Insolvency Rules Update: 2017 brings major modernising overhaul creditors

New Year, New Insolvency Rules

6th April 2017 brings with it a new set of insolvency rules in the insolvency industry. Many people reading this may think this will be of little significance until you consider that each year over 14,000 companies in England and Wales go through an insolvency procedure, and as each of those will usually have a long list of creditors potentially facing bad debts, the impact is not insignificant.

In a nutshell, The Insolvency (England & Wales) Rules 2016 (“new Insolvency Rules”) is a major overhaul aimed at modernising and updating present procedures which have been in force for some 30 years – since the Insolvency Rules 1986. This will enable the office-holder (e.g. the administrator or liquidator, depending on the process) to use streamlined procedures and communication systems which should simplify and speed up processes and as a spin-off save expenses which come from the insolvency estate.

The Insolvency Service

Modernised insolvency rules commence in April 2017

The impact of the changes occur in three main areas, namely:

  • Consolidation of existing rules and amendments. Since 1986 there have been no less than 28 amending instruments made. It is anticipated that the new Rules will better meet the needs of creditors, insolvency practitioners as well as the judiciary
  • Streamlining the Rules. By using more user-friendly, modern terminology it is anticipated that the new Rules will be easier to use and understand. At the same time there will be less ambiguity and consequently less chance of misinterpretation. The new Rules will be structured in a way to reduce repetition. This will be achieved by having common parts applicable to multiple insolvency procedures. Additionally, there is wider use of standard content provisions for notices and provisions.
  • Modernise procedures to reflect the way the business world operates. E-communications are generally faster, cheaper than traditional methods and of course create less of a carbon footprint. The means and methods of communication have moved on significantly since 1986 and to reflect those improvements a number of key changes are contained in the new Rules. These include:
    • Use of emails – more freedom to use e-communications and the lifting of certain restrictions and limitations
    • Use of web sites – instead of posting communications to creditors they will now be made available by way of downloads from a website (subject to certain exceptions)
    • Removal of physical creditors meetings – as the default mechanism for decision-making by creditors. Currently the vast majority of creditors meetings take place with only the director(s) and insolvency practitioner present. Holding creditors’ meetings involves costs and expenses which are charged to the insolvency estate.
      • In future the office-holder will be able to write to creditors with a proposal which will be deemed to be accepted and approved unless more than 10% (by value) object. If such an objection is registered an alternative decision-making processes will be employed at the discretion of the office-holder. This could include electronic voting, correspondence or a virtual meeting.
      • The office-holder may only call a physical meeting if specifically requested by at least
        • 10% by value of creditors or
        • 10% in total number of creditors or
        • 10 individual creditors

Whilst there are other amendments, the above outlines the main changes covered by the new Insolvency Rules. It will involve considerable preparation by those in the insolvency industry to ensure the changes are implemented seamlessly and smoothly in April, but that preparation should pay dividends in the future.

References and further reading

UK Legislation – http://www.legislation.gov.uk

The Insolvency Service – https://www.gov.uk

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