Insolvency Oracle

Developments in UK insolvency by Michelle Butler

Part 18: Reporting and Remuneration

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Finally, I’ve reached the end of the crazy-busy season and I can get back to the New Rules. This post deals with Part 18 of the Rules: Reporting and Remuneration.

I’m very pleased to see that the Insolvency Service has taken the opportunity to iron out some of the overly prescriptive, clunky and vague rules.   For example:

  • Fixing the prescriptive: stripping back on the loooong list of final report contents
  • Fixing the clunky: new approaches to the ADM-to-CVL conversion process and to reporting for changes in office holder or ADM extensions
  • Fixing the vague: settling the debates on issuing a fees estimate before being appointed as liquidator and on the process of seeking preferential creditors’ approval to fees in Para 52(1)(b) Administrations

Other changes have slipped in too, mainly as a consequence of the more material changes affecting other areas of practice, such as the abolition of final meetings.

For a step-by-step guide to Part 18, including many rules that I have not touched on in this post, I would recommend Jo Harris’ webinar, available now through The Compliance Alliance – contact info@thecompliancealliance.co.uk.

 

Part 18: Scope

Part 18 is one of the now “common” parts. I think it does help to bring together the procedures that are common to all cases… but it’s not quite this simple. Part 18 covers reporting and remuneration for Administrations, all Liquidations and Bankruptcies. It does not deal with VA reporting. Neither does it deal will all the closing reporting requirements – bits of these appear in the case-specific parts. Ho hum.

One key point to remember is that for the most part the changes apply across the board, so we need to be ready to report and seek rem under the New Rules from the off.

The exceptions are, as previously mentioned, progress reporting on the old pre-2010 appointments and any progress reports that fall due before 6 April 2017. But for everything else – including closure processes on all cases – the New Rules apply.

 

Contents of Progress Reports

There are some pesky little changes in here. One intriguing change is that, no longer must we detail “assets that remain to be realised”, but instead we need to detail “what remains to be done” (R18.3(1)(h)). I know that we usually do provide a one-liner on this, but isn’t it charming for the Insolvency Service to make it a statutory requirement..?

R18.3(6) accommodates the significant change in the process of an ADM moving to CVL. It’s good to see the Insolvency Service have yet another go at getting this process working smoothly. In my mind, the New Rules improve the process… although I still don’t see why we need to rely on the Registrar of Companies (“RoC”) to tell us when the ADM ends and the CVL starts. Regrettably, though, the trigger for the move has been set down in the Act, so the New Rules simply try to make the best of this awkward situation.

R3.60 sets out the new ADM-to-CVL process. The Administrator submits the Notice of the Move together with their final report to the RoC and copies the pack to creditors etc. Once the Notice is registered, the former Administrator informs the Liquidator of “anything which happens after the date of the final progress report and before the registration of the notice which the administrator would have included in the final report had it happened before the date of the report” (R3.60(5)).

Consequently, within the Liquidator’s first progress report, they must include “a note of any information received by the liquidator from the former administrator” (R18.3(6)).

This process sounds a bit odd when you remember that usually the Administrator is the Liquidator – will the RPBs expect the file to contain a “note to self”..? I think we get the idea though and at least the new process avoids the uncomfortable position of completing and issuing a final Administration report after having vacated office.

 

Timing of Progress Reports

In principle, nothing has changed on timing. However, again a couple of welcome simplifications in other areas will affect reporting complications with which we have all become familiar under the current Rules.

In future, the 6/12-monthly reporting routine will not be affected by the following events:

  • A change in office holder: under the New Rules, incoming office holders are required to deliver a notice to members/creditors (depending on the case type) “of any matters about which the succeeding (office holder) thinks the members/creditors should be informed” (Rs18.6(3), 18.7(4), 18.8(3)). This removes the need for a formal progress report to draw a line under the change, so the original progress reporting routine remains unaffected. The New Rules are vague on what triggers this requirement, but in my view it is likely to mean that nothing is required if the office holder changes but the practice does not.
  • Extension of an Administration: under the New Rules, a progress report is no longer required in order to seek approval of an extension. The New Rules simply require the Administrator to send, along with the court application or the notice requesting creditors’ consent, “the reasons why the administrator is seeking an extension” (R3.54(2)).

This is all good stuff, thanks Insolvency Service.

These changes do leave me with a question, though: what if you are already dealing with a case with an altered reporting schedule, i.e. an extended ADM or a case involving a change in office holder where the court was not asked to over-ride the current rules’ effect of changing the reporting timeline? After 6 April 2017, will you need to revert to the pre-extension/office holder-change schedule or will you continue to produce 6/12-monthly reports from the date of the last pre-April report? I have heard rumours that the Insolvency Service’s intention is the latter, but personally I think that the wording of the New Rules would require such cases to revert to the old schedule.   That’s another question for the Insolvency Service’s blog, I reckon.

(UPDATE 17/01/2017: the Insolvency Service responded to my query on their blog: “It was not the intention that where a reporting cycle in any relevant process had already been reset, it would need to be changed again as a result of the commencement of the new rules. As you have suggested, we had identified that a transitional provision would make it clear that this should not happen, and we are looking to see whether and how we can insert such a provision into Schedule 2 of the new rules.”)

(UPDATE 23/03/2017: the Insolvency Service has indeed introduced a fix via the recently-issued Amendment Rules.  This fixes the position for changes in office holder such that, if you have an existing case with an amended reporting schedule due to a pre-6/4/17 change in office holder, then after 6/4/17 you continue to report according to your amended schedule.  The position is a little less satisfactory for already-extended ADMs: whilst it seems that the Insolvency Service has attempted to apply the same principle to these cases, I am not convinced that the Amendment Rules wording delivers this effect… although casparjblog has suggested a possible wriggle-through – see the Insolvency Service’s blog at https://goo.gl/IE0pmK.)

(UPDATE 02/05/2017: in Dear IP 76, the Insolvency Service expresses the view that the Amendment Rule is “sufficiently clear” that the reporting schedule for an already-extended ADM should continue, rather than be re-set to the original schedule.)

 

Contents of “Final Accounts” and “Final Reports”

The abolition of final meetings in Liquidations and Bankruptcies necessitates a change in the final reporting processes. The new processes can be found at:

  • Rs5.9 and 5.10 for MVLs;
  • R6.28 for CVLs;
  • R7.71 for Compulsory Liquidations; and
  • R10.87 for Bankruptcies.

I won’t cover them here, but suffice to say that creditors (and/or members/bankrupt) are provided with a final account (or, in Bankruptcies, a final report) 8 weeks before the office holder obtains their release.

The contents of these final accounts/reports are found in R18.14. Delightfully, the Insolvency Service has decided to lighten up on the miserable prescription that had been introduced by the 2010 Rules (e.g. no more statements of the aggregate numbers of preferential and unsecured creditors or that accounts have been reconciled with those held by the SoS) – thank you again!

In case you’re wondering about Administrations, R3.53 contains details of some of the contents of an ADM final progress report… but because, in Administrations, the final document is called a final progress report, the Part 18 rules on the contents of progress reports also apply to Administration final progress reports (plus an additional requirement slipped in to R18.3(2)).

 

Remuneration: Circulating Fees Estimates

The biggest change in the remuneration chapters is something very welcome: finally, we can stop debating whether it is possible for an IP to issue a fees estimate (and/or other fees-related information) before they are appointed as Liquidator. R18.16(10) states that “a proposed liquidator” may deliver the information. Excellent!

Of course, the New Rules will transform the whole S98 process beyond recognition – this is a huge topic for another blog post entirely.

 

Remuneration Niggles

Yes, I know I can be pedantic. If you have visited the Insolvency Service’s blog, you will have seen my query on R18.18(3), which could be read as requiring every Administrator’s fees to be agreed by creditors by a “decision procedure”, which would have had unexpected consequences for Para 52(1)(b) ADMs with only secured creditors in the frame. Thankfully, the Service is on the case and hopefully this will be fixed before April.  (UPDATE 23/03/2017: the recently-issued Amendment Rules have fixed this issue so that Para 52(1)(b) case fees are subject to approval only by secureds/prefs.)

Another niggle of mine is that the wording of the time costs basis has been changed – again. I think it passed by many of us that the 2015 Rules changed the time costs basis from “the time properly given… in attending to matters arising in the administration/winding up/bankruptcy” to “the time properly given… in attending to matters arising in the administration/winding up/bankruptcy as set out in the fees estimate”. Those words in italics have been removed for the New Rules – so if you were diligent enough to change the wording of your standard resolutions last year, unfortunately you’ll have to put them back to the way they were pre-2015.

 

Preferential Creditors’ Approval

The New Rules resolve another long-running debate: how were we to read the current R2.106(5A)(b)(ii), which sets out that Administrators who have made a Para 52(1)(b) statement and who have made or intend to make a distribution to preferential creditors need to seek the approval to fees of “preferential creditors whose debts amount to more than 50% of the preferential debts of the company, disregarding debts of any creditor who does not respond to an invitation to give or withhold approval”. The question has always been: what happens if no preferential creditor votes, does this mean that you have approval?

R18.18(4) eliminates all doubt. It states that in future Administrators will need to seek preferential creditors’ approval (on relevant cases) “in a decision procedure”. This is a New Rules-defined term, which I will not go into here (again, this is another blog post entirely), but it does mean without a doubt that there will need to be at least one positive vote to reach a decision.

A second long-running question on the current R2.106(5A)(b)(ii) has also been: what if you have paid preferential creditors’ claims in full, do you still need to ask these creditors to approve your fees?

This conundrum is solved by Rs15.11 and 15.31(1)(a), which indicate that in these circumstances only preferential creditors who have not been paid in full are circulated and that, if there’s no claim left, the creditor has no vote. These two rules are specific to creditors voting in decision procedures in Administrations though, so they won’t help you in any other cases (including, I assume, where secured creditors are being asked to approve fees in Administrations).

 

As mentioned earlier, there are many more rules in Part 18 that are essential-reading, but if you prefer to hear about them, drop an email to info@thecompliancealliance.co.uk and ask about Jo’s webinar.

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