Insolvency Practitioners and The New Insolvency Rules.
All Change! Simplification or Greater Complexity? Insolvency Practitioners and The New Insolvency Rules.
After years of planning and debate The Insolvency (England and Wales) Rules 2016 finally came into force with effect from 6 April 2017. They represent the most significant legislative change to affect the insolvency profession since the 1986 Insolvency Act, and consolidate the existing rules and their amendments into a single piece of legislation. At the same time, the wording has been “modernised and simplified”, making them easier to read and follow. Goos news for Insolvency Practitioners and creditors.
The new Rules aim to increase creditor engagement in the insolvency process and to reduce the burden of unnecessary administration, the cost of which can reduce any return to creditors. The new Rules cover 448 pages (and the explanatory memorandum covers seven pages!). It might, therefore, be a while before all parties get used to all the changes.
This article looks at the highlights of the new Rules and considers the challenges of implementing the new Rules and whether they are likely to achieve their aim of simplification and greater clarity.
Highlights of the New Insolvency Rules
The two main highlights of the new Insolvency Rules are:
- Abolition of physical meetings of creditors
Unless creditors specifically request them, physical meetings of creditors which involve the appointment of insolvency practitioners will not now take place. Once appointed the insolvency practitioner will no longer hold meetings to obtain approval on matters such as remuneration or decisions relating to legal actions unless again the creditors want them. Instead creditors will be asked to make decisions by other means such as correspondence, electronic voting and virtual meetings. Insolvency practitioners will also be able to seek confirmation of decisions made using the deemed consent procedure, whereby if no creditors object within a specified period, the decision is deemed to have been approved.
- Encouragement of the use of electronic communication
The new Rules encourage the use of electronic communication between insolvency practitioners and creditors. This reflects modern working practices and recognises that email is a fast and efficient means of communication.
The Rules will also permit a much wider use of an insolvency practitioner’s website as a means of making information available to creditors who will be able to log on and view all the reports and decisions sought on a case as and when they wish.
Those creditors who don’t want to be actively involved in a case, perhaps because there is no prospect of a return, will be able to “opt out” of all correspondence.
All of these measures are designed to assist the insolvency practitioner in choosing the method which will suit creditors best, making it easier for them to get involved and take part in the process. It is hoped that new technologies will be developed to assist insolvency practitioners in making these new decision procedures work in practice.
Implementing the Changes. Will They Achieve Their Objectives?
The new Rules do not make fundamental changes to the way insolvency processes are managed. Liquidations, administrations, bankruptcies and individual voluntary arrangements will continue to be managed essentially in the same way by insolvency practitioners, although there will be some areas of simplification.
In the early days there will be initial costs and increased paperwork as insolvency practitioners attempt to explain the new processes to creditors as they are required to do under the new Rules. Time will tell whether the new Rules are a success.
One school of thought suggests that with such a plethora of new decision making procedures, the Insolvency Service might not have made the things simpler or cheaper. Indeed, the new Rules will require some getting used to by Insolvency Practitioners and creditors alike. In particular the requirement for IPs to provide creditors with all the information they need on their new rights and obligations, could lead to larger and more detailed initial letters being sent by IPs to creditors.
However once all parties become used to the new processes the present burden of administration might be lighter, leading to increased returns for creditors.
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In theory we welcome the new Rules and the improved efficiencies they aim to achieve. Ultimately it is how the industry responds to the new Rules that will determine how well they work.