In their report on the 2016 Rules\u2019 review, the Insolvency Service all but acknowledges that some of the Rules leave IPs playing Twister, being forced into shapes that just won\u2019t fit. However, there are few admissions that things need to change. Generally, all we can hope for is a review-on-the-review, which will consider further what, if anything, should change.<\/p>\n\n\n\n
In this article, I cover:<\/p>\n\n\n\n
The InsS report on their review can be found at https:\/\/www.gov.uk\/government\/publications\/first-review-of-the-insolvency-england-and-wales-rules-2016\/first-review-of-the-insolvency-england-and-wales-rules-2016<\/a><\/p>\n\n\n\n My personal consultation response is at https:\/\/insolvencyoracle.com\/consultation-responses\/<\/a><\/p>\n\n\n\n <\/p>\n\n\n\n One area that the InsS does appear committed to change is the CVL process. In scope for consideration are:<\/p>\n\n\n\n I find the last point a irritating: the new Rules\u2019 S100 process for commencing CVLs is already more creditor-friendly than the IR86\u2019s S98. Now, the Statement of Affairs must be received by creditors at the latest the business day before the decision date, whereas under the IR86 the SoA only needed to be provided to the meeting. Also, the new Rules\u2019 3-business-days-between-delivery-and-the-decision-date means that the notice period is usually one day longer than it was under the IR86. <\/p>\n\n\n\n True, few CVLs need to happen quickly, but an extension in the period really must be accompanied by wider scope for the advising IP\u2019s costs, as well as those of agents and solicitors, to be paid from the estate where the work is done with a view to the CVL. \u00a0<\/p>\n\n\n\n <\/p>\n\n\n\n It was disappointing to read the InsS\u2019 opening comment on the general subject of fees that:<\/p>\n\n\n\n \u201cIt is not certain that the rules on a necessarily moderately complex topic can be made clearer\u201d.\u00a0<\/p><\/blockquote>\n\n\n\n Pah! You\u2019re just not thinking hard enough, guys.<\/p>\n\n\n\n But at least we have some comfort that the InsS has \u201cparticularly noted concerns around rules 18.24 to 18.27 on changes to the bases of remuneration”, a topic on which I have blogged on several occasions, and they propose to review these fees rules \u201cat a future date\u201d.<\/p>\n\n\n\n While the InsS notes \u201cconcerns that the new Rules are not effective for small cases, including the absence of the ability of remuneration in a CVL to default to Schedule 11 scales\u201d, they stated that \u201cstakeholders\u201dsuggested \u201cthat reintroducing this measure\u2026 would make the process more complicated\u201d. Strange, I\u2019m not sure why anyone would be against this measure.<\/p>\n\n\n\n They also stated that it might make \u201cthe process burdensome and more expensive rather than more efficient\u201d if the rules were to provide different fee criteria for small cases, although the report does not make clear to what suggestion this was alluding. <\/p>\n\n\n\n In my consultation response, I had suggested a de minimis statutory fee (after all, the OR has a set fee of \u00a36,000) in recognition of the basic statutory and regulatory requirements of all <\/em>CVLs, BKYs and WUCs. This IP statutory fee either could be granted as automatic or, if the InsS weren\u2019t comfortable in taking off all <\/em>the reins, could be approved using the deemed consent process. Personally, I was not suggesting different fee criteria for small cases, I was suggesting that this could be the standard for all <\/em>cases, leaving the office holder to seek approval in the usual way for any fees above this de minimis level. <\/p>\n\n\n\n I\u2019m not entirely surprised that they\u2019ve ignored such a suggestion from little me. However, to suggest that there is no process by which the Rules could be changed to help IPs avoid the burden and expense of seeking the court\u2019s approval where creditors refuse to engage in a decision procedure on fees is disappointingly defeatist and, I suspect, reflects a persistent lack of understanding of the difficulties encountered by many IPs.<\/p>\n\n\n\n <\/p>\n\n\n\n The report also noted that several respondents had made suggestions to simplify the fees estimate requirements. The InsS gave several reasons why they felt there should be no changes, including:<\/p>\n\n\n\n It\u2019s a shame that the InsS appears to view the time that IPs spend in complying with the copious information requirements as time \u2013 and cost to the estate \u2013 well spent.<\/p>\n\n\n\n <\/p>\n\n\n\n Before the new Rules came into force, I think that many of us thought that removing the power to convene a physical meeting and replacing this with a variety of decision processes was unhelpful and an unnecessary complication. Although the InsS report indicates that these views have persisted, personally I think that 5 years of experience with the new decision processes, as well as the pandemic lockdowns, has led many of us to think that maybe this new normal of decision-making isn\u2019t so disastrous after all. <\/p>\n\n\n\n But I do struggle to accept the report\u2019s contention that \u201cthere is some suggestion that the new processes have not been detrimental to creditor engagement\u201d, unless by \u201cengagement\u201d they simply mean \u201cvoting\u201d. It seems the InsS is arguing that correspondence and deemed consent decision processes \u201cmay encourage creditor engagement precisely because they reduce the need to spend time and money actively interacting with officeholders in cases of lesser interest\u201d. Hmm\u2026 this might explain why it seems that some creditors lodge objections to deemed consents and then fail to engage when the IP is forced thereafter to convene another decision procedure. <\/p>\n\n\n\n I also had to smile at the InsS\u2019 suggestion that the increased number of creditor complaints over the complexity of the decision processes may actually reflect creditors\u2019 increased interest in engaging!<\/p>\n\n\n\n <\/p>\n\n\n\n Fundamentally, the InsS report concludes that the new processes require no material changes. In particular:<\/p>\n\n\n\n But the InsS has indicated that a couple of suggestions are worthy of further consideration:<\/p>\n\n\n\n <\/p>\n\n\n\n The InsS report does acknowledge that \u201cinformation overload\u201d as regards creditors\u2019 circulars for decisions is \u201ca core concern\u201d. However, they suggest that this is in part because some IPs \u201care still in the process of determining how best to use and present the new decision-making options\u201d. Charming! But, InsS, you cannot escape the truth that the new Rules require an extraordinary amount of information \u2013 R15.8 alone covers a page and a half of my Sealy & Milman!<\/p>\n\n\n\n Surely we can cut out some of the gumpf, can\u2019t we? For example, some people raised the point that R15.8(3)(g) requires pre-appointment notices to include statements regarding opted-out creditors even though no such creditors would exist at that stage. The InsS suggests the solution lies in adding yet further<\/em> information in such notices if IPs \u201cthink that reproducing the literal wording of the rules could cause confusion\u201d. <\/p>\n\n\n\n This implied confirmation that IPs do<\/em> need to provide such irrelevant statements in notices is frustrating, given that the court had previously expressed the view (in re Caversham Finance Limited [2022] EWHC 789 (Ch)) concerning the similarly irrelevant requirement of R15.8(3)(f) for notices to refer to creditors will small debts:<\/p>\n\n\n\n \u201cI think that Parliament cannot have intended that redundant information should be included on the notice\u201d.\u00a0<\/p><\/blockquote>\n\n\n\n Well, the InsS has spoken: they do <\/em>require such redundant information.<\/p>\n\n\n\n <\/p>\n\n\n\n I love it when the InsS writes something that makes me go \u201cooh!\u201d <\/p>\n\n\n\n The report describes the scenario where a decision procedure was convened to address several decisions, but then \u201ca physical meeting is requested in one of those decisions but not the others\u201d. Someone had suggested that the physical meeting be convened to cover all the original proposed decisions or that the Rules make clear that the request applies only to one. <\/p>\n\n\n\n The InsS has responded that they consider that:<\/p>\n\n\n\n \u201cthe Rules are clear that each decision is treated separately for the purposes of requests for physical meetings\u201d.\u00a0<\/p><\/blockquote>\n\n\n\n While I can see this from Ss 246ZE(3) and 379ZA(3) \u2013 these refer to creditors requesting that \u201cthe decision be made by a creditors\u2019 meeting\u201d \u2013 I have not seen this being applied in practice. <\/p>\n\n\n\n So this means that every time a creditor asks for a physical meeting, it seems the director\/office-holder should ask them what decision(s) they want proposed at the meeting and, if there are any decisions that they don\u2019t list, then these decisions should be allowed to proceed to the original decision date. Interesting.<\/p>\n\n\n\n <\/p>\n\n\n\n The report noted comments that the Rules are unclear as to whether a decision procedure can run concurrently with a S100 deemed consent process in order to seek approval of pre-CVL expenses or the basis of the liquidator\u2019s fees. <\/p>\n\n\n\n The InsS\u2019 reaction to this issue is curious. The report merely flags the \u201crisk\u201d that the decision procedure on fees would be ineffective where the creditors nominate a different liquidator to that resolved by the company (would it? Why??). <\/p>\n\n\n\n So\u2026 does this mean that the InsS doesn\u2019t see any technical block to these concurrent processes? Are we any clearer on this debate that has been running since 2017?<\/p>\n\n\n\n <\/p>\n\n\n\n The report notes that the new Rules have excluded the IR86\u2019s provision that S98 meetings may consider \u201cany other resolution which the chairman thinks it right to allow for special reasons\u201d, which was previously used as the justification for S98 meetings also considering the approval of pre-CVL fees. Does this omission affect the ability for fees\/expenses decisions to be made at S100 meetings?<\/p>\n\n\n\n The InsS\u2019 response to this one is equally cryptic. They appear <\/em>to be saying that, as \u201crule 6.7 now includes expenses that were omitted from the Insolvency Rules 1986\u201d, the \u201cany other resolution\u201d provision is no longer necessary. <\/p>\n\n\n\n I don\u2019t get it: R6.7 is no wider in scope than the old Rs 4.38 and 4.62, so there\u2019s no remedied omission as far as I can see. The problem is that the new Rules still lack an explicit provision that the initial S100 meeting may consider other resolutions, such as approval of the R6.7 expenses and indeed the basis of the liquidator\u2019s fees. At least it\u2019s nice to have the InsS\u2019 view that there is no problem, I suppose!<\/p>\n\n\n\n <\/p>\n\n\n\n The InsS report does not pass comment on whether respondents\u2019 questioning \u201cthe value of continually requesting that creditors decide whether to create a committee\u201d was a good point worth taking forward.<\/p>\n\n\n\n The report does suggest that the InsS won\u2019t be taking forward issues around the establishment of a committee where there are more than 5 nominations. The InsS considers that the decision in Re Polly Peck International Plc (In Administration) (No. 1), [1991] BCC 503, \u201cremains relevant\u201d. This decision concluded that, \u201cwhere more nominations are received than available seats on the committee, that a simple election should be held with those nominees who receive the greatest number of votes (by value) filling the vacancies\u201d. Ah yes, the simple election<\/em> \u2013 simples! <\/p>\n\n\n\n The more recent decision, Re Patisserie Holdings Plc (In Liquidation) ([2021] EWHC 3205 (Ch)), suggests that even where fewer than 5 nominations are received, those nominations will only be decisive where they have been made by the majority creditors. Therefore, it seems to me that we are still left with a cumbersome committee-formation process stretching over two decision processes.<\/p>\n\n\n\n <\/p>\n\n\n\n The InsS is of the view that the decision to abolish prescribed forms was the correct one. The report states that there does not appear \u201cto be truly widespread difficulty\u201d and they maintain that their impact assessment had accommodated the familiarisation cost appropriately. <\/p>\n\n\n\n Although I think this unfairly plays down the impact on small businesses, I do think the boat has sailed on this debate. I would have loved the InsS to have provided optional templates to support the prescribed content rules, but given that even the InsS\u2019 own proof of debt form does not help creditors to meet all the Rules\u2019 requirements, it is probably safer that they did not.<\/p>\n\n\n\n <\/p>\n\n\n\n An age-old bugbear is the hassle for all parties where a dividend payment is paltry. It does the profession no favours when office holders are required to post out cheques for sums smaller than the postage stamp. <\/p>\n\n\n\n I understand that the InsS did consider the pre-IR16 request to provide a statutory threshold for dividend payments below which they need not be paid. But I\u2019d heard that this had been considered unconstitutional, as every creditor has the right to the dividend no matter how small. Instead, the InsS gave us the \u201csmall debts\u201d provisions, which I think do the opposite and only increase <\/em>the likelihood that office holders will be sending small payments to creditors who consider it is just not worth their trouble. <\/p>\n\n\n\n This time around, it was suggested to the InsS that creditors be entitled to waive their dividend rights in favour of a charity or that this process could be automatic for payments below a certain amount. The InsS rejected this suggestion, citing that it would simply add a different administrative burden onto office holders and creation of an automatic process would impair creditors\u2019 rights to repayment.<\/p>\n\n\n\n The report does a good job of explaining why a NoID for an ADM must be sent to all <\/em>creditors, not just those who have not proved as in other cases. This is because the ADM NoID triggers the set-off provisions of R14.24, so all creditors need to know about it. So no change there either.<\/p>\n\n\n\n Some respondents commented on the generally unnecessary duplication of requiring employees to submit proofs even though the IP receives information about their claims sent to the RPO. This is an area that the InsS has noted for future consideration.<\/p>\n\n\n\n <\/p>\n\n\n\n I\u2019m sure we remember the kerfuffle created by Dear IP chapter 13 article 97, which seems (or attempts) to grant IPs the discretion to breach the Rules requiring the circulation to creditors of personal data in Statements of Affairs. Well, it seems that the InsS has already forgotten it.<\/p>\n\n\n\n As regards suggestions that the Rules might restrict the circulation of the personal details of employee and consumer creditors, the report states that the InsS is:<\/p>\n\n\n\n \u201csatisfied that the current balance struck by the Rules remains an appropriate one\u201d\u00a0<\/p><\/blockquote>\n\n\n\n Oh! So does that mean they will be recalling the Dear IP article?<\/p>\n\n\n\n Respondents also raised other concerns regarding the disclosure of personal details:<\/p>\n\n\n\n The report states that \u201cthese issues will remain under consideration for amendment in future updates to the Rules\u201d.<\/p>\n\n\n\n <\/p>\n\n\n\n In my view, far too much space in the report was devoted to explaining the feedback of the creditor opt-out process, with the conclusion that the InsS \u201cwill give further thought to whether there should be any changes to, or removal of, these provisions\u201d. <\/p>\n\n\n\n I was not surprised to read that few creditors \u2013 \u201cless than 1%\u201d (personally, I would put it at less than 0.1%) \u2013 have opted out. One respondent had a good point: don\u2019t the opt-out provisions give the impression \u201cthat information provided by officeholders has no value or interest\u201d? Even the report referred to creditors opting out of \u201cunwanted correspondence\u201d. Doesn\u2019t this suggest something more fundamental, that in many respects the Rules are overkill and that communications could be made far more cost-effective?<\/p>\n\n\n\n <\/p>\n\n\n\n The report acknowledged the following deficiencies in the Rules\u2026 or in some cases the InsS admitted merely the potential for confusion:<\/p>\n\n\n\n <\/p>\n\n\n\n This article demonstrates the Insolvency Service\u2019s long to-do list. And this is only <\/em>the Rules\u2019 review. Last month, the InsS issued a call for evidence on the personal insolvency framework and they will have a fundamental role in the statutory debt repayment plan process expected to be rolled by the end of this year\u2026 and of course no doubt behind the scenes they are working on the response to the proposed single regulator consultation. <\/p>\n","protected":false},"excerpt":{"rendered":" In their report on the 2016 Rules\u2019 review, the Insolvency Service all but acknowledges that some of the Rules leave IPs playing Twister, being forced into shapes that just won\u2019t fit. However, there are few admissions that things need to … Continue reading CVLs to change<\/strong><\/h2>\n\n\n\n
A lacklustre response on fees<\/strong><\/h2>\n\n\n\n
Not even fees estimates to change<\/strong><\/h2>\n\n\n\n
The case for physical meetings<\/strong><\/h2>\n\n\n\n
Decisions, decisions\u2026<\/strong><\/h2>\n\n\n\n
Information overload<\/strong><\/h2>\n\n\n\n
Are decisions like dominoes?<\/strong><\/h2>\n\n\n\n
What about concurrent decision processes?<\/strong><\/h2>\n\n\n\n
What about the reduced scope for resolutions at S100 meetings?<\/strong><\/h2>\n\n\n\n
Committee complexities<\/strong><\/h2>\n\n\n\n
No going back on prescribed forms<\/strong><\/h2>\n\n\n\n
No easy fixes for dividends<\/strong><\/h2>\n\n\n\n
SoAs and personal data<\/strong><\/h2>\n\n\n\n
The opt-out process: who cares?<\/strong><\/h2>\n\n\n\n
Odds-and-sods to fix<\/strong><\/h2>\n\n\n\n
So much to do, so little opportunity<\/strong><\/h2>\n\n\n\n