Wilson Field Group, which has offices in Sheffield and Leeds, claims that new guidance recently introduced for facilitating creditors decisions potentially alienates creditors rather than including them.
Modernised and consolidated insolvency rules came into force on 6 April 2017 and were intended to reflect modern business practice and make the insolvency process more efficient.
The Insolvency (England & Wales) Rules 2016 (“new 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.
These changes enable the office-holder (eg 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 insolvent estate.
A major part of these changes involves the removal of physical creditors meetings in procedures such as company liquidations. These incur costs and expenses and consequently reduce the amount distributed to creditors. However, bosses at Wilson Field believe that some aspects of the changes, such as this, could leave many creditors feeling remote from the decision making process.
Under the new rules, proposals are put to creditors which will be deemed to be accepted and approved unless more than 10% (by value) object.
Nick Wilson, managing director at Wilson Field Group, said; “The new legislation is intended to be more inclusive for creditors but in reality we believe they are more likely to be left out. Unless creditors are aware of the new procedures and act promptly they could miss the opportunity to object”.
Wilson Field has decided to hold virtual meetings through either audio or video conference calls.
“Physical meetings in person can now only be held where requested by creditors representing 10% (in value or number) or by 10 individual creditors. Creditors will no longer be asked to attend meetings, or send others to attend on their behalf, but instead will be faced with a range of “decision-making procedures”.
“Our insolvency practitioners seek to get the best return for creditors from, say, a liquidation scenario, which requires close consultation with creditors. We are keen to be open and transparent and as inclusive as far as creditors are concerned and feel that the new rules do not help that to happen as we no longer have the power to call an initial physical meeting.
“Arguably, the most controversial change in the new rules was the abolition in corporate insolvencies of creditors’ meetings. One of the key aims of the legislation in introducing these changes was to increase creditor engagement in the insolvency process
“By using virtual meetings, we feel we are operating in a more transparent way and actually leaving ourselves more open to scrutiny by creditors and other parties.
“As the substitute for physical meetings, the new rules allow insolvency practitioners to conduct the affairs of the insolvent debtor using a range of decision making procedures. These include the deemed consent procedure, decisions made by correspondence, electronic voting, virtual meetings and any other procedure which enables all entitled creditors to participate. Technology will allow us to offer audio and video meetings which are less costly than physical meetings but at the same time more convenient for the parties involved.”
Key decisions which cannot be made using the deemed consent procedure include decisions relating to the remuneration of the insolvency practitioner, the approval of a Company or Individual Voluntary Arrangement or where otherwise prohibited in the legislation.
The deemed consent procedure can be used for the appointment of liquidators – they will initially be chosen by the directors of the insolvent company and so if creditors want a say in who the liquidators should be, they need to object and request the decision to be made using an alternative procedure.
Under the new rules, each notice to creditors must contain prescribed information relating to the decision sought with guidance notes instructing what decision making procedure is to be followed.
For more information on the new rules and how these may impact your rights as a creditor, please contact Wilson Field on 0330 124 0993 or read our article on the new insolvency rules.