Finally, 10 months after the 2016 Rules came into force, R3 issued 2016 Rules-adapted revised Standard Terms for IVAs. In this blog, I summarise the key changes.
Having worked on the R3 group (an inevitable consequence of saying: the work must get done!), it is difficult for me to be critical of the result. But drafting-by-committee always involves some compromises (and soooo much time!), so don’t be surprised if I slip in the odd gripe below.
The revised IVA Terms are available from the R3 website but only to logged-in R3 members, which seems odd considering the drive to go paperless for insolvency proceedings. R3’s conditions of use state that R3 members may “use” the terms, so presumably as the 2016 Rules and the Terms themselves allow delivery by website, non-members should be able to access them from R3 members’ websites over time.
While I’m on the subject of websites…
The new Terms provide that Rs1.49 to 1.51 shall apply. Did the Terms need to include this? Can’t Supervisors (and Nominees) already use the 2016 Rules to deliver documents by website?
Yes, these 2016 Rules do already work for IVAs… but only for documents required under the Act or the Rules (R1.36(1)). Therefore, whilst we’ve been able to send relevant notices to wrap in website-delivery for statutory documents including the Nominee’s notice of the decision procedure to approve the IVA, progress reports and implementation/termination notices, technically the 2016 Rules do not enable website-delivery of items arising only by reason of the IVA Proposal and Terms. In other words, the methods of delivery of proposed variation decisions and outcomes are determined by the IVA Terms, not by the 2016 Rules.
The previous R3 IVA terms allowed the 2009 Rules’ process for website-delivery, i.e. by posting out a one-pager each time that something new was uploaded. The revised Terms now also allow the R1.50 process so that the despatching of one notice will enable all future documents to be uploaded onto the website with no further notice. It is doubtful that this will help when seeking a variation, but it may help with the next – new – requirement…
Where a meeting was held during the period of an IVA, the old terms required a list of creditors voting to be sent with “the chairman’s report to Creditors, the Debtor and the Court”. This was a bit odd, because firstly of course there was no requirement to send any report on meetings during an IVA to the Court. But secondly, what was “the chairman’s report”? The rules defined a chairman’s report arising from the meeting to vote on the IVA Proposal, but there were no rules or terms to define such a report for meetings after approval. Another oddity of the old terms was that there was no requirement to report to creditors on the outcome of a postal resolution.
The revised Terms plug these gaps… although not in a low-cost way. Term 69 follows the 2016 Rules’ model of “records of decisions”, which for meetings are in the form of minutes and which show how creditors voted on the decisions. Separately, Term 69 requires a list of creditors who participated and the amounts of their claims. The revised Terms require the “record of decision” to be sent to the creditors and the debtor.
This seems a little onerous and a departure from the 2016 Rules as regards decisions taken during the course of an insolvency process, where rarely is a post-decision circulation required. Couldn’t the decision outcome be delivered by a simple one-liner? Is a copy of the full record of decision/minutes really necessary? Well, it would appear so if creditors are able to exercise their rights under the Terms to appeal a decision (Term 65) or to “complain” about being excluded from a virtual meeting, which is a new right transferred in from the 2016 Rules (Term 62(7)).
As mentioned above, though, at least Supervisors may now use websites to deliver such documents easily… and it has since been pointed out to me that there is no timescale on this delivery.
I joined the working group thinking that we had an opportunity to take the good bits from the 2016 Rules and leave the bad. This didn’t mean that I was keen on making life easy for IPs while running rough-shod over measures designed to improve matters for the debtors and creditors. It’s just that I think we all know what works in the 2016 Rules, what balances well the objectives of reducing costs and engaging stakeholders, so why could we not learn from our early experiences of the 2016 Rules and design new Terms to improve on them?
For example, if an IP feels that a physical meeting would be the best forum in a particular case, why can’t s/he decide to summon one? Even the Insolvency Service has suggested that for other insolvency proceedings IPs might ring around creditors before notices are sent and encourage them to ask for a physical meeting. So why not design the Terms so that we can avoid this charade?
Regrettably, I was outvoted on this point as well as some other 2016 Rules that found their way into the revised Terms.
The revised Terms incorporate the following now-familiar Rules:
- A physical meeting may only be convened if 10/10/10 creditors ask for one (Term 61(2) and (3))
- The 2016 Rules on the creditors’ power to requisition a decision (i.e. out of the blue) generally have been replicated (Term 61(4) and 63).
- A notice of decision procedure compliant as far as applicable with R15.8 must be issued (Term 62(2)) – note: this must be sent even if it is a vote-by-correspondence (I have seen a number of IPs omit this notice in other insolvency proceedings)
- Other 2016 Rules on the decision procedures should be followed, e.g. the timescale for convening a physical meeting after receiving requests (Term 62(2))
- Once a vote has been cast in a non-meeting procedure, it cannot be changed (Term 64(4))
- As mentioned above, the 2016 Rules on excluded persons apply (Term 62(7))
But on the other hand, some departures from the 2016 Rules have been made:
- The deemed consent process has not been transported into the Terms – it was felt that, as an IVA is effectively an agreement between the debtor and their creditors, silence-means-approval was an inappropriate way to make changes to it
- Meetings must still be held between 10am and 4pm on a business day (Term 62(4)) (personally, I thought that IPs could be trusted to convene meetings at a sensible time such that this prescription was unnecessary – oh well)
But I guess we should be grateful for small mercies: at least we don’t need to invite creditors to form a committee every time!
The Debtor’s Involvement
Some changes in the Terms regarding the level of involvement of the debtor in the process may come as a surprise:
- Notice of a meeting is no longer required to be sent to the debtor (unlike in bankruptcy – R15.14(2)/(3))
- Debtors may request a decision (Term 61(6)), but the Supervisor need only convene a decision procedure if s/he considers it is a reasonable request
- The Terms no longer allow the debtor to inspect proofs (Term 36)
Despite these changes, of course it must be remembered that the debtor’s participation in the IVA process, which is intended to achieve a fair outcome for all, is fundamental and crucial.
The Trust Clause
We all know about the Green v Wright fun-and-games, which decided that, notwithstanding that a debtor had met all their obligations under the IVA that had concluded successfully, when an asset emerged later that would have been caught by the IVA had it been known about at the time, such an asset was caught by the enduring trust.
Is this practical for cases generally? For example, how do you revive cases long-ago completed? What if you’ve destroyed the file? What if the former Supervisor has left the firm? What if they are no longer licensed?
Is this fair for cases generally? It seems fair in a bankruptcy scenario, which was how the judge came to the decision, but in an IVA where an agreement is reached with creditors (provided of course that the debtor has been entirely open and honest in formulating the Proposal), the debtor meets their side of the bargain and the creditors get what they were expecting, shouldn’t that be the end of it?
As R3’s covering note explained, on consulting with major creditor groups, it seemed that they generally were comfortable with such finality. On the whole, avoiding Green v Wright trusts capturing unknown unknowns seemed like a popular idea.
The new Terms introduce the Trust Realisation Period. This period continues after the expiry, full implementation or termination of the IVA, if there remain (known) assets included in the IVA Proposal that remain to be realised and distributed. Therefore, in theory if unknown assets emerge before the Trust Realisation Period ends, they could be caught by the trust. However, the Terms are designed so that, once the Trust Realisation Period ends, the trusts end, so any unknown assets emerging after this point should not be caught by a trust.
The new Terms also change the position on the debtor’s bankruptcy. In this case, any assets already got in or realised by the Supervisor remain for distribution to the IVA creditors, but any other assets that were caught by the IVA are freed from the trust, so as not to disturb the vesting of the bankruptcy estate in the Trustee in Bankruptcy.
Other Good Bits
The new Terms improve on some other areas that previously didn’t quite work:
- Previously, a meeting could be adjourned again and again (as long as there were no more than 21 days between adjournments). Now, adjournments have a long-stop date of 14 days from the original meeting date (Term 68(3))
- The process for a Joint Supervisor to resign has been simplified: no longer does there need to be a meeting to seek creditors’ approval of the resignation, but now all that is needed is for the Joint Supervisor’s resignation to be notified to creditors in the next progress report (Term 18(3))
- Debts of £1,000 or less may be admitted for a dividend without the delivery of a proof (Term 39(4)). The new Terms do not prescribe how Supervisors should deliver this message to such creditors, but it would seem sensible to me for the Supervisor to follow something akin to the 2016 Rules’ process of notifying such creditors when issuing the Notice of Intended Dividend so that these creditors know how much their claim is going to be admitted for absent a proof and the timescale for submitting a proof for a different amount, if they so wish. As in the 2016 Rules, this Term does not mean that Supervisors must admit small debts – they remain in full control of whether to exercise this power.
On the whole, I think the new Terms are an improvement, especially now that the 2016 Rules’ Decision Procedures have bedded in generally. Of course, the odd flaw or ambiguity will always take us by surprise. But hopefully Version 4 will serve us well for a few years yet.