The Insolvency Rules 2016 come into force on 6 April 2017 replacing the Insolvency Rules 1986 in almost all cases. What are the key changes?
The new rules are the final installment in a series of legislative changes intended to streamline insolvency processes in England and Wales.
Their purpose is to give effect to various changes in policy.
The new rules apply to all insolvencies that begin on or after 6 April 2017 and, in most cases, to those that began before this date. A number of important changes have been made.
The familiar insolvency forms will no longer be available from 6 April 2017. Instead, the new rules set out the information that each notice and document needs to include. The intention is to introduce a degree of 'future-proofing' to the new rules. There will now be no need to amend prescriptive standard forms to account for significant changes in technology and business.
In practice, a set of industry approved standard forms will be needed. There are, as yet, none available. The Insolvency Service has confirmed that it will publish a limited number of example forms. Precedent forms complying with the new rules will also be produced by leading legal publishing houses Lexis Nexis and Thomson Reuters.
It will become easier for office-holders to communicate electronically with creditors. A court order is no longer required to publish notices on a website. Instead, office-holders may give written notice to all creditors that future notices (with some limited exceptions) will be available on a website instead of being posted in hard copy.
Office-holders will no longer need to get express consent to email creditors in insolvency procedures beginning on or after 6 April 2017. If the debtor and creditor had generally communicated by email before the insolvency began then the office-holder can continue to do so. Express consent to email communication is still needed if the insolvency procedure began before 6 April 2017.
Creditors will also be able to opt out of receiving certain notices and office-holders must inform them of this right. It remains to be seen how many creditors will opt out, particularly if office-holders increasingly use websites for communication. It seems likely that a creditor who isn't interested in the proceedings will not be sufficiently motivated to deliver a written opt-out notice. Creditors may not opt out of receiving notices relating to changes in office-holder, distributions or any notice required to be given by the court.
Physical meetings, once the default position, will be abolished unless specifically requested by creditors. We will also see the end of physical section 98 meetings to nominate and approve a liquidator in a creditors' voluntary liquidation. Final meetings in liquidation and bankruptcy will be replaced by a requirement to give a final account or final report to creditors.
Office-holders will instead seek decisions from creditors either by the new deemed consent procedure or by an alternative decision making procedure. Where an office-holder writes to creditors setting out a proposal and less than 10% of creditors in value object, that proposal will be deemed to be approved.
The deemed consent procedure may not always be available, or 10% or more in value of creditors entitled to vote may object to the proposal. The office-holder may also decide not to use deemed consent. In these circumstances, the decision must be made in one of the following ways (known as the alternative decision making procedures):
Not every decision making procedure is available in every case, and careful thought will need to be given to the practicalities before deciding how to proceed.
The Official Receiver will become trustee in bankruptcy immediately on the making of a bankruptcy order. The Insolvency Act 1986 will be amended to remove references to the receiver and manager of the bankruptcy estate. This role has not been shown to have any practical benefit and could, in theory, result in the delayed realisation of assets in bankruptcy.
It will still be possible to apply to court for the appointment of an interim receiver between the presentation of a bankruptcy petition and the making of a bankruptcy order. From 6 April 2017 the court will have the power to appoint either the Official Receiver or an insolvency practitioner to this role.
If a creditor is owed £1,000 or less, the office-holder will no longer have to seek a proof of debt before paying a dividend. They can instead choose to treat all small debts as proved without requiring any further confirmation from creditors. If the office-holder chooses to treat small debts as proved they must write to creditors to tell them and include a schedule with the details of all small debts. Each creditor will then be under an obligation to tell the office-holder if the details of their debt are incorrect and, if they are, to submit a proof of debt.
The original consultation initiating these changes suggested that, if implemented, there would be costs savings and increased returns to creditors. It remains to be seen whether this will prove to be the case and we will monitor the position as the new rules are implemented and applied.
Contributor: Tessa Glover
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.