The Insolvency Rules 2016 have now been published by the Government and are due to come into force on 6 April 2017. The new Insolvency Rules intend to consolidate the law, modernise its language, and reduce administrative bureaucracy in insolvency. The question is: what are the key changes and what will they mean for insolvency practitioners?
Physical creditors’ meetings to be restricted
The requirement to hold a physical meeting to agree creditors’ resolutions in insolvency proceedings is being removed.
Under the new regime, as opposed to being standard practice, officeholders will now require the express permission of creditors to call a physical creditors’ meeting. Permission must be granted by at least 10 individual creditors or by creditors with at least 10% of the total value of creditors’ claims. The power for officeholders to call creditors’ meetings has therefore been significantly curtailed.
Decision making process reformed
Officeholders will now be able to use a new process of ‘deemed consent’. A proposal by an officeholder will be deemed approved if, after writing to creditors to communicate the proposal, objections are received by creditors with 10% or less of the total value of claims.
Creditors with less than 10% in value will therefore lose the right to singularly prevent decisions being made. However they will still have the right to raise concerns with the officeholder who will then have a duty to consider whether deemed consent is the appropriate decision-making mechanism.
In the event that objections are received from creditors with a value of more than 10%, an alternative decision making procedure must be used.
Which actions cannot be made by deemed consent?
Some processes are considered too important to creditors to be made via the deemed consent process. Those are:
approval of an individual or company voluntary arrangement;
removal of an officeholder; and
approval of an officeholder’s remuneration.
Rather, these processes will need to be dealt with by an alternative creditors’ decision making procedure.
What are the alternative creditors’ decision making procedures?
The alternative creditors’ decision making procedure consists of any decision making procedure which enables all creditors who are entitled to participate in the making of the decision to participate equally.
The following methods of communication will be considered as valid alternative decision making:
virtual meetings; and
Abolition of final meetings
Final meetings are to be scrapped in liquidation and bankruptcy proceedings. Instead, liquidators or trustees will now be required to submit a final report. There is a supplementary provision stipulating what information should be included in the report, how creditors go about requesting further information, and the procedure for challenging the remuneration claimed. Also included is the provision for creditors to object to the release of the liquidator or trustee within a defined period; the later of:
8 weeks from delivery of the prescribed notice; or
determination of an application for the request for further information or challenge to the remuneration.
Creditors whose claims are worth less than £1,000
Officeholders will now be entitled to rely on information contained in the company’s or bankrupt’s statement of affairs or accounting records to treat debts recorded for amounts below £1,000 as proved without any need for further investigation. In such cases the officeholder will however need to let the creditor know that their claim will be treated as proved and that the officeholder must be notified if the debt is inaccurate or no debt is owed.
Opting-out of correspondence
Creditors will be able to opt-out of receiving further correspondence in relation to insolvency proceedings by submitting a notification to the officeholder. Upon receipt of that notification the officeholder will then be under an obligation not to send that creditor any further correspondence. Some documents must however be delivered to creditors even if they have opted out, these include changes of officeholder contact details and notices of distributions.
Officeholders will no longer be required to obtain the written consent of creditors to continue corresponding with them via email after insolvency. Going forwards, where e-communications have been customarily used between the creditor and the debtor before the insolvency, this method of communication can continue post-insolvency as the creditor is deemed to have consented.
Use of websites to deliver information to creditors
Currently a court order needs to be obtained to place information relevant to insolvency on an insolvency practitioner’s website. Under the new Insolvency Rules, creditors will simply need to be notified that all future correspondence will be placed on a website.
Exceptions will however apply and some documents will still require personal service, such as a notice of declaration of a dividend, or a letter that is only intended for one individual creditor.
The revision of the Insolvency Rules 1986 is likely to meet a mixed reception by insolvency professionals. The aim of the new Insolvency Rules is to reduce red-tape, consolidate the legislation, and modernise the language used. Some of the measures will certainly help to reduce the administrative burden on insolvency practitioners, such as the encouragement to use electronic communication, introduction of deemed consent, and ability to treat debts under £1,000 as proved. On the other hand, the changes will, by virtue of their introduction, initially invoke an increased administrative burden on insolvency practitioners as they will be required to verse themselves in the new Insolvency Rules. In addition some of the measures that reduce inconvenience for creditors, such as the ability to ‘opt-out’ of correspondence, will introduce a corresponding burden on insolvency practitioners, who will be now be required to maintain a list of all creditors who have opted-out of receiving further communications in relation to the insolvency.