What’s the Difference Between Deemed Consent & Virtual Meetings in a CVL?
The new Insolvency Rules that came into force at the beginning of April 2017 have made significant changes to the way creditors’ voluntary liquidations (CVLs) will now be conducted. One of the biggest changes to be introduced is the newly deemed consent rules. They state that a CVL proposal by the liquidator is ‘deemed’ to be approved if a liquidator writes to the company’s creditors detailing the proposal and less than 10 percent of creditors, by the value of the shares, object.
However, deemed consent is not the only way decisions can be made under the new Insolvency Rules. There are a number of alternative options to deemed consent that can be used when decisions are made. That includes:
- Electronic voting
- Virtual meetings
- Physical meetings (where certain restrictions are met)
- Any other procedure that allows creditors to make decisions equally
Where a decision is to be made about the appointment of a liquidator in the first instance, deemed consent and virtual meetings are the two possible routes in (aside from a physical meeting where appropriate). But what are the key differences between deemed consent and virtual meetings and how do they affect the way the creditors’ voluntary liquidation is handled?
- Deemed consent – When using deemed consent, problems can arise where there are material transactions, such as book debts being converted into cash, right up to the appointment of the liquidator. This is because the statement of affairs that will have been sent to the creditors will not state the company’s affairs accurately on the decision date.
In this case, the company directors will have to send a report to the creditors detailing company transactions between the date of making the statement and the appointment being made. This report must be delivered three days before the decision date, which further delays the process.
- Virtual meeting – In the case of a virtual meeting, any last minute material transactions can be reported at the meeting. The statement of affairs will also only usually be signed off immediately before the meeting so there’ll be no reason for delays.
Decisions About the Liquidator’s Fees
- Deemed consent – It is stated in the Insolvency Rules that ‘deemed consent cannot be used to make decisions about the remuneration of a person’.
- Virtual meeting – Instead, the insolvency practitioner will have to use one of the decision-making processes listed above. One of those is to call a virtual meeting. The advantage of a virtual meeting, in this case, is that the liquidator’s fees can be agreed straightaway.
- Deemed consent – The deadline for opposing the appointment of a liquidator under deemed consent is one minute before midnight. This means a creditor can oppose the proposal at 11pm and the liquidator will not know whether they are in office until the next day or in some cases, until after the weekend.
- Virtual meeting – Virtual meetings can be held at any time, although the convener does need to ‘have regard for the convenience of those invited to attend’. This means the timing and platform of the virtual meeting still need to be considered, but it does ensure that any decisions made are instant.
Advertising the CVL
- Deemed consent – One advantage of deemed consent is that notice of the creditors’ voluntary liquidation does not have to be advertised in the London Gazette. This reduces the costs of the liquidation.
- Virtual meeting – If a virtual meeting is to be convened, it must be advertised in the London Gazette to notify any parties that the company is subject to an insolvency order.
- Deemed consent – Another advantage of deemed consent is that there are no worries about excluded persons as all creditors receive notification of the proposals. If they do not object then the appointment can go ahead.
- Virtual meeting – One factor to think about in a virtual meeting is finding a suitable virtual resource to use. The main risk is that there may be an ‘excluded person’ i.e. someone who tried to participate but couldn’t through no fault of their own. That may be down to connectivity problems, a technology failure or some other fault.
In that case, the meeting can be adjourned, suspended for up to an hour or continued. If the meeting is continued, resolutions can be made but these will be subject to complaints from the excluded person who has until 4 pm the next working day to complain. The consequences of a complaint after a resolution has been reached can be far-reaching.
What are the Advantages of Deemed Consent?
- Speed – Unless more than 10 percent of the company’s creditors in value object to the proposal then a liquidator will be appointed. This can make it much easier to speed up decision-making and gain creditor approval for the proposals.
- Ease of delivery – Deemed consent is sought by delivery of a notice to the creditors that specifies the matters concerned, the proposed decision to be made and how to object.
- Creditor engagement – Creditors can object to the proposals without having to take part in a virtual meeting, although if the proposals are rejected by 10 percent of the creditors debt in value, 10 percent of the creditors in number or 10 creditors (known as the ‘10/10/10 rule’), a physical meeting will have to be called.
- No advertisement of the CVL – If the creditors’ voluntary liquidation proposals are approved and a liquidator is appointed, there is no need to advertise the notice of the CVL in the London Gazette. This can help to keep the costs of the liquidation down and speed the process up.
What are the Disadvantages of Deemed Consent?
- The liquidator’s fees cannot be approved – The liquidator’s fees cannot be approved by deemed consent, which means one of the other decision-making processes will also need to be used. In a virtual meeting, the liquidator’s fees can be agreed straightaway.
- The timing of objections – Use of deemed consent can increase the possibility of delay either through objections or a request for a physical meeting being received. The deadline for making objections to deemed consent is one minute before midnight, which can add uncertainty to the process as liquidators will often not know if they have appointed until the next day. In a virtual meeting, decisions can be made instantly.
- Last minute transactions – When using deemed consent, problems can arise where there are transactions right up to the appointment of a liquidator. This is because the information the creditor has received in the statement of affairs will no longer be accurate. This can lead to delays. In a virtual meeting, any last minute transactions can be reported at the meeting.
Are you a company director who is struggling to understand the new rules? Perhaps you’re not sure whether deemed consent or a virtual meeting is the best way to appoint a liquidator for your creditors’ voluntary liquidator? Whatever your circumstances, please call 08000 746 757 or email: email@example.com for the no-obligation advice you need.