As of April 6th, 2017, significant changes have come into force to modify the ways insolvency proceedings are carried out in the England and Wales. As per the Insolvency Rules 2016 legislation, these changes are intended to both streamline and modernise company insolvencies, and represent the most significant legislative modification in the three decades since the Insolvency Act 1986. In an explanatory note attached to the legislation, HMRC explains that the rules are intended to ‘better meet the needs of users, including the judiciary, insolvency office-holders, creditors and public officials.’
With over 16,000 companies undergoing an insolvency procedure in England and Wales each year, the legislation is aimed at making the process as efficient as possible, with emphasis on creditors who, until now, have found themselves considerably inconvenienced by meetings and paperwork, in addition to the debt already owed to them. As HMRC makes concerted efforts to modernise the British tax system as a part of its Making Tax Digital strategy, these changes feel both timely and useful, though there will likely be a teething period as the insolvency industry is goaded into the digital age.
Here are some of the key changes
Abolition of Statutory Forms
As HMRC moves towards a more digital approach, this reduces the need for IP’s to amend forms and allows for variations from the prescribed contents if circumstances require it. In their place, there are now prescribed requirements for notices (set out in Part 1).
A Move Away from Physical Meetings
Mandatory Section 98 Meetings are abolished. NB, these can still be requested if the minimum number of creditors wish but they are no longer a requirement. For IP’s, this will mean a reduction in travel time, and reduced costs for things like room hire. For
Creditors, it will mean reduced costs for the Insolvency Practitioner’s time.
Final Meetings for Liquidation and Bankruptcy Proceedings are abolished – Instead, the liquidator will file a final report.
- Creditors can opt out of further correspondence which will reduce unnecessary paperwork.
- IP’s may also announce that all future notices will be published on a website of their choosing, without the need to notify creditors every time.
Perhaps the most significant change in this recent legislation is termed ‘deemed consent’, referring to the process by which creditors will be ‘deemed’ to have accepted proposals from the officeholders unless more than, ten percent by value; ten creditors or ten percent of total creditors object (10,10,10 rule). Creditors may object via electronic voting, old fashioned paper correspondence, email, or a virtual meeting. Deemed consent will be the standard in all cases except where the court requires the use of a ‘creditor’s decision making procedure.’
Alternative Decision-making Procedures
Where deemed consent is not used, the focus should be on any process where ‘all creditors can participate in the decision-making equally. These are: correspondence, electronic voting, virtual meetings, or physical meetings.
Small Dividends Can be Paid Without Formal Claim
Officeholders are now authorised to treat debts below £1000 as proved, without the necessity for the creditor to submit a formal claim. This is assuming the accounting records or Statement of Affairs of the creditor show clear evidence of the debt.