Out-Law News | 24 Jan 2014 | 4:08 pm | 2 min. read
Alastair Lomax of Pinsent Masons, the law firm behind Out-Law.com, was commenting on a number of simplifications to the insolvency regime announced by Business Minister Jenny Willott. The proposals, which come as part of the Government's response to its 'red tape challenge' regulatory reform programme, include ending the need for insolvency practitioners (IPs) to get court orders in order to carry out certain insolvency procedures and encouraging more use of digital communication with creditors.
"These changes will be welcomed by many in the insolvency profession," Lomax said. "They address a number of the specific concerns raised in the past by insolvency professionals and creditor groups. Equally, they should plug a number of the gaps apparent in the draft fully-revised Insolvency Rules, which were circulated by the Insolvency Service last autumn as part of a consultation which closes today."
"The UK boasts one of the most robust and effective insolvency regimes anywhere - one responsible for rescuing hundreds of businesses and many thousands of jobs each year. Quite rightly, in the wake of the financial crisis, there is continued scrutiny of the value being generated for creditors through formal insolvency proceedings in the UK. If implemented properly, these changes should help both to speed up the insolvency process and enhance creditors' returns in many cases," he said.
Changes that require the use of primary legislation will be taken forward when Parliamentary time allows, while others will be introduced as part of the rewritten Insolvency Rules, Willott said.
The reforms proposed by the Government include a number of simplifications to IP regulation and procedures, and changes to the disqualification regime. Once in force, IPs will be able to communicate with creditors electronically, instead of by letter, and the records they are required to keep for internal purposes only will be reduced. In addition, office holders will no longer have to obtain court orders to carry out certain procedures as part of the insolvency processes, including extending administrations or posting information on websites.
Other changes include allowing office-holders to rely on an insolvent firm's own records when paying out small claims, reducing the need for those creditors to complete claim forms. The requirement to pay out small dividends will also be removed so that IPs can instead use that money for the wider benefit of creditors.
Electronic forms for the reporting of director misconduct will also be introduced in order to make the process simpler and allow action to be taken against them more quickly. The Government said that this would provide a higher level of protection to both the business community and the public.
"When businesses do enter the stage of insolvency we need to make sure that the process is as smooth and straightforward as possible," the Business Minister said. "One way of doing this is cutting burdensome red tape which makes insolvency proceedings less complicated and troublesome."
"If we're to help build a stronger and more sustainable economy then we need to make sure that businesses have the right environment to grow. At the same time, when companies do fail, we need to make sure creditors get a fairer deal," she said.