Something else that I’ve been meaning to do post-holiday was sweep up all the announcements of consultations and proposals for changes to insolvency and related legislation that have been published by various government departments and agencies. Here are the ones I’ve discovered:

• AiB’s proposed changes to PTDs and DAS
• BIS TUPE consultation
• New proposal on gift voucher creditors

AiB’s proposed changes to PTDs and DAS

28/02/2013: The AiB published some welcome (by me, anyway) fine-tuning to her developing “vision of a Financial Health Service” (http://www.aib.gov.uk/news/releases/2013/02/bankruptcy-law-reform-update).

She has withdrawn the proposals to introduce a minimum dividend for PTDs and to deal in-house with creditors’ petitions for bankruptcy, two items that I covered in an earlier blog post: http://wp.me/p2FU2Z-V (and I know of many others who have been more vocal on the issues). The third item I covered in that post – restructuring PTD Trustees’ fees so that they can only be drawn as an upfront fixed sum plus a percentage of funds ingathered – seems to have strengthened in tone: no longer is reference made to “guidance”, so it seems possible to me that there will be a legislative change to enforce this. My personal view on this is that, although of course there are vast differences between PTDs and IVAs, straightforward IVAs have been worked on this basis for many years now and I think that, although the inevitable tension between creditors and IPs regarding the quantum of the fixed and percentage fees persists, on the whole it seems to have developed into a settled state generally acceptable to all parties. However, I see far more difficulty in moving away from charging fees on an hourly basis for complex cases – I sense that the fees in many complex IVAs and PVAs are still based on hourly rates – and I do wonder what will result from the AiB’s approach to fees for individuals with complex circumstances and unusual/uncertain assets.

The AiB has also dropped the idea that debts incurred 12 weeks prior to bankruptcy should be excluded (which also seemed to me difficult to legislate: http://wp.me/p2FU2Z-w).

So what now does she propose to introduce? Some new significant items for PTDs:

• A minimum debt level of £5,000 (previously £10,000 had been the suggestion)
• A new joint PTD solution (with a £10,000 debt minimum)
• A new requirement on the Trustee to demonstrate that a Trust Deed is the most appropriate solution for the individual. If the AiB is not satisfied with the case presented, there will be a new power to prevent it becoming Protected. As now, the Trustee could apply to the Sheriff, if they disagree with the AiB’s assessment. (Personally, I hope that the AiB will exercise this power only to deal with obvious cases of abuse. For example, looking solely from a financial perspective some individuals might be better served going bankrupt, but often they wish to avoid bankruptcy and improve their creditors’ returns, which is a commendable attitude that should not be stifled. Ultimately, is it not the debtor’s choice?)
• Pre Trust Deed fees and outlays will be excluded. Any such fees and outlays will rank with other debts. (I have some sympathy with the AiB’s apparent frustration at insolvency “hangers-on” seeming to reap excessive rewards from the process of introducing debtors to the PTD process, however I am not convinced that this is the solution. As an upfront fixed fee is going to be introduced, will it not simply send such costs underground?)
• On issuing the Annual Form 4 (to the AiB and to creditors), if the expected dividend has reduced by 20% or more, Trustees will be required to provide details of the options available and to make a recommendation on the way forward. (“Make a recommendation”? Who gets to decide what happens? Isn’t the Trustee obliged/empowered to take appropriate action?)
• Acquirenda will be standardised at 1 year for both bankruptcy and PTDs. (It makes sense to me to ensure that PTDs are not seen to be more punitive than bankruptcies, but this is quite a change, isn’t it?)
• No contributions will be acceptable from Social Security Benefits.
• Equity will be frozen in a dwelling-house at the date the Trust Deed is granted.

The AiB also has proposed some new changes to DAS, the one that caught my eye being that interest and charges will be frozen on the date the application is submitted to creditors, rather than at the later stage of the date the Debt Payment Programme is approved, as is the case currently. The AiB’s proposal also remains that a DPP might be concluded as a composition once it has paid back 70% over 12 years.

BIS TUPE Consultation

17/01/2013: The BIS consultation on proposed changes to the Transfer of Undertaking (Protection of Employment) Regulations 2006 was issued and closes on 11 April 2013 (https://www.gov.uk/government/consultations/transfer-of-undertakings-protection-of-employment-regulations-tupe-2006-consultation-on-proposed-changes – a 72-page document that takes some reading!).

Despite the calls for legislative clarity on the application of TUPE in insolvencies, most notably in administrations, the consultation states: “the Government’s view is that the Court of Appeal’s decision in Key2law (Surrey) Ltd v De’Antiquis has provided sufficient clarity and that it is not necessary to amend TUPE to give certainty” (paragraph 6.30). I don’t know about you, but every time I ask myself what is the current position on TUPE in administrations, I have to check the date! Key2Law may well appear to have settled the issue now, but I have to remind myself every time what its conclusion was exactly.

The proposals do include some elements that may be more useful:

• BIS invites views on whether there should be a provision enabling a transferor to rely on a transferee’s ETO reason, seemingly recognising the risks that purchasers of an insolvent business run in absence of this provision (paragraph 7.72 et seq).
• It is proposed that the regulations be changed so that a transferee consulting with employees/reps, i.e. prior to the transfer, counts for the purposes of collective redundancy consultation (paragraph 7.84 et seq).
• It is proposed that, where there is no existing employee representative, small employers (suggested to be with 10 or fewer employees) will be able to consult directly with employees regarding transfer-related matters (paragraph 7.94 et seq).

Whilst on the subject, it seems timely to remind readers that it is expected that the consultation requirement where 100 or more employees at one establishment are proposed to be made redundant will be amended from 90 days to 45 days. This change appears in the draft Trade Union and Labour Relations (Consolidation) Act 1992 (Amendment) Order 2013, anticipated to come into force on 6 April 2013.

Gift Voucher Creditors

15/03/2013: R3 issued a press release entitled “Voucher holders’ proposal to become ‘preferred creditors’” (http://www.r3.org.uk/index.cfm?page=1114&element=17990&refpage=1008), but the motivation for this release, other than awareness of some stories surrounding high profile retail administrations, might not be known to you.

MP Michael McCann’s ten minute rule bill seeking consideration for gift voucher creditors to be made preferential seemed to go down well at the House of Commons on 12 February 2013 (http://www.youtube.com/watch?v=53_fN8c1f8Q&feature=youtu.be). Then on 14 March 2013, a House of Commons’ notice of amendments to the Financial Services (Banking Reform) Bill was issued, which included the following:

“(1) The Chief Executive of the Financial Services Compensation Scheme shall, within six months of Royal Assent of this Act, publish a review of the protections understanding that such payments are deposits in a saving scheme.

(2) The review in subsection (1) shall include consideration of any consequential reform to creditor preference arrangements so that any payments made in advance as part of a contract for the receipt of goods or services (such as gift vouchers, certificates or other forms of pre-payment) in expectation that those sums would be redeemable in a future exchange for such goods or services might be considered as preferential debts in the event of insolvency.”

As can be seen, a change to gift voucher creditors’ status seems a long way from becoming statute, but the wheels are now in motion for something to be done.

To me, R3’s suggested alternative of an insurance bond makes more sense. The costs of seeking, adjudicating on, and distributing on a huge number of relatively small gift voucher claims likely would appear disproportionate to the outcome… and it is not as if IPs need any more spotlight on their time costs! I appreciate that such costs will arise where claims need to be dealt with even as they are now, as non-preferential unsecured claims, but I suggest it would be unfair to other ordinary unsecured creditors if they were forced to sit in line and watch whilst realisations were whittled away in dealing with this large new class of preferential creditor. The USA Borders case demonstrates some of the difficulties in dealing with gift voucher claims (see, for example, http://www.lexology.com/library/detail.aspx?g=8298e876-f998-4777-bacf-ce781f312242 – the clue is in the name…)

There are other alternatives, of course, such as the use of trust accounts, although a paper (which now seems ahead of its time) by Lexa Hilliard QC and Marcia Shekerdemian of 11 Stone Buildings discusses the difficulties arising from these also (http://www.11sb.com/pdf/insider-gift-vouchers-jan-2013.pdf).

(UPDATE 22/05/2016: Gift vouchers became topical again with the Administration of BHS.  R3 summarised the difficulties in dealing with gift vouchers in an insolvency at https://goo.gl/eN20mN.  This “R3 Thinks” also brought to my attention a paper written by R3 on the subject in June 2013, accessible at https://goo.gl/GJDbNO.)

 

Right, that brings me up to date… almost. Just the consultation on the FCA’s regime for consumer credit remaining…