Insolvency Processes

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Modernised and consolidated rules. Changes to Insolvency Processes

Modernised and consolidated rules (The Insolvency (England and Wales) Rules 2016) (“the rules”) were introduced with effect from 6 April 2017. These rules replaced the original legislation, and subsequent amendments. They were developed in consultation with the insolvency profession and are intended to reflect modern business. It is anticipated that they will make insolvency procedures more efficient, and encourage creditor engagement. A summary of some of the most notable changes is below.

Decision Making

The rules adopt S122 and S123 of the Small Business Enterprise and Employment Act 2015 (“SBEE”), and bring about a significant change to the how decisions are made. These changes include:-

Deemed Consent – the new rules provide that, where an office holder writes to creditors’ with a proposal, and no objection is received, that proposal is deemed to be approved by ‘deemed consent’. If 10% of creditors’ (in value) raise objection to the office holder’s proposals then consent will not be obtained, and there are restrictions on when this procedure is available for use.

Alternative Decision Making Procedures – The following procedures can be adopted as an alternative to ‘Deemed Consent’:-  

  • Correspondence
  • Electronic voting
  • Virtual meeting
  • Physical meetings
  • Any other decision making procedure which enables all creditors, to participate equally

Restrictions on use of physical meetings – Whereas the previous rule relied heavily on the use of physical meetings, the new rules provide that an office holder cannot convene such a meeting unless they are requested to do so by either 10% of the creditors (in value), or by 10% of the total number of creditors, or by 10 individual creditors.

Reporting and Communications

Modern business is vastly different to when the original legislation was enacted in 1986. The new rules reflect current practice and make changes to how an office holder can communicate with creditors’.

  • Creditor’s Decision to ‘Opt Out’ – Where a creditor does not wish to participate, or receive information concerning the insolvency process, the new rules permit them to ‘opt out’. It will be for the creditor to deliver notice of their decision to opt out to the office holder, although this can be revoked any time thereafter.
  • Email Communication – the previous rules did allow permit office holders to communicate with creditors’ by email, unless that creditor had given written consent. In the modern age most business communicate by email, and so the new rules provide that any creditor who has communicated with the customer by email, before insolvency proceedings commence, is deemed to have consented to receive documents by email by the subsequent office holder.\
  • Use of Websites – previously, an office holder, who wished to communicate with creditors’ by publishing notices on a website, without sending written notice to the creditors that a specific document was available to view on the website, required permission from the court. However, the new rules remove this requirement and an officeholder can simply give notice that future notices (with certain exceptions) will be published on a website.

Please note: This guide is intended to provide basic information only. Where specific advice is required, we recommend you seek professional advice from a licensed Insolvency Practitioner, or other suitably qualified person.

Careful consideration must be given to all options available to a financially distressed business. For more advice, fill out our  contact form and we will be in touch.

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