Insolvency Practitioners

New Insolvency Rules and Insolvency Practitioners

What Will the New Insolvency Rules Hold for Insolvency Practitioners?

Modernised and consolidated insolvency rules which will guide insolvency practitioners and insolvency practice for the foreseeable future will come into force on 6 April 2017. The new rules replace the Insolvency Rules 1986 and their 28 subsequent amendments. They have been developed working with the insolvency profession and have been approved by the Insolvency Rules Committee. This article looks at what some of the changes will mean.

Above all, the rules have been recast to reflect modern business practice and to make the insolvency process more efficient. Key changes include:

  1. Enabling electronic communications with creditors,
  2. Removing the automatic requirement to hold physical creditors meetings, although creditors will be able to request meetings, and
  3. Enabling creditors to opt out of further correspondence and for small dividends to be paid by the office holder without requiring a formal claim from creditors.

Background to the New Insolvency Rules

English insolvency law’s legislative basis lies in the Insolvency Act 1986 and the Insolvency Rules 1986. Both pieces of legislation owe much to the 1982 Cork Report. However, that report and the legislation which gave effect to many of the Report’s conclusions was a product of a different technological era. Electronic communications are now the standard means for businesses and individuals to communicate with email, Skype, virtual meetings and purpose built websites becoming commonplace.

New policy objectives such as a reduction in bureaucracy and an increased focus on transparency have impacted the legislative framework of insolvency resulting in numerous (28) amendments. The level of amendments had resulted in a set of rules and a legislative framework which is arguably incoherent and difficult to navigate.

On 26 September 2013, the Insolvency Service undertook a consultation on the Insolvency Rules the ultimate outcome of which has recently been the 2016 Rules which come into force in April 2017.

Important Style/drafting techniques

Stylistic changes in the Rules include using gender neutral terminology along with a simpler drafting style which includes reliance being placed on the ‘active voice’. In addition, references to the word ‘shall’ in the current rules have been replaced by the word ‘must’ to indicate the existence of an obligation in accordance with modern drafting practice.

Electronic communication

The 2016 Rules allow electronic communication by the officeholder with creditors provided it was customarily used pre-insolvency. This will encourage e-communication, which is generally cheaper and speedier than traditional post.

Use of websites

The 2016 Rules permit an office-holder to send a notice to creditors stating that all future documents will be made available on a website, subject to certain exceptions.

Creditors meetings

The use of meetings originated in the second half of the nineteenth century. However, the need to physically attend a meeting is time consuming and given modern communications technology, arguably unnecessary. Creditors meetings are frequently used to adopt proposals which are clearly in the best interest of creditors. As a result, meetings are often poorly attended and are an additional expense which is ultimately borne by the creditors.

The Rules have provided for an alternative decision making procedure which is that the office holder can use a process of deemed consent whereby they write to creditors with their proposal. In the event that less than 10% of the creditors object to the decision and convey that objection in the manner required by the notice, the creditor or the contributory is treated as having made the decision.

There will no longer be a requirement for the officeholder to call a final meeting.

Debts of less than £1,000 and claim forms

The Rules allow an office-holder to rely on information contained in a company or bankrupt’s statement of affairs or accounting records, and to pay a dividend without the need for the creditor to submit a claim but only where the debt in question is below the prescribed limit of £1,000.

Receiver and Manager and Interim Receiver

An official receiver to be appointed trustee on the making of a bankruptcy order rather than a receiver and manager of the bankruptcy estate between the date of the bankruptcy order and the appointment of a trustee. The initial appointment as receiver and manager had not been shown to have any practical benefit in the administration of bankruptcy cases and could serve to delay the realisation of assets.

Amendments to the Act now permit the court to appoint an insolvency practitioner as interim receiver in all circumstances (an official receiver may also be appointed as interim receiver, as previously).

Officeholder remuneration

The Rules incorporate the recent changes made by r.2 of The Insolvency (Amendment) Rules 2015 namely that there is now a requirement for officeholders to include in their Progress Report the following information:

  1. Whether the remuneration likely to be charged exceeds the fee estimate,
  2. Whether the expenses incurred are likely to exceed or have exceeded the details given to creditors,
  3. The reasons for any such excess

These changes build upon those introduced by the Insolvency (Amendment) Rules 2010 and (as noted above) appear to be a departure from the stated aim of ‘removing red tape’.

Opting out of correspondence

The Insolvency Act 1986 has been amended so that it is now possible for creditors to opt out of receiving information from the officeholder although they may opt back in. Any notice given by an officeholder to a creditor informing that creditor of an intended dividend is excluded from the effects of the changes. The purpose of the opt-out provisions is to reduce red-tape by removing from officeholders the need to provide detailed information to those who have little interest in receiving it.

Victims of violence

Under the Rules as they stand, a person who is made bankrupt, enters into an IVA or who has a debt relief order will have their name and address published on the Individual Insolvency Register. A debtor can seek a court order that amongst other things ensures the details entered onto the Register; do not include details of their current address where publication of that address would put them at risk of violence.

The 2016 Rules will allow for a debtor to make the above application prior to entering the relevant process if required.

Summary

The Rules seek to consolidate the existing secondary legislation as applicable to insolvency and bankruptcy whilst at the same time making minor changes to increase efficiency and reduce bureaucracy. From our perspective as insolvency practitioners,We appear to have a coherent and intuitive body of rules which successfully consolidate a number of different sources into a single instrument. Only time will tell whether the new rules will meet expectations, of Insolvency Practitioners and creditors. However they are clearly a vast improvement on the “mildly eccentric…legislative morass” we have currently (per Sir Roy Goode QC).

Contact us for Help and Advice

If you or one of your clients have a specific question regarding the new rules relating to Insolvency Practitioners and Creditors, please do not hesitate to contact us or call us on 0208 088 0633.

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