how to behave. If an IP ignores a Statement of Insolvency Practice, they aren't just being "edgy." They’re looking at a potential disciplinary hearing, heavy fines, or losing their license entirely. It’s serious stuff.
Why Do We Even Have These Rules?
Think about it. When a company goes bust, everyone is angry. Shareholders have lost their investment. Employees are worried about their mortgages. Suppliers are staring at unpaid invoices that might never get settled. In that high-pressure environment, you need a referee who isn't just following the law, but following a strict code of ethics and procedure.
The law—specifically the Insolvency Act 1986—provides the skeleton. But the Statement of Insolvency Practice provides the muscle and the skin. It fills in the gaps where the law is a bit too vague. For instance, the law says an IP must be independent. Great. But what does "independent" actually look like when the IP’s firm did the company's books two years ago? That’s where SIP 1 and SIP 2 come in to clarify the ethics and the investigation process.
SIP 16 and the Pre-Pack Controversy
If there is one Statement of Insolvency Practice that gets people fired up, it’s SIP 16. This one deals with "pre-packaged" administrations. You've probably seen the headlines: a company "dies" on Friday and magically re-opens on Monday under a slightly different name, owned by the same people, while the old debts are wiped clean.
It looks shady. To a frustrated creditor, it feels like a legalised heist.
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Because of that perception, SIP 16 is incredibly demanding. It forces the Insolvency Practitioner to justify why a pre-pack was the best option compared to a normal sale. They have to prove that they didn't just take the first offer from the directors to make life easy. They have to show they looked for better deals. Under the current version of SIP 16, the disclosure requirements are massive. If they don't explain the marketing process or why the sale was so fast, the creditors can—and will—complain to the regulatory bodies like the ICAEW or the Insolvency Service.
Investigating the Mess: SIP 2
Every single time a company goes into liquidation or administration, the IP has to look for "wrongdoing." This is governed by SIP 2. It’s not just a quick glance at the bank statements.
The IP has to look for:
- Preferences: Did the director pay back their dad’s loan while ignoring the taxman?
- Transactions at an Undervalue: Did the company sell a £50,000 delivery van to the director's brother for a fiver?
- Wrongful Trading: Did they keep taking orders when they knew they were doomed?
Basically, SIP 2 ensures that the IP doesn't just "go through the motions." They are required to be a bit of a detective. They have to report their findings to the Insolvency Service through the Director Conduct Reporting Service (DCRS). If SIP 2 didn't exist, a lot of directors would get away with "phoenixing" companies without any consequences.
The Human Element in SIP 3.1 and 3.2
Insolvency isn't just about big corporations. It’s about individuals too. This is where SIP 3.1 (Individual Voluntary Arrangements) and SIP 3.2 (Company Voluntary Arrangements) come into play. These are the rules for when someone or a company tries to negotiate a deal with creditors instead of just going bankrupt.
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The most important thing here is transparency. The IP has to make sure the debtor actually understands what they are signing up for. You can't just promise creditors 50p in the pound if there is zero chance of the debtor ever earning enough to pay it. SIP 3.1 was recently updated because there were concerns about "IVA factories"—firms that were churning out arrangements that were doomed to fail just to collect the fees. The Statement of Insolvency Practice was tightened to make sure the advice given is actually sustainable.
Fees and the Money Question (SIP 9)
Let's be real: people hate paying insolvency fees. It feels like the liquidator is taking a slice of the tiny pie that's left for the creditors. Because of this tension, SIP 9 is arguably the most scrutinised Statement of Insolvency Practice.
It’s all about remuneration.
An IP cannot just send a one-line invoice saying "Work done: £10,000."
- They have to provide a detailed breakdown of hours.
- They have to explain what was achieved.
- They have to show that the work was "necessary and proportionate."
If you’re a creditor and you think the fees are too high, SIP 9 is your best friend. It gives you the framework to challenge those costs. It forces the IP to be accountable for every penny they charge the estate.
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The Evolution of the Rules
The world changes, and so do the SIPs. We don't use the same versions from the 90s. The Joint Insolvency Committee regularly reviews them to keep up with new laws (like the Corporate Insolvency and Governance Act 2020) and changing public expectations.
For example, the way we handle "connected party" sales has shifted massively. There is now much more scrutiny on sales to directors or their families. You can't just do a "backroom deal" anymore. The Statement of Insolvency Practice ensures that even if a sale to a director is the best outcome for the company, it has to be done in the bright light of day with plenty of documentation.
Real-World Impact: The Case of Carillion and Beyond
While the big names like Carillion or BHS grab the headlines, the Statement of Insolvency Practice is working every day in thousands of small liquidations you’ll never hear about. Whether it’s a local restaurant or a mid-sized construction firm, the IP has to follow these rules.
If they don't?
The repercussions are huge. Just look at the disciplinary records published by the R3 (the trade body for insolvency professionals). You’ll see IPs being reprimanded for "failure to comply with SIP 16" or "inadequate investigations under SIP 2." It’s not just red tape; it’s the professional standard that keeps the system credible. Without these rules, the UK's reputation as a safe place to do business would take a massive hit. International investors want to know that if a company fails, the process is fair and predictable.
Moving Forward: Actionable Steps for Creditors and Directors
If you find yourself involved in an insolvency process, don't just sit back. Use the SIPs to your advantage.
- Ask for the SIP 16 report: If you’re a creditor in a pre-pack administration, you have a right to see the explanation for the sale. Read it. If it doesn't mention how they marketed the business, ask why.
- Review the SIP 9 fee estimate: Don't just approve fees blindly. IPs are required to give you an estimate. If they go over it, they usually need further approval. Keep them to their word.
- Directors, be prepared for SIP 2: If you're a director of a struggling company, know that the IP will look at your bank transfers. Clean up your act before you enter a formal process. Repay any "casual" loans you took from the company and make sure your records are up to date.
- Check the IP's credentials: Any legitimate IP will be happy to discuss which Statement of Insolvency Practice governs their current actions. If they are evasive, that’s a red flag.
- Use the R3 website: The Association of Business Recovery Professionals (R3) provides great summaries of these SIPs for non-experts. It's a goldmine of info if you're trying to figure out if you're being treated fairly.
The Statement of Insolvency Practice might seem like dry, technical documentation. But in reality, it's the barrier between a fair recovery process and a total free-for-all. Whether you're a director trying to save your skin or a creditor trying to get paid, knowing these rules is your biggest advantage. It's not about memorizing the numbers; it's about understanding that there is a standard of conduct that must be met. Stick to that, and the process becomes a whole lot more manageable.