2016: New insolvency rules

6th April 2017 brings with it a new set of insolvency rules in the 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. 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 Rules (England & Wales) 2016 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. These changes will enable the officeholder (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.

Modernised insolvency rules commence in April 2017

 The impact of the changes will 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’s anticipated that the new Rules will better meet the needs of creditors, insolvency practitioners and 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, to be achieved by having common parts applicable to multiple insolvency procedures. Additionally, there is a broader 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, the new Rules contain a number of key changes.

These include:

• Use of emails – more freedom to use e-communications and the lifting of certain restrictions and limitations.
• Use of websites – 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 creditors’ decision-making. 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 charged to the insolvency estate.
  • In future, the officeholder 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 process will be employed at the discretion of the officeholder. This could include electronic voting, correspondence or a virtual meeting.
  • The officeholder 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

While 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. Said preparation should pay dividends in the future.