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New modernising insolvency rules come into force in April

Out-Law Legal Update | 29 Mar 2017 | 10:07 am | 3 min. read

LEGAL UPDATE: New insolvency rules will modernise the insolvency process and give creditors access to quicker decision-making and communication. But changes to the procedures and methods of communication mean that there is a risk that creditors will miss important information from office holders in charge of an insolvency process, so extra care is needed in the new regime's early days.

Most businesses will, at some point, have been a creditor in an insolvency, meaning that they are owed money by a debtor who has entered an insolvency process; or had to deal with an officeholder: a liquidator, administrator, receiver or trustee in bankruptcy. Many will have been asked to vote on decisions relating to the initiation or progress of the insolvency process. The way that creditors are dealt with is changing under the new rules.

The Insolvency (England and Wales) Rules 2016 consolidate existing legislation and seek to modernise and future proof formal insolvency processes as well as reducing the cost of these procedures, thereby increasing the return to creditors.

They come into force on 6 April 2017. They will apply to all insolvency procedures, including those that commenced before 6 April, with some limited exceptions. On 6 April various sections of the Insolvency Act 1986 will be amended and new sections will be introduced by the Deregulation Act 2015 and the Small Business Enterprise and Employment Act 2015.

Changes to Decision Making

The new rules restrict the use of physical creditors' meetings as the main way for an officeholder to seek a decision from creditors. A new 'deemed consent' procedure and other 'decision procedures' replace physical creditors meetings. Section 98 meetings, where creditors decide to wind-up a company, and final meetings have been abolished.

Deemed consent

The new rules introduce 'deemed consent' for proposals to creditors. A proposal from an office holder is deemed to have creditors' consent unless objections are received from 10% or more of the creditors. Creditors can request that a physical creditors meeting is held to consider the proposal, rather than rejecting the proposal outright, but only if the request comes from the equivalent of more than 10 creditors, 10% in value or 10% in volume. The deemed consent procedure is available for most decisions, with some exceptions. It cannot be used to approve an officeholder's remuneration or approve a voluntary arrangement.

Deemed consent is likely to be used in relation to the approval of administrators' proposals and approval of the appointment of a liquidator in a creditors voluntary liquidation.

Decision Procedures

Office holders will also be able to seek decisions from creditors using electronic voting and virtual meetings, alongside the existing methods of correspondence and, in restricted circumstances, physical creditors meetings. The officeholder must provide creditors with all necessary information to access the meeting/ system if using a virtual meeting or electronic voting system

Changes in communication

The new rules encourage the use of email and websites to communicate with creditors. This is part of the aim to modernise insolvency.

Creditors who usually communicated with debtors by email before insolvency proceedings commenced are deemed to have consented to receive documents by email from the officeholder, unless that consent is revoked before the document is sent. Therefore, any creditor who doesn't want to receive emails from the officeholder needs to withdraw their consent. This provision only applies to insolvencies commenced after 6 April 2017. Before the change, email communication was only permitted with the actual consent of the creditor.

An officeholder may now publish almost all documents on a website without notifying creditors each time a new document is posted to the website. An officeholder using a website to communicate must notify creditors of his intention to do so, together with the relevant details to access the website. Those creditors should diarise to check the website on a regular basis or subscribe to any notification options the website may have. Before the change, a court order was required to allow publication only on a website without notifying creditors of each new document.

Creditors may also opt out of receiving correspondence from officeholders under the new rules.

Abolition of statutory forms

Before the change statutory forms were needed for many things including notice of intention to appoint an administrator; notice of appointment of an administrator, statutory demand and winding-up petitions. These are abolished under the new rules and replaced with 'prescribed content'. Creditors should carefully review any documents they receive from a debtor or officeholders, or proposed officeholders, as they may look different from the forms they are used to seeing.

Small debts

An officeholder is now entitled to treat debts of £1,000 or less as proved. Creditors should carefully check any information received from officeholders and notify them as soon as possible if the details of the debt they are owed is incorrect.

Byline

Sally Williamson and Caroline Castle are restructuring specialists at Pinsent Masons, the law firm behind Out-Law.com