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Cautious welcome from Creditors for new Insolvency Rules

The process of replacing the Insolvency Rules 1986 and 28 subsequent amendments has necessarily involved difficult balancing exercises between the interests of numerous stakeholders, but the general consensus among creditors is that The Insolvency (England and Wales) Rules 2016 (SI 2016/1024) (“IR 2016”) which came into force on 6 April 2017 are likely to significantly improve the insolvency process for most creditors.

Aims of the IR 2016

According to the Government’s Explanatory Memorandum the IR 2016 have the following express purposes:

  • To restructure and update the language of the IR 1986 and make use of modern technology wherever possible;

  • To give effect to the policy changes and changes to the Insolvency Act 1986 effected by the Small Business, Enterprise and Employment Act 2015 (“SBEEA 2015”) and the Deregulation Act 2015.

Procedural issues

The IR 2016 aim to use language consistently and simply throughout, for example by using the single concept of “deliver” instead of terms currently used throughout the IR 1986 such as “send”, “notified”, “give”, “file” etc.

The prescribed forms currently listed in Schedule 4 to the IR 1986 have been abolished to be replaced by individual rules that set out the content requirements of prescribed notices and documents.

Policy changes

There are a number of significant policy changes affecting creditors.

1 Communications with creditors

Electronic communication

There are extensive provisions allowing electronic communication which will be welcomed by most creditors

Opting out of further communications

Creditors are able to opt out of receiving further correspondence from an office-holder, except for notices relating to the payment of dividends or where the rules require notice to all creditors.

Using websites

The office-holder can deliver a notice to every potential recipient of such documents that all future documents (other than documents for which personal delivery is required or that detail an intention to declare a dividend) will be put on a specified website without further separate notice.

2 Decision making

Perhaps the most significant changes involving creditors are those which remove creditors’ meetings as the default mechanism for decision-making.

Sections 122 to 123 of the SBEEA 2015 abolish physical creditors’ meetings as the default method for decision-making in the context of insolvency procedures. Instead, the insolvency office-holder can obtain a decision by either a “qualifying decision procedure” (in corporate insolvency), or a “creditors’ decision procedure” (in personal insolvency), or in either type of process, by “deemed consent”.

Prescribed decision procedures

The prescribed decision procedures are set out in Part 15 of the IR 2016. These comprise:

  • Correspondence.
  • Electronic voting.
  • Virtual meetings.
  • Physical meetings, provided they are requested by a minimum number of creditors or contributories. The minimum number is 10% by value or number of creditors or contributories or 10 creditors or contributories.
  • Any other decision-making process which enables all creditors who are entitled to participate in the making of the decision to participate equally.

Deemed consent

Deemed consent is not a prescribed decision procedure (that is, not a qualifying decision procedure nor a creditors’ decision procedure).

Under the deemed consent procedure, the insolvency office-holder notifies creditors of the proposed decision, which is deemed approved by creditors unless more than 10% by value of the creditors or, where relevant, contributories, object to the decision.

However, there are important restrictions on the circumstances in which deemed consent can be used, for example it does not apply in proposals for a company voluntary arrangement or an individual voluntary arrangement, or in relation to the remuneration of an office-holder.

3 Abolition of final meetings

In line with the concept of streamlining insolvency processes wherever possible, most final meetings are to be abolished. This was already the position in administration, but will now also apply to liquidation and bankruptcy where in each case the office-holder must now instead send a final report to creditors.

4 Other notable changes

Provisions relating to creditors’ committees have been streamlined and generally modernised.

Procedures for claims and valuation procedures have been updated and simplified wherever possible.

Remuneration of office-holders is intended to be more tightly regulated, though largely in line with current best practice standards imposed in the insolvency profession.

Various housekeeping has been effected to update the references to the IR in existing legislation.


Much of the comment on the new IR has been from the perspective of the insolvency profession, and it remains to be seen how the new Rules will work in practice.

Any consolidation of detailed statutory provisions some 30 years old was bound to be an enormously complex exercise which could never completely satisfy all the stakeholders involved.

The reduction in the number of creditors’ meetings and the consequent inability to raise searching questions of directors and to scrutinise office-holders’ proposals is a cause of some concern to creditors, but our view is that the modernisation and general simplification of the insolvency regime is likely to lead overall to decreased costs, improved realisations for creditors and a reduction in the administrative resources which creditors will have to expend in a typical insolvency process going forward.