Along with Dear IP 76, the Insolvency Service\u2019s Rules blog has been a fascinating read. If you don\u2019t fancy trawling through all 148 comments, here are my personal favourites. There are too many to cover in one go, so I\u2019ll start here with a handful of the more contentious:<\/p>\n
<\/p>\n
I\u2019ll also take this opportunity to reflect on how these emerging interpretations and the Amendment Rules have impacted on my previous blog posts. I have tried to update old blog posts as time has moved on, but I cannot promise that old blog posts \u2013 or indeed this one \u2013 will remain current. Things are moving fast.<\/p>\n
Dear IPs can be found at: https:\/\/goo.gl\/wn8Vog<\/a> (although no. 76 has yet to appear)<\/p>\n The Insolvency Service\u2019s Rules blog is at: https:\/\/theinsolvencyrules2016.wordpress.com\/<\/a><\/p>\n <\/p>\n Can we rely on the Insolvency Service\u2019s answers?<\/strong><\/p>\n Nick Howard\u2019s introduction to Dear IP 76 states candidly \u201cWhile it is only a Court that can give a binding interpretation of the law, the enclosed article sets out the policy intentions and how we believe the Rules support those\u201d. That\u2019s understandable. Much as we thirst for\u00a0cut-and-dried answers, we cannot have them. Just like the 1986 Rules, it will take decades to establish robust interpretations and even then there will always be the Minmar-like decision that takes us by surprise.<\/p>\n To be fair, the Service provided it with the purpose \u201cto offer users the chance to share their thoughts and experiences as they prepare for commencement\u201d of the Rules. It was never meant to be an inquisition of the Insolvency Service, but it was inevitable that it would turn out that way and I am very grateful that the Service has grasped the nettle and been prepared to post their views publicly for the benefit of us all.<\/p>\n At the very least, the Service\u2019s explanations are extremely valuable in understanding how they meant <\/em>the Rules to work and in giving us all a starting point. I wonder if it could be seen a bit like the new mantra, \u201ccomply or explain\u201d: if we don\u2019t trust an answer, we need to be certain that our reasons for departing from it are well-founded. And at the very best, the Service has provided explanations that make us say: \u201cright, yes I can see that. Thanks, I\u2019ll work on that basis\u201d.<\/p>\n <\/p>\n What are the New Rules\u2019 Impacts on Existing VAs?<\/strong><\/p>\n The difficulty for the Insolvency Service \u2013 and indeed for all of us \u2013 is that of course each VA is dependent on its own Proposals and Standard Terms & Conditions (\u201cSTC\u201d), so expressing any opinion on the effect of the New Rules on VAs in general is going to be dangerous.<\/p>\n The majority of IVAs use either the IVA Protocol or R3\u2019s STC, so you might think it would be relatively straightforward at least to establish some ground rules for these two documents and then leave each IP to determine whether the Proposal itself has any overriding effect. Dear IP seems to have made a stab at this in relation to the IVA Protocol at least. However, I think it is important to bear in mind that Dear IP makes no mention of R3\u2019s STCs and from what I can see there is a chasm of difference in how the two STCs have incorporated the 1986 Rules.<\/p>\n True, both STCs define the \u201cRules\u201d as the Insolvency Rules 1986 as amended and the Service makes the case for equating this to the 2016 Rules. I have heard argument that the Service\u2019s reliance on S17 of the Interpretation Act 1978 does not stack up: if a contract \u2013 which is what we\u2019re talking about here \u2013 refers to Rx.xx of the Insolvency Act 1986 (as amended), does it not remain as such notwithstanding that the 1986 Rules have been revoked?<\/p>\n This takes me to the chasm between the two sets of STC: for example, the IVA Protocol STC state that \u201cThe Supervisor may\u2026 summon and conduct meetings of creditors\u2026 in accordance with the Act and the Rules\u201d (19(1)), whereas the R3 STC describe in detail how to convene meetings and conduct postal resolutions with no reference to the Act or Rules. Therefore, personally I am struggling to see how the 2016 Rules affect existing VAs\u2019 methods of seeking creditors\u2019 agreements where those VAs are based on the R3 STC. However, I also question whether the R3 STC restrict meetings to physical <\/em>ones \u2013 when I read the STC cold, I\u2019m not persuaded that they don\u2019t also work for virtual meetings (but then again, don\u2019t most meetings happen only on paper anyway?) \u2013 so it seems to me that the R3 STC may allow a variety of routes but, thankfully, without all the baggage that the 2016 Rules carry with them, which may<\/em> load down Protocol IVAs in view of their vague reference to \u201cin accordance with the Act and the Rules\u201d.<\/p>\n It\u2019s Dear IP\u2019s treatment of the Protocol STC\u2019s wording, \u201cThe Supervisor may\u2026 summon and conduct meetings of creditors\u2026 in accordance with the Act and the Rules\u201d, that puzzles me. On the one hand, Dear IP acknowledges that the Act and Rules \u201cremain silent on how decisions are taken once in (sic.) a voluntary arrangement is in place\u201d\u2026 so they seem to be saying that the Act and Rules are irrelevant to a supervisor looking to call a meeting. But then Dear IP says: \u201cwe do not believe [supervisors] should feel restricted to only using a physical meeting. We expect supervisors to take advantage of the new and varied decision making procedures that are available under the Act as amended and the 2016 Rules\u201d.<\/p>\n But how possibly can the phrase, \u201cthe supervisor may summon and conduct meetings of creditors\u201d, morph into for example: \u201cthe supervisor may seek a decision by means of a correspondence vote\u201d? This is too much of a stretch, isn\u2019t it? Rather than be meant as a comment on the application of the 2016 Rules to existing VAs, perhaps the Service is simply stating that it would like IPs to incorporate the various processes in future <\/em>VA Proposals and STC, don\u2019t you think?<\/p>\n Because the Act and Rules in themselves do not empower supervisors to seek decisions, does this mean that the Protocol STC\u2019s words \u201cin accordance with the Act and the Rules\u201d are redundant? Or are these words supposed to mean that the supervisor should \u201capply the provisions of the Act and Rules in so far as they relate to bankruptcy with necessary modifications\u201d, as paragraph 4(3) of the Protocol STC states? Ok, if the latter is the case, then what is the effect of S379ZA(2), i.e. that a trustee cannot summon a physical meeting unless sufficient creditors request one? This would seem to take us far from the Dear IP position where supervisors should not \u201cfeel restricted to only using a physical meeting\u201d.<\/p>\n For these reasons, I think the Dear IP is horribly muddled. Perhaps the IVA Standing Committee might like to clarify the position in relation to their STC..?<\/p>\n <\/p>\n What is the deadline for forcing a physical meeting in a S100 scenario?<\/strong><\/p>\n This is another area that seems to have got horribly muddled. It seems to me that much of the confusion over this arises because of the conflating of two potential creditor responses: (i) a creditor can object to a decision sought by deemed consent; or (ii) a creditor can request a physical meeting. It is true that, when a S100 decision on the liquidator is sought by deemed consent, the consequence of either response is the same: a physical meeting is summoned. However, the Rules around each response are different.<\/p>\n R15.7(2)(a) states that the notice seeking deemed consent must contain \u201ca statement that in order to object to the proposed decision a creditor must have delivered a notice, stating that the creditor so objects, to the convener not later than the decision date\u201d. \u201cNot later than the decision date\u201d must surely mean that objections delivered on<\/u> the decision date are valid (note: although this rule only specifies what must appear in a notice, S246ZF(4) makes clear that \u201cthe procedure set out in the notice\u201d is binding).<\/p>\n For a S100 decision, R6.14(6)(a) states that \u201ca request [for a physical meeting] may be made at any time between the delivery of the notice\u2026 and the decision date\u201d. I have heard argument that \u201cbetween\u201d excludes the days at each end, which would mean that the deadline for requests would be the end of the day before<\/em> the decision date. At first, I was persuaded by this interpretation, given that, if I were to count how many people in a queue were between me and the ticket office, I would not include myself in the number\u2026 but then someone asked me to pick a number between 1 and 10..!<\/p>\n This interpretation of \u201cbetween\u201d also makes little sense when considering R15.4(b), which states that an electronic voting system must be \u201ccapable of enabling a creditor to vote at any time between the notice being delivered and the decision date\u201d\u2026 so the IP isn\u2019t interested in votes cast on<\/u> the decision date then..?<\/p>\n How does Dear IP pull these threads together? It states: \u201cThe policy intention (in all cases) is that a request for a physical meeting must arrive before the decision date. The policy intention with regard to electronic voting is that creditors may cast their votes up until the decision closes (i.e. 23:59 on the decision date). We believe that the 2016 Rules are capable of supporting both these policy intentions.\u201d<\/p>\n The Insolvency Service appears blinkered in their statement that the 2016 Rules support the policy intention, because they simply focus on requests for a physical meeting. Irrespective of how \u201cbetween\u201d is interpreted, the fact is that a deemed consent can be objected to up to 23.59 on the decision date and such an objection would force a physical meeting. Therefore, a members\u2019-appointed liquidator will still be left in the position of not knowing whether there will be a last-minute objection that will force an unexpected c.week-long Centrebind.<\/p>\n <\/p>\n What happens if a Centrebind is longer than 14 days?<\/strong><\/p>\n I feel I should apologise for wasting people\u2019s time in explaining (via this blog (https:\/\/goo.gl\/dortjj<\/a>), R3 presentations and our webinars) the risks that a Centrebind could last longer than 14 days if material transactions need to be reported or a physical meeting needs to be convened.<\/p>\n The Insolvency Service gave the simple answer on their blog that \u201cit is sufficient that the original decision date was within the required timescale\u201d. In other words, provided that the convener fixed the decision date for the S100 deemed consent process or the virtual meeting not later than 14 days after the winding-up resolution, it is of no consequence that this decision date falls away because the date of a consequent physical meeting falls outside this timescale.<\/p>\n I find the Insolvency Service\u2019s answer startling. Personally, I would expect the Rules to make explicit that it is the original <\/em>S100 decision date that matters, in the same way as Para 51(2) uses the expression \u201cinitial decision date\u201d when setting down the 10-week deadline for Administrators to seek approval of their proposals (i.e. Para 51(3) explicitly provides that Administrators do not get into a pickle if creditors reject a decision by deemed consent and then the Administrator convenes another decision process with this second decision date falling outside the 10 weeks).<\/p>\n What about the other instance when an important decision date deadline must be met: the approval of an IVA Proposal? R8.22(7) states that this decision date must be not more than 28 days from the date on which the nominee received the Proposal (or when the nominee\u2019s report was considered by the court). Given that 14 days\u2019 notice is required, it would be very possible for a physical meeting decision date to be outside this timescale. Would it matter as long as the original decision date was inside it? The Rules do not address this point, but neither do they address the unintended Centrebind position.<\/p>\n Much as my heart\u2019s cockles are warmed by the Insolvency Service\u2019s answer, personally I would be nervous in relying on it.<\/p>\n <\/p>\n How do you deal with preferential creditors\u2019 decisions?<\/strong><\/p>\n The Insolvency Service\u2019s answers on this topic are eminently sensible and I am more than happy to live with them\u2026 but it\u2019s just that I cannot help but continue to ask myself: \u201cyes, but where does it say <\/em>that?\u201d<\/p>\n The questions surround the New Rules\u2019 defined process for seeking prefs\u2019 approval of matters such as the Administrators\u2019 fees. Exactly how do<\/em> you conduct a decision procedure of prefs alone?<\/p>\n Firstly, what do you do with pref creditors who have been paid in full? R18.18(4) states that pref creditors must make a decision on fees, if the Administrator \u201chas made or intends to make a distribution\u201d to prefs (in a Para 52(1)(b) case). This would seem to include prefs who have been paid in full, but R15.11 excludes them from receiving notice of the decision procedure.<\/p>\n But, actually, what do we mean when we refer to pref creditors being paid in full? Usually we mean that the pref element of their claim has been paid in full, but often they will still have a non-pref unsecured claim. How do you calculate a pref creditor\u2019s value for voting purposes?<\/p>\n R15.31(1)(a) states that, in an administration, votes are calculated \u201caccording to the amount of each creditor\u2019s claim as at the date on which the company entered administration, less any payments that have been made to the creditor after that date in respect of the claim\u201d.<\/p>\n The Insolvency Service\u2019s answer to these questions was: \u201cOur interpretation is that [R15.31(1)(a)] would lead an administrator to consider the value of outstanding preferential claims at the date that the vote takes place. This would only include the preferential element of claims, and if these had been paid in full then the administrator would not be expected to seek a decision from those creditors.\u201d<\/p>\n Personally, I don\u2019t see that R15.31(1)(a) gets us anywhere: it doesn\u2019t state that a creditor\u2019s claim is only its preferential element when a decision procedure is only open to pref creditors and it doesn\u2019t state that you do not need to seek a decision from pref creditors who have been paid their pref elements in full\u2026 but in all other respects I like the Service\u2019s answers!<\/p>\n <\/p>\n Do creditors need to get forms absolutely correct?<\/strong><\/p>\n There is no denying that the 2016 Rules have placed a heavier burden on us all to get the details correct. Many things that we were used to doing in simple text form are now described as \u201cnotices\u201d and every statutory notice must include \u201cstandard contents\u201d, which often require the addition of new detail such as insolvents\u2019 company registered numbers or residential addresses.<\/p>\n In many cases, creditors are not spared these requirements. For example, the prescriptive detail of proofs of debt \u2013 R14.4 \u2013 is quite different from the old requirements. If you are adjudicating on pre-April proofs, can you accept them for dividend purposes? Indeed, can you rely on a Notice of Intended Dividend process commenced before 6 April?<\/p>\n As regards the need for creditors to submit new proofs to meet the New Rules\u2019 requirements, the Insolvency Service answered: \u201cSection 16 of the Interpretation Act 1978 may be relied upon here, and proofs which have already been submitted do not become invalidated.\u201d<\/p>\n Incidentally, S16 of the Interpretation Act 1978 states that a \u201crepeal does not, unless the contrary intention appears\u2026 affect the previous operation of the enactment repealed or anything duly done or suffered under that enactment [or] affect any right, privilege, obligation or liability acquired, accrued or incurred under that enactment\u201d, so does this help as regards NoIDs? Are IPs safe to rely on old NoIDs as protecting them from late creditors? This wasn\u2019t the question put to the Service, but it would seem to me the only way the New Rules could possibly work.<\/p>\n However, I\u2019m not quite sure how S16 helps IPs decide now<\/em> whether to admit an old proof for dividend purposes, when surely they must measure proofs against the New Rules, mustn\u2019t they? But, realistically, what could an old proof possibly be lacking that might struggle to get it admitted under the New Rules?<\/p>\n I asked the Service about the requirement for a proof to be authenticated. R1.5(3) states that \u201cif a document is authenticated by the signature of an individual on behalf of\u2026 a body corporate of which the individual is the sole member, the document must also state that fact\u201d. If a creditor failed to state this on a proof, would it render the proof invalid? And, if so, does this obligate office holders to check this point?<\/p>\n Alternatively, does R1.9(1)(b) help us all<\/em> out? This rule states that \u201cwhere a rule sets out the required contents of a document, the document may depart from the required contents if\u2026 the departure (whether or not intentional) is immaterial\u201d.<\/p>\n The Insolvency Service\u2019s answer was: \u201cThe extent to which an office-holder could rely on rule 1.9(1)(b) here would be a matter for them to decide, possibly in liaison with their regulatory body.\u201d I can understand why the Service was not tempted to put their neck on the block on this question, but it does demonstrate to me the nonsensical nature of the New Rules: they set out prescriptive detail of what must <\/em>be provided\u2026 then add a rule that states it\u2019s okay if a departure is \u201cimmaterial\u201d. Why put prescriptive immaterial requirements in the Rules in the first place?!<\/p>\n I felt a similar irritation when I read Dear IP\u2019s article, \u201cDo creditors\u2019 notices have to comply with standard content\u201d, for example when creditors object to a decision sought by deemed consent. The Service seems to be implying that the answer is no: \u201cif it is clear what the creditor is seeking in their notice, it should be accepted\u201d. Again, this leaves me wondering: if a creditor is free to run a red light, why put the lights up in the first place?<\/p>\n Having said that, R1.9(1)(b) might be a useful one to remember the next time the RPB monitors call\u2026 although we might expect some debating over what is \u201cimmaterial\u201d.<\/p>\n I think it is also worth mentioning here the observation made on the Service\u2019s blog at the lack <\/em>of prescription when it comes to proxy forms. The Service explained that \u201cthe requirement to authenticate [a proxy form] was removed as a deregulatory measure, because authentication does not confer legitimacy. As long as the office-holder is satisfied that the proxy comes from the creditor then the requirements for submission are met.\u201d So a creditor must sign a hard copy proof but need not sign a proxy form. Well, fancy that!<\/p>\n <\/p>\n In my next post, I\u2019ll set out some other nuggets gleaned from the Insolvency Service\u2019s blog.<\/p>\n","protected":false},"excerpt":{"rendered":" Along with Dear IP 76, the Insolvency Service\u2019s Rules blog has been a fascinating read. If you don\u2019t fancy trawling through all 148 comments, here are my personal favourites. There are too many to cover in one go, so I\u2019ll … Continue reading \n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n