Insolvency rule review focuses on efficiency and technological advancement

Practitioners are likely to welcome the Insolvency Service’s broad-based review and its invitation for feedback from the profession on a diverse range of issues.

Sally Williamson, restructuring expert at Pinsent Masons, was commenting after the Insolvency Service launched its second review of the insolvency rules which covers both the Insolvency (England and Wales) Rules 2016 and the Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018.

The consultation builds upon the previous rules review published in 2022 and is an opportunity for the Insolvency Service to take opinions from the insolvency profession and other interested stakeholders on how the rules work, identify any administrative or regulatory burdens, and seek greater efficiency.

Within the consultation, the Insolvency Service recognises that insolvency practice may evolve and look different in the future as technology continues to advance.  While much of the review focuses on improving administrative efficiency and resolving practical issues identified by stakeholders, the consultation also asks whether the rules are equipped to respond to the developments in AI and the increasing prevalence of digital assets. The consultation is intended to assess whether the rules remain fit for purpose and consider how they can be future proofed in a rapidly changing environment.

The consultation is divided into three broad sections. Section one forms part of the statutory post-implementation review and asks whether the rules continue to achieve their intended purpose. The Insolvency Service is seeking views on whether the existing procedural requirements remain fit for purpose and whether there are opportunities to reduce the time and costs associated with insolvency proceedings, particularly in relation to smaller companies.

The consultation considers whether court involvement remains necessary for certain uncontested court applications, whether the current requirements for Gazette advertisements continue to represent value for money and whether information provided to creditors remains useful in practice. These questions are directed at whether existing processes can be streamlined without compromising creditor protections.

Section two focuses on several specific areas where reform may be required following feedback received during the 2022 review and subsequent stakeholder engagement.

Topics under consideration include removing the need to file hard copies of documents following an out-of-hours qualifying floating charge holder appointment of administrators where the documents have already been filed electronically; clarifying when director or company notices of appointment of administrators submitted out of usual court hours through electronic filing take effect; reviewing whether the £1,000 small debt threshold should be increased and/or amended to include certain employee debts; addressing issues surrounding office holder fee approval in creditor voluntary liquidations where creditors do not engage in the process; and considering whether the timetable for approving a company voluntary arrangement is too restrictive in practice.

The consultation also seeks views on electronic delivery of documents, creditor committees, handling personal data, replacement office holder fees, opting out of correspondence and whether financial thresholds within the rules should be updated to reflect inflation.

Section three seeks views on how the rules should respond to emerging technologies – AI and digital assets in particular.

The existing rules were introduced before the widespread adoption of AI and insolvency practices, businesses and consumers are increasingly operators in a digital environment. Office holders may now use technology to collect, store and analyse information. AI tools are also now capable of reviewing documents, automating administrative tasks and assisting with analysis. The consultation recognises that AI has the potential to alter how insolvency work is carried out. It also notes that technological developments are changing expectations around how individuals interact with organisations and access information.

“Rather than proposing specific reforms, the Insolvency Service is seeking to understand how AI is already being used in insolvency processes and whether the rules create any practical barriers to its adoption,” said Williamson.

It also asks whether office holders disclose when AI has been used in carrying out statutory functions and whether changes may be required to ensure that the rules remain effective as AI capabilities develop.

Williamson said: “The questions are broad, reflecting that the technology is evolving rapidly and that its long-term impact on insolvency practice remains uncertain. The service is therefore seeking views at an early stage, before any approach becomes established.”

The consultation also considers digital assets and cryptocurrencies. The government's preliminary view is that the existing insolvency framework is sufficiently flexible to accommodate digital assets and that substantive amendments to the rules are not currently required. However, the Insolvency Service acknowledges that the scale and diversity of digital assets has developed rapidly and that stakeholder experience may have evolved.

Caroline Castle, restructuring and insolvency expert at Pinsent Masons, said: “The Insolvency Service acknowledges that this is a fast-moving area and is seeking evidence from stakeholders on whether practical difficulties are arising in insolvency cases involving digital assets. The consultation asks whether the current rules provide appropriate support to officeholders both recovering digital assets and dealing with insolvent digital traders.”

The consultation runs for 12 weeks, closing on 6 October. A response will be published by 6 April 2027.