Insolvency Oracle

Developments in UK insolvency by Michelle Butler

Emerging from the fog: some Amendment Rules

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Long time, no see! Jo Harris has done a great job of keeping up with her monthly updates, whereas regrettably I have failed to blog throughout this crazy-busy time. But the release of new Amendment Rules is worthy of extra-special effort on my part.

The new statutory instruments, which (subject to Parliamentary scrutiny) will come into force on 8 December 2017, can be found at:

 

The Partnership Amendments

The bulk of the Partnership Amendments brings E&W LLPs and processes falling under the Insolvent Partnerships Order 1994 into line with the Insolvency (England & Wales) Rules 2016 (“2016 Rules”). Similarly, they also wrap the Administration of Insolvent Estates of Deceased Persons Order 1986 into the 2016 Rules regime.

They also add a positive duty on office holders of insolvent partnerships in Administration or Voluntary Liquidation to report on the conduct of officers of the partnership in the same manner as reports in corporate insolvencies, i.e. within 3 months of commencement. Officers of partnerships in liquidation can now also become subject to CDDA compensation orders.

The LLP changes are subject to transitional provisions similar to those that accompanied the 2016 Rules (e.g. where an old rules meeting has been convened before the relevant date, the meeting is concluded under the old rules) – of course with the relevant cut-off date being 8 December 2017.

  • Form 600 – Notice of the Liquidator’s Appointment

Unsurprisingly as it is governed by the Companies (Forms) (Amendment) Regulations 1987, changes to the Form 600 had not been wrapped in to the 2016 Rules changes. The Partnership Amendments replace the prescribed form with prescribed contents in the style of the 2016 Rules.

These changes to Form 600 have effect only in relation to liquidators appointed after 8 December 2017, so you should keep hold of the old Form 600 for a few more weeks. In any event, as far as I can see the new Form 600 has not been released yet on .gov.uk. Presumably, it will appear at https://www.gov.uk/government/collections/companies-house-forms-for-insolvency-rules-2016 soon.

 

The Amendment Rules

For me, this set of amendments is far more interesting. It has been badged by the InsS as making “minor corrections and clarifications which have been brought to our attention since the new insolvency rules came into force in April 2017”. But don’t get your hopes up. The Amendment Rules tackle a peculiar small cluster of rules.

  • Closing bankruptcies and compulsory liquidations

We all knew that the 1994 Regs that required Trustees and Liquidators to send to the InsS an R&P (aka Form 1) within 14 days of “the holding of a final general meeting of creditors” needed changing. However, I had assumed that all the InsS would do would be to drop the meeting reference so that the Form 1 would be sent on the IP vacating office – I think this is how most IPs have been fudging their way through the closure processes since April.

However, the Amendment Rules make a surprising change: from 8 December, submission of the Form 1 must occur within 14 days of sending the final account/report to the creditors. This means that the new closure process appears to be:

  1. The Liquidator/Trustee sends a notice that the administration has been fully wound up and the final account/report to creditors.
  2. Within 14 days of (1), the Liquidator/Trustee sends Form 1 to the InsS. The amended 1994 Regs continue to refer to the Form 1 as covering “the whole period of his office”, although as the IP will still be in office for another 6 weeks or more, it is difficult to see how this truly can be achieved.
  3. At least 21 days before the end of the 8-week period, the Liquidator/Trustee delivers notice of the intention to vacate office to the OR.
  4. 8 weeks (plus delivery time) after (1), provided that there are no outstanding challenges to fees/expenses etc.:
    • The Liquidator sends a copy of the notice under S146(4) to the SoS.  The notice is Form WU15 plus a copy of the final account that was sent to creditors under (1) above. These are also sent to the Registrar of Companies and the Court.
    • The Trustee sends a copy of the notice under S298(8) (which states whether any creditors objected to the Trustee’s release) to the SoS. We have learnt that the InsS also expects this notice to refer to R10.87 – without this reference, it seems that the InsS is rejecting the notice. R10.87(5) states that the notice must be accompanied by a copy of the final report, i.e. the report produced at (1) above. The notice and the final report are also sent to the Court.

The key point arising from the Amendment Rules is that in future the submission of Form 1 will occur at least 6 weeks before the IP vacates office. This reinforces the 2016 Rules’ approach that the account must be drawn down to nil with no remaining VAT issues etc. when the final account/report is issued at the start of the 8-week countdown.

In my autumn 2016 Rules’ presentations, I have been highlighting the issue of how to deal with any quarterly charge made on the IS account during the 8-week period. In the past, the InsS has expected IPs to leave £22 in the account in order to settle this, if the quarterly charge falls due in the 8-week period. It seems that, from 8 December 2017, the InsS may no longer charge to maintain the account after the Form 1 has been delivered to them. In effect, the Form 1 may be the trigger for the InsS to close the account.

In view of the significant changes to the required process made by this amendment that seemed at first glance quite insignificant, I am very pleased to have learnt that the InsS intends issuing guidance to IPs on what is required (and thank you, InsS, for dealing with my niggly queries).

  • Committees

This is something that was worth taking the trouble to fix: because of the 2016 Rules’ obsession with tagging everything to “delivery” (except of course when it involves the OR!), Liquidation/Creditors’ Committees never became established – and therefore could not act – until the notice had been “delivered” (R17.5(5)). Therefore, gone were the days when there could be a creditors’ meeting at which the newly-elected committee members were asked to stay behind after the meeting so that the office holder could hold the first committee meeting. Rather, the 2016 Rules required the newly-elected committee members to disperse for at least a few days until the office holder was certain that the notice of the committee’s establishment had been delivered and then the first committee meeting could be summoned.

The Amendment Rules return some sense to the process. Unfortunately, technically the notice still must be “sent” before the committee can act, but at least we no longer have to wait for “delivery”.

An odd wrinkle is that R17.29(3) remains untouched. Therefore, where an Administration is followed by a Compulsory Liquidation, the Liquidation Committee (i.e. the Creditors’ Committee that existed in the Administration) cannot act until the notice of continuance of the committee has been “delivered” to the Registrar. Never mind. I think we can live with this inconsistency.

  • Proxy forms

If you blinked, you will have missed it: the Amendment Rules swiftly return the 1986 Rules’ restriction on the content of proxy forms.

Personally, I thought that the 2016 Rules’ relaxation, which allowed proxy forms to display the name of the members’ nominated liquidator, was quite sensible – after all, don’t companies use such proxy forms all the time to appoint auditors? – provided of course that the form was also designed to enable a creditor easily to nominate a different IP.

However, the Amendment Rules again prohibit proxy forms from being sent out displaying the name of anyone as nominee for the office holder (as well as the name of anyone as proxy-holder, which has always been in the 2016 Rules).

  • S100 Reports

In my view, the 2016 Rules’ excessive use of “notices” with their copious prescriptive standard contents defeated the argument that an objective of the new rules was to reduce costs. Whereas under the 1986 Rules a simple one-page letter sufficed, in many cases the 2016 Rules require a long-winded notice. The circular produced after the S100 decision is one such example.

Whilst I accept that the grammar was questionable, I think that R6.15(1) could have been interpreted as requiring a “notice” providing a report on the S100 decision process to be issued. The Amendment Rules have changed this so that the “notice” is now “accompanied by a report”. Now that R6.15(1) presents us with only a list of accompaniments, I am left wondering what exactly our notice should state!

  • Other Corrections

To be fair, the Amendment Rules do fix some obvious errors, albeit that I think we have all managed to apply those particular 2016 Rules on the basis that we could see what they meant to say.

For example, paragraph 21 of Schedule 2 could have been interpreted as meaning exactly what it says: “the 1986 Rules apply” in certain pre-October 2015 cases – what, all of the 1986 Rules..? But I think we all realised that it meant that those pre-October cases did not need fee estimates etc. The Amendment Rules now specify which of the 2016 Rules do not apply.

I also couldn’t help but smile that the Amendment Rules finally correct the transitional provision on when the next progress report is required on an Administration that extended pre-April 2017… although of course all such Administrations are already 8 months older, so this argument has come and gone… but thanks, InsS, for listening 😉

Personally, I think there are other 2016 Rules that would benefit from further clarification (e.g. the inconsistent use of the word “between” and whether the Centrebind 14-day limit applies where a S100 decision date has been postponed because of requests for a physical meeting etc.), but every little helps.

It’s easy to forget the decades of debate and case law that went into refining our understanding of the 1986 Rules. Although in part the 2016 Rules are a product of our standing on the shoulders of giants, in many respects they venture into uncharted territory, which no doubt will generate decades more of furrowed brows.

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One thought on “Emerging from the fog: some Amendment Rules

  1. Pingback: More little gems from the Insolvency Service’s blog | Insolvency Oracle

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