What are the 4 Types of Decision-Making Procedure in a Liquidation?

The rules that govern how liquidation procedures in the UK will be administered have changed. Having been in place since 1986, the Insolvency Rules were long overdue an overhaul to bring them in line with modern business practices. One of the biggest changes introduced by the Insolvency Rules 2016 was the four different types of decision-making procedure that can now be used in liquidations.

There’s no Longer a Reliance on Physical Meetings

It used to be that the only way to make decisions in a liquidation procedure was for a physical meeting of the company’s creditors to be called. In reality, creditors rarely attended these meetings and the insolvency practitioner and company directors were often the only parties who did. This made it a box-ticking exercise rather than a practical addition to the procedure. Now all that has changed.

While physical meetings can still be called, they are no longer the default decision-making mechanism in all insolvency procedures. Instead, they physically meetings can only be called if they are explicitly requested by the company’s creditors. In the place of physical meetings, a deemed consent procedure is to be used. However, creditors may object to deemed consent being used and vote on one of four decision-making processes to be used in its place.

The Four Decision-Making Procedures  

  • Correspondence – Where email has been customarily used as a form of communication before the insolvency, that method of communication can continue to be used in the company liquidation. A website can also be used to deliver information to a body of creditors as long as a notice is sent to the creditors explaining that all correspondence will be on that site.
  • Electronic votingThis includes any electronic system that allows creditors to vote on a decision that must be made without having to attend a particular location. A notice must be sent to creditors explaining how to access the voting system and include any passwords they need. The system should also allow creditors to vote at any time up until the deadline for the decision to be made. Voting will close at 23.59 on the day of the decision.
  • Virtual meetingsA virtual meeting is one where creditors can participate in the meeting and communicate directly with all other participants without having to be physically present at a location. The notice to creditors to inform them that a decision is to be made by a virtual meeting must explain how to access the virtual meeting platform and include details of the time, access code and password. It must also include a statement that the meeting may be adjourned by the chair.  
  • Physical meetingsDespite the removal of physical meetings as the default decision-making procedure in a liquidation, a physical meeting can still be called if enough creditors request it. This is known as the ‘10/10/10 rule’.

A physical meeting must be called if it is explicitly requested by:

  • 10 percent of creditors by value;
  • 10 percent of creditors by number;
  • 10 creditors.

If none of these decision-making mechanisms is suitable, any other procedures which enable creditors to participate equally can be used.  

Need Advice?

Not sure which is the best decision-making procedure for you as a company creditor? Perhaps you’re a company director and want to know more about what the new Insolvency Rules? Whatever your circumstances, please call 08000 746 757 or email: info@companydebt.com for the no-obligation assistance you need.

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