Welcome to a New Age of Insolvency
By Lynn Gibson
Published on November 28, 2016
It is the first time since 1986 that all of the UK’s legislation relating to insolvency procedure is being placed in one document.
The Government (Insolvency Service) is not trying to change the fundamental procedures in insolvency regimes. It is instead merely trying to make it easier to follow all the rules whilst taking the opportunity of modernising the language and updating how stakeholders are notified and kept informed – in short a tidying up exercise taking modern technology into account.
Of course it cannot be lost on all concerned that before they come into effect they will be out of date and possibly need a complete revamp due to Brexit! And then there is the questions about what European laws will be adopted without any change? Is this legislation a dead duck even before it takes effect? Only time will tell.
So what are the major differences?
1 Creditors will not have to be sent progress reports individually. The Insolvency Practitioner (IP) can write to creditors at the outset giving details of a secure portal on their website where all the information can be retrieved.
Creditors can even opt out of receiving that information and then the IP must not send information, the only exception being notices to claim a dividend. These changes are in a bid to reduce costs of the IP such as postage.
As an IP I welcome these changes and certainly for large corporate creditors this must be the way forward but I wonder what the smaller SME creditors will think of this change. I know it seems strange to some City workers, but there are still a large number of directors of SME’s and shareholders in solvent Members Voluntary Liquidations (MVLs) who are individuals of a certain age who could be unable to embrace this change.
One example was an MVL I completed recently whereby there were 3,500 members of a social club. The social club was liquidated as the value of the property in a London suburb was worth more than the revenue generated by the aging members. But I had a tremendous problem finding and identifying the members as all the usual ways of passport or driving licence was not possible as many of the members didn’t have a passport or driving licence so I had to resort to a doctor signing a pension book. So while the changes may modern the process there will still be barriers that need to be overcome.
2 No physical meetings need to be held in Administration and Liquidation. Whilst final meeting are barely, if ever, attended I would welcome this change but Section 98 meetings when placing the company into insolvent liquidation are still often attended by SME directors and sole traders. These tend to be creditors who will personally suffer a loss as the liquidation will have a material impact on their cash flow and profitability.
I have had several s 98 meeting recently where the creditors have used the opportunity to ask the director questions face-to-face and to let the director know their feeling and the hardship caused by their company’s failure. It is a shame to remove this one-off opportunity to creditors and usually the IP gains much more of an understanding of the working practices of the failed business, which helps in the subsequent investigation.
An exception to the no physical meetings are the initial meetings for Company Voluntary Arrangements (CVAs) and Individual Voluntary Arrangement (IVAs) but as these tend to be more negotiations rather than just after the event information gathering it must be vital to maintain these meetings.
3 IPs are also able to put resolutions to creditors with assumed acceptance unless 10% of creditors by value or 10% by number object. This plays into the hands of corporate creditors and reduces the influence of the small creditors who pay close attention to the progress of insolvencies.
We shall see what impact, if any, there is on the outcome of the cases.
4 In order to prevent violence and abuse to the debtor privacy can be granted so the home address does not need to be circularised. This is welcome, as although violence is unusual, some debtors can feel very vulnerable especially for their families.
5 The rules relating to employees changes as their home addresses will not be included as creditors in the statement of affairs of their employer. Again this is to prevent abusive behaviour by other creditors and the publication of private data. Employees will also not be taken into account when voting on resolutions as unpaid wages claims are deemed preferential and therefore must vote as preferential creditors to pass resolutions but, realistically, employees hardly ever, if ever, vote on these resolutions.
6 Clarity is introduced for the IP as all procedures such as agreeing creditors’ claims will be harmonised across all types of insolvency procedures. This should be a good thing.
7 All creditors’ claims less than £1,000 will be deemed to be accepted for dividend purposes if they agree with the debtor’s records. Again a welcome change allowing the IP to concentrate on the larger claims.
So to conclude, whilst most of the changes are to be welcomed, time will tell if there are any unintended consequences.
However, it seems that in most cases these rules will be helpful to complacent creditors and potentially reduce the time spent by Insolvency Practitioners in the administration of insolvency procedures.
Importantly these new rules bring insolvency into the 21st century, which my profession and I should welcome.
Lynn formed Gibson Hewitt & Co in 1988 with Robert Hewitt. Both were senior managers with the leading accountancy practice of Touche Ross at the time.
She is an honours graduate in Economics at the University of Manchester. She qualified as a Chartered Accountant in 1978. She is a Fellow of the Association of Business Recovery Professionals and a qualified Insolvency Practitioner.
She has an extensive record of success in organising business plans, corporate restructuring, fundraising and viability reviews. She speaks regularly to a wide variety of organisations, including the Institute of Directors, Chambers of Commerce and Citizens Advice Bureaus. She is a keen sailor and has two children.
Article picture: andreas160578 via Pixabay