Part 18 Rules by Insolvency Practitioner Tom Gardiner
The New Insolvency Rules 2016 – Part 18 Reporting and Remuneration of Office-Holders
The New Insolvency Rules are a large piece of work, covering every aspect of Insolvency. Part 18 is one of the parts of the New Insolvency Rules where the procedures that are common to all cases are brought together. Part 18 covers reporting and remuneration for Administrations, all Liquidations and Bankruptcies. It does not deal with Voluntary Arrangement reporting. Neither does it deal with all the closing reporting requirements – these appear in the case-specific parts. In this article, Insolvency Practitioner Tom Gardiner looks at the key points
The key point to note is that for the most part the changes apply across the board, so we need to be ready to report and seek rem under the New Rules from 6 April 2017. The exceptions are progress reporting on the old pre-2010 appointments and any progress reports that fall due before 6 April 2017. For everything else – including closure processes on all cases – the New Rules apply
Contents of Progress Reports
It is no longer a requirement for the insolvency practitioner to detail “assets that remain to be realised”, but instead we need to detail “what remains to be done” (R18.3(1)(h)).
R18.3(6) accommodates the significant change in the process of an ADM moving to CVL. R3.60 sets out the new ADM-to-CVL process.
The Administrator submits the Notice of the Move together with their final report to the RoC and copies the pack to creditors, etc. Once the Notice is registered, the former Administrator informs the Liquidator of “anything which happens after the date of the final progress report and before the registration of the notice” (R3.60(5)).
So, within the Liquidator’s first progress report, they must include “a note of any information received by the liquidator from the former administrator” (R18.3(6)).
Timing of Progress Reports
In principle, little has changed on timing. However, simplifications in other areas will affect reporting complications under the current Rules. In future, the 6/12-monthly reporting routine will not be affected by the following events:
- A change in office holder,
- Extension of an Administration
What if you are already dealing with a case with an altered reporting schedule, i.e. an extended ADM or a case involving a change in office holder? The Insolvency Service’s intention is that the schedule stays as it is and they are looking into a transitional provision to clarify this.
Contents of “Final Accounts” and “Final Reports”
The abolition of final meetings in Liquidations and Bankruptcies necessitates a change in the final reporting processes for the insolvency practitioner. The new processes can be found at:
Creditors (and/or members/bankrupt) are provided with a final account (or, in Bankruptcies, a final report) 8 weeks before the office holder obtains their release. The contents of these final accounts/reports are found in R18.14. No more statements of the aggregate numbers of preferential and unsecured creditors or that accounts have been reconciled with those held by the SoS.
R3.53 contains details of some of the contents of an ADM final progress report… but, the Part 18 rules on the contents of progress reports also apply to Administration final progress reports (plus an additional requirement slipped in to R18.3(2)) on IA S176A payments which is of course the prescribed part.
Remuneration: Circulating Fees Estimates
The biggest change in the remuneration chapters for the insolvency practitioner is confirmation that “a proposed liquidator” may deliver fees information R18.16(10) so we could seek the basis of our rem prior to appointment.
R18.18(3), could be read as requiring every Administrator’s fee to be agreed by a “decision procedure”, this could have unexpected consequences in Para 52(1)(b) ADMs where only secured and possibly preferential creditors are stakeholders.
The wording of the time costs basis has been changed – again. The 2015 Rules changed the time costs basis from “the time properly given… in attending to matters arising in the administration/winding up/bankruptcy” adding the words “as set out in the fees estimate”. The additional words have now been removed for the New Rules.
Preferential Creditors’ Approval
The New Rules resolve another long-running debate: regarding the current R2.106(5A)(b)(ii), which sets out that Administrators who have made a Para 52(1)(b) statement and who have made or intend to make a distribution to preferential creditors need to seek the approval to fees of:
“preferential creditors……whose debts amount to more than 50% of the preferential debts of the company, disregarding debts of any creditor who does not respond to an invitation to give or withhold approval”.
The question was what happens if no preferential creditor votes, does this mean that you have approval?
R18.18(4) eliminates all doubt. It states that in future Administrators will need to seek preferential creditors approval (on relevant cases) “in a decision procedure” and therefore there is now no doubt that there will need to be at least one vote to reach a decision.
A second long-running question on R2.106(5A)(b)(ii) has been: what if you have paid preferential creditors’ claims in full, do you still need to ask these creditors to approve your fees? This conundrum is solved by Rs15.11 and 15.31(1)(a), which indicate that in these circumstances only preferential creditors who have not been paid in full are circulated and that, if there’s no claim left, the creditor has no vote.
These two rules are specific to creditors voting in decision procedures in Administrations.
So in a nutshell for the Insolvency Practitioner
The long list of final report contents has been stripped back. There are new approaches to the ADM-to-CVL conversion process and to reporting for changes in office holder or ADM extensions.
The debates on issuing a fees estimate before being appointed as liquidator and on the process of seeking preferential creditors’ approval to fees in Para 52(1)(b) Administrations have been settled.
Other changes have slipped in too, mainly as a consequence of the more material changes affecting other areas of practice, such as the abolition of final meetings.