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'Modernised' English insolvency rules will come into force in April

Out-Law News | 28 Oct 2016 | 11:15 am | 2 min. read

"Modernised and consolidated" insolvency rules, which will come into force in England and Wales on 7 April 2017, have just been published.

The new rules restructure the 1986 version of the insolvency rules, introduce gender-neutral drafting and incorporate the 28 sets of amendments made since the rules came into force. They also take into account changes made to insolvency procedures by the 2015 Deregulation Act and Small Business, Enterprise and Employment Act, particularly around the use of electronic communication and doing away with physical meetings.

In an explanatory note, the government said that the updated rules would "better meet the needs of users, including the judiciary, insolvency office-holders, creditors and public officials".

"The government's move to simplify, rationalise and eliminate inconsistency in the rules of the insolvency process is to be welcomed," said insolvency law expert Nick Pike of Pinsent Masons, the law firm behind Out-Law.com. "It will make the administration of insolvency estates faster and therefore cheaper."

"While the removal of the need for meetings which many view is unnecessary is also a step forward, creditors will need to ensure that transparency is not lost as a result. Making information available on websites only, rather than posting paper documentation, will undoubtedly save time and money - but creditors will need to make sure that they read what's on the website," he said.

The insolvency rules set out the detailed procedure for conducting the company and individual insolvency proceedings set out in the 1986 Insolvency Act. These proceedings include company voluntary arrangements (CVAs), administration, administrative receivership, winding up, individual voluntary arrangements (IVAs) and bankruptcy. They also set out the relevant court procedure and practice.

According to the explanatory note, changes to insolvency law have "at times been slow to follow" changes to business practice, particularly those introduced as a consequence of technological advances.

"This has meant users have not always been able to take advantage of the quickest, most cost effective or most convenient methods of achieving certain tasks," the government said in the note.

Legislative changes introduced over the course of 2015 and 2016 now allow for electronic communications between the insolvency practitioner (IP) and creditors, and remove the automatic requirement to hold physical creditors meetings. Creditors will also be able to opt out of further correspondence, and to receive small dividends from the IP without having to put in a formal claim.

Under the 1986 rules, IPs are prevented from continuing pre-insolvency correspondence electronically without the written consent of the creditor. The 2016 rules change this, so that electronic communication can continue post-insolvency where this was customarily used pre-insolvency. The new rules will also permit IPs to send a notice to creditors stating that all future documents will be made available on a website, subject to some exceptions, without the need for a court order as is the case under the 1986 rules.

The new rules will allow IPs to use specified alternative decision-making processes, rather than requiring creditor meetings. In many cases the IP will be able to use a process of 'deemed' consent. This will allow the IP to write to creditors with a proposal, which will be deemed approved if the IP does not receive objections from 10% or more of the creditors by value. If sufficient objections are received, the IP will be able to use an alternative decision-making process such as a virtual meeting, correspondence or electronic voting.

Creditors will be able to request physical meetings, although IPs may only call these on the request of 10% or more of creditors by value or a minimum of 10 individual creditors. The idea behind this is that the expense of calling a physical meeting will be incurred and charged to the insolvent estate only where the creditors have explicitly asked for this to happen, according to the explanatory note.

The new provisions also abolish mandatory final meetings of creditors in liquidation and bankruptcy, on the grounds that these meetings "are of little value and are rarely, if ever, attended by creditors", according to the note.