Creditors Voluntary Liquidation and the Insolvency Rule Changes

The Introduction of the New Insolvency Rules has Changed Significantly the Creditors Voluntary Liquidation Process.

Given the recent insolvency rule changes, Tom O’Keeffe, a new insolvency administrator in our London team, has produced this review of one of the biggest areas of change: the entry into a creditors voluntary liquidation.

The Old Rules: Pre – 6 April 2017

The old Creditors Voluntary Liquidation process was to convene meetings of shareholders and creditors under S98 of the insolvency Act, giving a minimum of 7 days notice (effectively a minimum of 9 days taking the post into account). Meetings needed to be held at a venue which was considered to be convenient to creditors and a Statement of Affairs and Report on the Company’s history and failure were presented at the meetings.

Creditors could attend in person or by proxy, providing that they had submitted a Proof of Debt prior to the meetings. The resolutions passed at the meetings were to wind up the Company, appoint the Liquidator and agree the basis of the Liquidator’s fees.

The New Rules: Post – 6 April 2017

The thrust of the new rules is very much focused on speed and efficiency.

Insolvency practitioners and directors of insolvent companies are no longer able to hold physical meetings of creditors unless requested by 10% of creditors in value , 10% of the total number of creditors or 10 creditors (the “10:10:10” rule). Instead a  virtual meeting needs to be held with written resolutions being sought or the requirement of a Deemed Consent procedure. Looking at these key areas in more detail:

Shareholder and secured creditor notice requirements are unchanged by the new rules.

Unsecured creditors must be given 3 business days (on receipt or deemed receipt) notice of the decision procedure.

A Statement of Affairs and SIP 6 Report on the Company can either be sent with the initial notice or sent to creditors so that they receive it at least one business day before the decision procedure date.

The notice is issued advising the date, time and joining instructions of the virtual meeting, which can simply be a telephone conference, for example. If a qualifying request is received, the virtual procedure is ended and notices of a physical meeting must be issued.

Some of the key Issues with virtual meetings are:

Some of the positives with virtual meetings are:

A notice is sent to creditors advising that the company will be placed into Liquidation and a Liquidator appointed (so that the creditors voluntary liquidation process can begin), on a specific date (the Decision date) UNLESS an objection is received in accordance with the 10:10:10 rule.

Conclusions to the Changes to the Creditors Voluntary Liquidation Procedure

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As ever, new rules can take some time to bed in. However, we think these are the main conclusions to be drawn:

Please contact us or call us on 0208 088 0633 for further help and FREE initial advice on the new insolvency rules in relation to the Creditors Voluntary Liquidation process.