Well it is that time when we start to think about the ‘new’ rules. Yes they might have been on the cards since 2007 when the 2010 Rules were being considered and drafted, but 9 years later the hopelessly optimistic timeline of ‘a year after’ the other Rules change, they actually seem like they might come into force this year and now we have to consider the reality of the biggest change in the Insolvency Rules since 1986. As the Rules are still being finalised and worked on, we don’t have a sufficient final draft to work from. There is a real risk that there will be little time to prepare for their implementation when they are finalised and published.
Time to Retire?
I can hear the sound of partners nearing retirement sighing and looking at how to exit earlier than anticipated in order to avoid learning yet another set of legislation. Who can blame them? The constant feature of insolvency is change and sometimes the change is so great and the risk reward ratio so out of kilter that it may be time to take the money and run (not that there is much of that anymore). The exiting of experience and wisdom from the profession will be saddening indeed. Let’s hope it’s not a mad scramble to the door – we need that experience.
What is the purpose of the change?
The 2016 Rules are supposed to do three things. The first is to consolidate the existing Rules and the multiple amendments and changes and statutory instruments introduced over the years. The politicians and Insolvency Service will get this new legislation through parliament on the platform of reducing legislation. (I think the original consultation mentioned something like 25 separate pieces of legislation being repealed). They are of course, doing no such thing as they are all incorporated into the new Rules. No actual reduction of legislation – just a consolidation. We would all applaud an actual reduction of red tape – but as the new fee regime has proven – bureaucracy is set to increase rather than decrease, unfortunately. (What a great way to spend creditors’ money I hear you cry.)
The second aim is to simplify and modernise the language. Of course that is all relative. Do expect, inter alia, Latin to reduce (see what I did there) but don’t expect it to be actually modern and simple in the everyday sense – this is still legislation after all and you will still need a degree to understand it. Something of a lost opportunity in my opinion – most creditors could actually engage more if they understood the law. It’s a bit like me being asked to decipher how a jet engine works when I take a flight – simply not possible.
The third is ‘to incorporate various changes in the law which are intended to reduce red tape.’ This sentence is an oxymoron if you ask me. Anyhow – see my comments on the first objective.
Some much needed “Thank You”s
Now to those in the profession (and on the Insolvency Rules Committee) who have given countless hours for free assisting in getting this to where it is now – I do applaud you. Having gone through the pain with the 2010 Rules I can empathise with the long hours trying to help in getting this right. It is a thankless and often unrecognised task. So – thank you for making this better than it was. Thank you for giving up your time voluntarily to read, amend and attend meetings. Without you the profession would be facing quite a different task altogether. You know who you are and you are awesome! Thank you. You do deserve a medal.
Some initial observations
Forms
It appears that a lot of the changes are to make insolvency more accessible to creditors. For example, content requirements for notices are written out rather than in a statutory document. This enables the recipient to dictate how they want to receive the information. Now we all know that following the 2010 Rules Companies House issued their own forms for delivery of documents to them. I expect the same will happen again but also HMRC, The Pensions Regulator and other informed creditors could all start insisting on a particular form or format for delivery of information to them. That will add an administrative burden on the IP and their staff and subsequently costs too. The overarching aim of the rules is “to remove barriers to the efficient administration of insolvency proceedings…This will drive down costs of administering insolvencies, resulting in improved returns to creditors.” I would like to see the financial model they have used to support this statement.
No more physical meetings
The requirement to hold physical meetings is being removed (unless 10% of or 10 individual creditors request one). It is a long time since informed and institutional creditors have come out of their offices and looked directors in the eyes and quizzed them. That used to happen and it was effective. Will these informed and institutional creditors and others now remotely attend meetings by Skype etc? It would be incredibly helpful if they did. Trade and expense creditors might vote if they are sent something like a survey monkey to complete. We shall just have to wait and see which method proves the most effective.
Final meetings are being abolished in Liquidations and Bankruptcies. I’ve only ever had a creditor turn up at a final meeting once. It was illuminating. The creditor objected to the release of the Liquidator and was able to advise the Liquidator of a whole host of things including the whereabouts of some hidden assets. Needless to say, the director wasn’t happy when he discovered he had been rumbled at the last hurdle and the Liquidation continued.
One of the RPBs’ new objectives is to assess the “value for money” IPs are giving, so they are likely to consider whether IPs use the most effective decision making method. It will be interesting to see how the RPBs will assess that and what research will be undertaken to ensure they are all using the same benchmark.
Opting out and opting back in
I am so disappointed that the IS decided to reinstate this, especially after the feedback from the 2010 Rules consultation was taken on board and these proposals were removed at that time. This is really going to be a headache for IPs. Once a creditor has opted out of receiving any further correspondence the IP is under an “obligation” to ensure that no further correspondence is sent to that creditor. Except if there is a notice of intended dividend, then everyone has to receive it. However, creditors can also opt back in at any time. Email and postal lists will have to be checked every time there is a circular to ensure any creditor who has opted out at any time during the process is not on the list and those who did opt out but changed their minds and opted back in, are on it. That’s a very time consuming (and boring) task on any insolvency but especially on large insolvencies. Email is used so frequently now and the delete button takes less than a second to use – it would have been cheaper for all creditors to receive the information and merely delete it if they don’t want to read it.
The new rules recognise that emails are the most efficient form of communication and if creditors were used to communicating with the insolvent then it can continue (without their specific consent) going forward. In addition IPs can use websites to deliver information without the need to go to Court or the need to write to creditors every time something new is posted. Victims of violence will still need to go to Court to have their address withheld though which is very disappointing and another missed opportunity. As this mainly affects women it is also rather sexist in practice if not intent. Having an additional trauma of going to Court on top of being a victim of violence and being involved in an insolvency process is particularly cruel in my opinion. Surely the human cost here outweighs the need for an address to be published.
Creditors’ claims less than £1000
An IP can accept the figures in the SofA or books and records if the amount owed is less than £1,000. The IP writes to the creditor and informs them of the figure which has been ‘proved’ from these sources. The creditor will have to notify the IP if the amount is “inaccurate or no debt is owed”. I have to admire the IS’s faith in creditors who have lost money in insolvency proceedings. Do you think the IS will have the resource to investigate low level fraud as some creditors try to recover as much of their debt as possible? Or am I being far too cynical having been in this business for over 24 years? It is possible. The world changes after all.
Miscellaneous
Dividends can be postponed where “complicated matters” arise and need resolving.
Details of employees, ex-employees and customers will now be in a separate schedule on the statement of affairs which “will be removed” before the SofA is filed. People made bankrupt on a creditor’s petition will no longer be required to submit an SofA unless specifically requested to do so by the OR.
The rules on time recording information in VAs have been amended so they will only apply where the remuneration of the Nominee and Supervisor are on a time costs basis.
Bankruptcy Orders on debtors’ petitions will now be made by an “Adjudicator” appointed by the Secretary of State rather than a Judge to “free up court time”. Chief Registrar Dr Stephen Baister raised the issues with this approach at the IPA Annual Lecture in 2012 (Link: Insolvency News). The Enterprise and Regulatory Reform Act 2013 (Commencement No. 9 and Saving Provisions) Order 2016 was made on 7th February and comes into force on 6th April 2016. This is accompanied by The Insolvency Proceedings (Fees) (Amendment) Order 2016 which introduces a requirement for the debtor to pay a deposit (£525) on the making of a bankruptcy application to the adjudicator and sets out the mechanism for repaying it to the debtor where the adjudicator refuses to make a bankruptcy order. The adjudicator’s fee will be £130.
Final Thoughts
I must admit to not being a fan of change for change’s sake. There are many things in the Rules which needed clarification for legal purposes but this did not need the complete restructuring of the rules which has taken place. The modernisation of the language is limited and the rules themselves in the current draft are complicated and frankly difficult to understand in places. Lawyers will be working long hours assisting IPs decipher some of the wording and meanings. But here we are, and if there is one thing IPs are good at it is dealing with complicated and difficult matters in a fast paced environment. Those skills will be needed when the Rules are finally published and of course we will be here to assist wherever we can.