New Practice Direction on Insolvency Proceedings comes into force

Out-Law Legal Update | 16 May 2018 | 10:30 am | 4 min. read

LEGAL UPDATE: Updated practice direction on insolvency proceedings has come into force, bringing guidance and legislation into line. A New  Practice Direction on Insolvency Proceedings  (IPD) came into force on 25 April, replacing all previous practice directions, practice statements and practice notes relating to insolvency proceedings. The IPD reflects significant legal and practical changes since the last practice direction in 2014, including the Insolvency (England and Wales) Rules 2016 (as amended), the Recast EU Regulation on Insolvency Proceedings, electronic filing and the Business and Property Courts.

When the Insolvency (England and Wales) Rules 2016 (IR16) came into force on 6 April 2017 it was clear that significant amendments to the Practice Direction on Insolvency Proceedings were needed as it had been in force since 2014 and was based upon the Insolvency Rules 1986. A planned interim practice direction was never created, leaving in place an outdated practice direction that was inconsistent with the latest legal rules and practice for more than a year.

The IPD has been updated to reflect a number of significant developments, including the IR16 (as amended), the Recast EU Regulation on Insolvency Proceedings, the introduction of electronic filing and the Business and Property Courts and the re-designation of registrars in bankruptcy as Insolvency and Companies Court judges.

Administrations

The IPD provides clarification and expands upon the Electronic Practice Direction 51O in providing that:-

  • an application or a notice of intention to appoint an administrator may be filed electronically 24 hours a day every day all year round (including out of court opening hours);
  • a notice of appointment of an administrator may not be filed electronically outside of court opening hours. A notice of appointment of an administrator will therefore need to be filed during court opening hours or, in the case of an appointment by the holder of a qualifying floating charge, in accordance with the out of hours procedure set out at rules 3.20 to 3.22 IR16.

Unfortunately the IPD does not give any guidance on how to comply with the requirement under rules 3.24(1)(j) and 3.25(2)(k) IR16 that the date and time of the appointment of an administrator be contained in the notice of appointment. This requirement is still the subject of some uncertainty and debate.

Winding up petitions

Whilst IR16 prescribe content rather than forms, the IPD provides that, where a winding up petition is based on a statutory demand, the statutory demand must contain the information set out in rule 7.3 IR16 and "should, as far as possible," follow the form 'SD1' which has been produced by HM Courts & Tribunals Service.

Timing of presentation of petition - winding up petitions and bankruptcy petitions

A petition will not be treated as having been presented until both the court fee and the official receiver's deposit have been paid. If the petition is filed electronically without payment of the deposit, it will be marked "private" and will not be available for inspection (i.e. capable of appearing in the results of a winding up or bankruptcy search) until the deposit has been paid.

The date of presentation of the petition will be the date on which the official receiver's deposit is paid. If the deposit is not paid within 7 calendar days of filing the petition, the petition will not be accepted and the petitioner will be required to file a new petition if they wish to proceed. The IPD provides that, in the Royal Courts of Justice, the deposit should be paid by cheque, or by debit or credit card over the telephone - these methods of payment would only appear to be available during court opening hours and therefore, despite electronic filing rules, this indicates that, in practice, the petition will only be presented during these hours.

Bankruptcy

The express option under the previous practice direction to advertise a statutory demand in certain circumstances (previously prescribed in rule 6.3(3) of the Insolvency Rules 1986) where personal service could not be effected does not appear to have been replicated in the IPD and the references to the advertisement of a statutory demand have largely (although not entirely) been removed.

The IPD also clarifies that the requirement to lodge 3 copies of each document on making an application to set aside a statutory demand only applies if the application is not being submitted by way of electronic filing.

Drawing up of orders

The parties are now responsible for drawing up all orders (unless the court directs otherwise) and all applications should be accompanied by draft orders. Under the previous practice direction, the court was responsible for drawing up most orders.

Applications

The list of applications with which an officer acting on behalf of the operations manager or chief clerk in the Royal Courts of Justice is authorised to deal has been amended - applications for the substitution of a petitioner no longer feature on the list, and additions to the list include applications for a first extension of time to serve a bankruptcy petition and applications to list a directions hearing for less than 30 minutes.

Appeals

The appeals section of the IPD has effectively been re-written and provides greater detail than the previous practice direction. It includes guidance on appeals in personal insolvency matters, corporate insolvency matters, and on decisions from adjudicators, which is another new addition following the introduction of the debtor bankruptcy application process in 2016. The IPD, like the previous practice direction, also includes information on permission to appeal and filing appeals.

Unfair prejudice petitions

The IPD includes a new section relating to unfair prejudice petitions. This draws attention to the undesirability of asking as a matter of course for a winding up order as an alternative to an order on the basis of an unfair prejudice petition under section 994 of the Companies Act 2006, and goes on to state that the petition should not ask for a winding up order unless that is the remedy which the petitioner prefers, or it is thought that it may be the only remedy to which the petitioner is entitled.  

The IPD achieves some welcome re-alignments and clarifications together with a number of substantive changes. It was however announced a week after the IPD had been introduced that it contains a number of errors which will need to be amended in due course.

Samantha Latham is a restructuring expert at Pinsent Masons, the law firm behind Out-Law.com