3 May 2017 by

Key changes in the Insolvency Rules 2016

The Insolvency Rules 2016 came into force on 6 April 2017. It is hoped that their implementation save time and costs in the insolvency process, with the end goal of increasing returns to creditors. This note provides details of the key changes to the rules.

Statutory forms no longer required

The new rules remove the requirement to use statutory forms in insolvency proceedings. Rather, you must now comply with the requirements within specific rules, which set out the content that must be included in specific documents and notices. For example, the content of a statutory demand must now be in accordance with either Rule 7.3 (companies) or 10.1 (individuals).

Likewise, the content of a creditor’s winding up petition must be in accordance with rule 7.5 and the content of a bankruptcy petition must be in accordance with rule 10.7.

In order for there to be some form of consistency, rule 1.8 states that any information that is required to be included in a document must be provided in the order listed in the rule(s). However, rule 1.9 does allow for there to be variations from the required information if the circumstances require a departure or such departure is immaterial. Rule 1.9 does not apply to the contents of a statutory demand.

Creditors’ meetings

The Small Business Enterprise and Employment Act 2015 (“SBEE”) has amended the Insolvency Act 1986 by changing how the creditors’ decisions will be taken in insolvency proceedings.

1. Physical creditors’ meeting

Under the new rules, in order to hold a physical creditors’ meeting, a request must be made by either a minimum of 10 separate creditors, 10% of the total number of creditors or 10% in the value of creditors.

2. Value-for-money lodgings

Where a proposal is given by an officeholder to the creditors, if objections are received by less than 10% of the value of the creditors, then the proposal will be deemed to be approved. The process of deemed consent cannot be used for certain actions as set out in the insolvency legislation, including the removal of an officeholder or the approval of an individual or company voluntary arrangement.

3. Alternative creditors’ decision making procedures

Rule 15.3 lists the following decision making procedures that may be used in the alternative to deemed consent:

  • correspondence
  • electronic voting (as described in 15.2 and 15.4)
  • virtual meetings (as described in 15.2 and 15.5)
  • physical meetings; or (as described in 15.2 and 15.6)
  • any other decision making procedure which enables all creditors who are entitled to participate in the making of the decision to participate equally

Abolition of meetings

Schedule 9 of SBEE replaces sections of the Insolvency Act 1986 requiring a final meeting of creditors in liquidation and bankruptcy proceedings, with a requirement that the liquidator or trustee prepare and submit a final report.

Rule 18.14 provides details of the information that must be included in the final reports.

Additionally, because there is no longer the requirement for a final meeting, schedule 9 of SBEE provides that the release of a liquidator or a trustee is subject to the creditor’s right to raise an objection within a defined period. The defined period is the later of 8 weeks from the delivery of the prescribed notice (which accompanies the final report) or the determination of an application for the request for further information or challenge to the remuneration.

Changes to officeholder reports and communications

Rule 1.45 now provides that where a creditor had communicated with a debtor by email prior to the insolvency proceedings, the creditor is deemed to have consented to the delivery of documents by the officeholder by email. Previously express consent was required to email creditors in insolvency proceedings.

Rules 1.38 sets out how a creditor can opt out of communications from an officeholder and allows for a creditor to opt out at any time by delivering a written notice to the office-holder. The opt out does not apply to certain notices, including notices of a change of the office-holder or change of address details of the office-holder. Previously there was no option to opt-out.

Rule 1.39 states that the office-holder must, in the first communication with the creditor, inform the creditor that the creditor can elect to opt out of receiving documents relating to the proceedings. The rule sets out what the communication must contain.

Under the previous rules, the Court had to give permission in order for information to be placed on an insolvency practitioner’s website. Rule 1.50 removes the requirement for permission and allows for future notices to be placed on the website without notice to the creditor, so long as the office-holder has given notice to the creditor at the outset that future notices will be communicated that way. Rule 1.50 doesn’t apply to documents that require personal delivery, notices of an intention to declare a dividend or a document that is not delivered generally.

While the changes are generally welcomed, initially it is possible that the changes will increase the workload on insolvency practitioners, whilst people are familiarising themselves with the rules. Additionally, the replacement of the statutory forms with a prescribed list of information that must be included in documents may lead to more documents being completed inaccurately.

If you have any questions or concerned about the changes or insolvency please contact one of our solicitors in the Dispute Resolution team here.

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