What Does a SIP2 Investigation Actually Involve? A Plain-English Guide for Directors and Practitioners

If your company has entered administration or insolvent liquidation, you will hear one phrase on repeat: SIP2 investigation. It can sound like mysterious insolvency jargon, but the process is more practical than dramatic. Directors want to know what is being reviewed and why. Practitioners need to turn limited guidance into decisions they can defend months later. This guide breaks down the same process for both sides, in plain English.

One Process, Two Viewpoints#

For directors, the Statement of Insolvency Practice 2 (SIP2) explains why office holders ask for records, questionnaires, and interviews. For practitioners, the same rule is a quality bar: scope the work properly, record judgement calls clearly, and escalate when the facts justify it. Same process, different pressure points.

Creditors, of course, sit behind all of this. They need confidence that concerns were tested, recoveries were not missed, and decisions were made for evidence-based reasons rather than instinct.

What SIP2 Actually Requires#

Most confusion disappears when SIP2 is reduced to three duties: gather the right information, make an initial assessment, and decide what happens next.

1. Seek information#

Start by securing the books and records in whatever form they exist. Invite creditors to raise conduct or recovery concerns, then repeat that invitation at the right points during the case. If a predecessor office holder was involved, their context matters too.

2. Make an initial assessment#

Next, assess potential recoveries and whether deeper investigation is warranted. This is required even if funding is tight at appointment, and the rationale should be recorded at the time, not reverse-engineered later.

3. Decide and report#

Then decide and report. Some issues demand immediate action because the legal or conduct risk is obvious. Others need creditor consultation because the economics are less clear. In both cases, progress reports should show what was assessed, what was done, and where matters now stand.

For directors, this means the information requests are not random admin. They are part of a statutory process designed to test fairness to creditors and identify recoveries that may still be available.

The Bank Analysis: The Core of Most Cases#

If SIP2 investigations have a command centre, this is it. In most cases, the bank data is the evidential spine. Done properly, bank analysis helps test how connected-party transactions were handled, how creditors were treated, and whether HMRC liabilities were dealt with consistently alongside the wider creditor body.

What gets pulled first#

Teams usually begin with full transaction history across the review period, often two to three years pre-insolvency. But that look-back window has widened in many cases lately because of the requirement to review bounce back loans. They pull all business-relevant accounts, not just the obvious current account, and run continuity checks to spot missing statement periods or unexplained balance shifts.

What patterns are usually tested#

The recurring flags are familiar: frequent or unusual cash withdrawals, remuneration and dividend timing, director loan movements, connected-party flows, payment behaviour in challenge windows, uneven creditor treatment, and large outflows that have no convincing commercial paperwork behind them.

What reconciliation work looks like#

Reconciliation is where signal beats noise. Investigators cross-check bank movements against management information and filed accounts, test whether receipts align with reported turnover, and tie major outflows back to invoices, contracts, or board approvals.

Strong investigations do not stop at classifying spend. They ask a harder question: does the money trail support a lawful, commercially coherent story, or does it fall apart under scrutiny?

Legal Framework Behind the Review#

Bank analysis only matters if it connects to legal consequence. A transaction is not important because it looks odd; it is important because it may trigger recovery action or conduct consequences.

The usual routes are section 238 of the Insolvency Act 1986 for transactions at an undervalue, section 239 for preferences, sections 213 and 214 for fraudulent or wrongful trading, and section 6 of the Company Directors Disqualification Act 1986 where conduct raises disqualification risk.

For directors, this is why office holders keep asking for detail around value, timing, and decision-making. The legal tests are specific, and broad explanations rarely survive close analysis.

Where Case Law Draws the Lines#

Legislation sets the framework. Case law shows how judges apply it when the facts are contested. That is why practitioners document judgement calls so carefully.

In BTI 2014 LLC v Sequana SA [2022] UKSC 25, the Supreme Court confirmed when creditor-interest duties are engaged. In BTI 2014 LLC v Sequana SA [2019] EWCA Civ 112, the Court of Appeal underlined that even lawful dividends can be challenged under section 423 if the purpose is to prejudice creditors. And in Phillips v Brewin Dolphin Bell Lawrie [2001] UKHL 2, the House of Lords focused on commercial substance over drafting labels.

Plain English version: if a transaction looks engineered to move value away from creditors, courts test what it actually did, not what it was called on paper.

How Evidence Gathering Usually Runs#

A robust investigation is iterative. Initial data creates hypotheses, hypotheses drive targeted requests, and new evidence either confirms the concern or narrows it quickly.

In practice, that means director questionnaires first, then interviews where context or intent needs testing, then deep document collection: bank data, management accounts, contracts, invoices, and board material. Third-party checks (HMRC, Companies House, asset registries) and creditor intelligence are then cross-tested against the financial record.

For practitioners, sequencing matters. It avoids expensive over-collection while still producing a complete and defensible evidential map.

What Good Reporting Looks Like#

A good investigation can still look weak if reporting is vague. SIP2 compliance is not just what you did; it is whether an independent reader can follow your reasoning from file notes to final outputs.

Strong initial assessment reporting states what information was available at appointment, what recovery or conduct issues were identified, and why investigation was pursued, narrowed, or deferred. Ongoing reports should then show what was completed in the period, what remains under review, and what recovery actions were taken or proposed.

Documentation discipline is non-negotiable. A decision not to pursue further work should be recorded just as carefully as a decision to litigate.

Proportionality: The Hardest Part of SIP2#

The hardest judgement in SIP2 is proportionality. The process must fit the case, and this is where the real risk usually sits.

That judgement turns on estate economics, realistic recovery routes, public-interest factors, and creditor expectations. In short: can the work be funded, can it produce enforceable outcomes, and does the conduct severity justify action even where pure economics are marginal?

Failure modes are predictable: over-investigating thin estates with no viable return, under-investigating larger estates because the first read looked clean, and failing to document the rationale either way.

For Directors: What to Expect#

Expect a questionnaire, potentially an interview, and detailed bank-statement review across relevant periods. Interview requests are routine and do not, by themselves, imply misconduct. A conduct report is a statutory part of the process, and your level of cooperation forms part of the factual picture.

The practical objective is straightforward: provide complete records early, explain commercial context clearly, and avoid fragmented or contradictory answers.

How Kenneth Supports SIP2 Investigation Work#

Kenneth is built for this workflow. It helps insolvency teams ingest statements quickly, normalise transaction data, group counterparties, and surface patterns that usually take long manual passes to identify.

The practical gain is speed with structure: faster statement-to-analysis flow, clearer connected-party visibility, and easier production of defensible working papers and report-ready summaries.

That does not replace professional judgement. It makes judgement faster, better evidenced, and easier to document.

Final Takeaway#

A strong SIP2 investigation is proportionate, evidenced, and well documented. For directors, that means engaging with the process constructively and early. For practitioners, it means building a decision trail that is clear from first assessment to final reporting. That standard protects estates, creditors, and the credibility of the profession.