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Insolvency News: Back to the future – Does the modernisation of the Insolvency Rules represent a step back for creditors?

The Insolvency (England & Wales) Rules 2016 will come into effect on 6 April 2017. One of the aims of the 2016 Rules is to modernise and simplify the 1986 Rules and to encourage the use of modern technology, particularly with regard to communications with creditors by email and via the use of websites and with regard to the holding of meetings.

Removal of the need for physical meetings

The 2016 Rules remove the need for physical meetings of creditors in many cases by introducing the availability of a “deemed consent” procedure. Deemed consent will occur where creditors are notified in writing by the insolvency officeholder of his intended decision and unless 10% in value of creditors object before the stipulated date, the decision is deemed to have been made.

Where the requisite number of creditors do object to the proposed course of action, the decision will then be made by a majority vote either by correspondence, electronic voting or a virtual meeting. Physical meetings will be restricted to cases where they are requisitioned by:

• 10% or more in value of creditors;

• 10% by number of creditors; or

• 10 creditors

Goodbye to Creditors’ Meetings?

Deemed consent is not available to fix the basis of remuneration of an insolvency officeholder or to approve a voluntary arrangement but it will apply to the process for the appointment of a liquidator in a creditors’ voluntary liquidation where the liquidator is nominated by the directors and shareholders .It will therefore replace the existing “section 98 meeting” procedure, unless a virtual meeting takes place. However, if creditors object to the use of deemed consent then a physical meeting must automatically be called.

The ability to raise searching questions of the directors and to scrutinise the proposed liquidator’s proposals may therefore be lost unless creditors take proactive steps to engage in the process within the time limits.

Bad Press for IPs

The saving of costs by abolishing meetings in the main may result in an increased return for creditors but, in the majority of cases where no dividend is anticipated, any benefit is likely to be outweighed by the potential detrimental impact of limiting the opportunities for creditors to participate in the process. Not only could this lead to a further criticism of the profession by creditor groups but may also result in the closing off of a valuable line of enquiry and investigation to the office holder which could have resulted in a better outcome for creditors.

Positive Changes for Minority Creditors

Other more sensible costs saving measures introduced by the 2016 Rules include a provision that minority creditors who do not wish to engage in the process (because there is no likelihood of a financial return for example) can opt out of receiving notices in insolvency proceedings, except notices relating to distributions or proposed distributions. In addition, creditors with small debts which do not exceed £1,000.00 may have their claims admitted by the insolvency officeholder without having to submit a claim, where the office holder will simply rely on the accounting records of the company or individual debtor.

It remains to be seen whether the new procedures will do anything to promote or encourage creditor involvement in insolvencies or help remedy any feeling of creditor disenfranchisement in the insolvency process generally. Whilst modernisation is to be welcomed, the 2016 Rules may be interpreted as a backward step in improving the reputation of the profession and public perception of insolvency generally.