New Insolvency Rules – what you should know

Whilst for most 6th April was just the beginning of the new tax year, for me it was the end of months of hard work changing what we do and how we do it.  The Insolvency Rules have been around for 30 years, although there have been amendments through the years, they have been incremental, until now.  The rule book has been ripped up and rewritten.  The intention is that it should help creditors and reduce costs, only time will tell!  So what should you know if you or a client are owed money by a customer that is going into insolvency or as most would say “going bust”?

Unlike previous changes, the rules that have just come in completely overwrite the existing ones.  What we have all been used to has now gone.  There are a lot of technical and minor changes which will interest no-one (other than me), the main ones to take note of are:-

No more meeting of creditors?

The intention of the changes are to increase creditor engagement, to do this the government have more or less scrapped creditor meeting!  I know, it seemed as illogical to me too.

Rather than meetings we now have “creditor decisions”:-

Deemed consent – telling creditors what the decision is and it is passed if it is not objected to.  This is actually quite useful where creditors do not want to be engaged and therefore trying to get a decision passed can be difficult.  If as liquidator I want to take a course of action, I might put it out to the creditors to see if anyone objects, if they don’t then I know they are content for me to continue.

If more than 10% of creditors object then the deemed consent is not passed.  This could prove useful for creditors and the insolvency practitioner where everyone is in agreement with what is happening.

New Insolvency Rules

Voting – exactly is it says on the tin!  The decision is made by creditors voting on it, either electronically or on paper.  Nothing too controversial here.

Virtual meeting – creditors can attend a meeting, but only virtually, this could be by conference call or video conference, this is supposed to save costs.  I’m not convinced, how many times have you been on a video conference or conference call and the line has dropped out?  For a large meeting of creditors, I can see people dropping in and out, people talking over each other etc.  Whilst it is a meeting, I do think sometimes face to face is actually better, but the rules are the rules.  I hope I am proven wrong and creditors engage, but I don’t think they will.

Physical meeting – whilst we can no longer convene, if more than 10 creditors, 10% in value of creditors or 10% in number of creditors request a physical meeting one must be held.  It will be interesting to see how often this is used, as sometimes everyone sitting in the same room is exactly what is needed.

Creditor engagement at the start of liquidation

Previously if a company was entering into liquidation, creditors would be invited to a meeting to consider the resolutions.  In reality, what has happened is that creditors will very rarely turn up, and I will sit in a room with the director of the company simply signing all of the paperwork.

Instead to start the liquidation, creditors will be notified that the decision is being made by deemed consent, or by a virtual meeting.  Before the decision creditors are sent all of the information, the statement of affairs, company history etc, so that they at least know what is involved.  This is a step forward as before only the few creditors that came to the meeting actually knew what the background was before the company was already in liquidation.

For most, they will receive the information and that will probably be sufficient, they will simply allow the process to go ahead.  If they are unhappy they can convene a meeting provided there is enough to request it.  I wonder how often this will happen.

Corresponding with creditors

On more than one occasion I have been asked by creditors to stop sending them information, but it was a requirement that reports would be sent that a lot of time creditors will not read.  Instead now they can opt out.  Only receiving information if there is due to be a payment to the creditors.  Seems sensible to me and it means your clients will only be notified when they are likely to receive a payment if they wish to.

Rather than writing out to creditors, all information can also simply be put onto a website.  We are encouraging creditors on day one to register with the website in order that they receive a notification whenever anything is uploaded.  Again those that are interested will hopefully register and will therefore receive the information.  For those that do not want to know, costs are not wasted providing them with information.

I would encourage your clients in cases where they are a creditor to register with these websites so that they at least get notified when something happens.  If they are not interested then they do not read it, but at least they know it is there.  I do think that a lot may not register and therefore costs could be increased by creditor calls to the liquidator or administrator asking for updates as they have not heard anything.

Agreement of small creditor claims

The new rules allow that where according to the companies records, the creditor is owed less than £1,000 the insolvency practitioner can automatically agree their claims without the need to submit information.  If you or one of your clients has a small debt outstanding, then there may be no need to fill out yet more paperwork.  That is unless you want to vote in one of the decisions, then you do.  Couldn’t be simpler, right?

Will it work

So will all these changes meant that costs are reduced and efficiency increased and therefore the creditors receive back more money and will creditors be more engaged?  Only time will tell.