Insolvency Oracle

Developments in UK insolvency by Michelle Butler


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50 Things I Hate About the Rules – Part 1: Notices

As we approach the second anniversary of the 2016 Rules – and as Scotland gears up to take a similar plunge – I thought I’d list my pet hates.  I don’t mean this to be just a whinge (no, honestly!), but rather I hope that some readers may find some nuggets in here of rules they’ve overlooked.  Who knows whether I’ll reach 50… or perhaps 150!

In no particular order, here is my first batch: what I hate about statutory notices…

 

  1. Standard contents

The Standard Contents Rules are a real faff.  I appreciate that one or two readers may find it useful to see the company number, court reference, or debtor’s address (which address: the one where they lived at the start of the proceedings or their current one..?), but is it really worth the time spent on getting these details on every notice?  It may be relatively straightforward if you’re on IPS/Visionblue, but I pity IPs who aren’t.

And what about stating: “the section… the paragraph… or the rule under which the notice is given” (R1.29(d))?  Does anyone really want to see this?

 

  1. Notices where simple letters previously did the job

Under the 1986 Rules, we were quite happy to include in letters information such as how to access statutory docs online, confirmation of our appointment, and dividend declarations.  Now we need to issue statutory notices… of course, including all the standard contents.

One important notice that I find sometimes overlooked is the need to issue a notice proposing a decision by correspondence vote.  In the old days, we simply issued a voting form.  Now it needs to be accompanied by a R15.8 notice… and if it is not, could it be challenged as a fatally flawed process..?

 

  1. Notices where none were needed before

Why did the InsS see the need to introduce a new requirement that the Nominee’s consent to act (which is now a “notice”) must be sent to all creditors in a proposed IVA (R8.19(4)(d)), especially when there is no equivalent rule for CVAs?

 

  1. Notices requiring statements that just aren’t true

I have two rules in this category:

  • R15.8(3)(k) requires notices of decision procedures to include a statement that creditors may, within 5 business days of delivery of the notice, request a physical meeting. This is clearly incorrect when the notice is for a S100 deemed consent process or virtual meeting, as R6.14(6)(a) gives creditors up to the decision date to request a physical meeting (subject to however you choose to interpret “between”!)
  • R10.87(3)(f) states that the final notice to creditors in a bankruptcy should state that the trustee will vacate office (and (g) be released, if no creditors have objected) when the trustee files the requisite notice with the court… but there is no Section/Rule that actually requires the trustee to file such a notice at court. And, according to someone at the Insolvency Service with whom I have been corresponding, in debtor-application cases the trustee does not need to send anything to court (as you would expect) and they believe that the trustee’s office-vacation and release are effective when the requisite notice is sent to the OR (provided there are no creditor objections).  So… why does the trustee need to put in the notice that it all happens when the notice is filed with the court..?

 

  1. Notices requiring nonsensical statements

What is the point of including in a pre-liquidation S100 notice that creditors who have opted out may vote or that creditors with small debts need to deliver a proof in order to vote?  Such creditors can only have opted out or be counted as small debts after the insolvency process has begun.  Common sense would dictate that we could eliminate such statements… but then the notice would not be compliant with the Rules!

It’s not all the IR16’s fault, though.  After all, how many of us were in breach of the IR86, which had similarly required that a Notice of No (Further) Dividend include a statement that “claims against the assets [must] be established by a date set out in the notice” (now at R14.36(2))?

 

  1. Authenticating documents on behalf of companies

I find R1.5(3)(b) odd: if someone signs a document on behalf of a body corporate and that person is the sole member of the company, the document must state that fact.  So for example, proofs of debt need to include a statement that the person is signing as the sole member of the company (if they are such).  That is such a vital piece of information to us, isn’t it?

 

  1. Changes in Supervisor on a CVA

There is still no way of giving notice to Companies House either that an IP has ceased to act as Supervisor or that an IP has taken a new position as Supervisor of an ongoing CVA!

 

  1. Different notices for different decision processes

I still cannot fathom the logic in the Rules requiring a Gazette notice for virtual and physical meetings of creditors, but not for the other decision processes.  If the objective is to give notice to unknown creditors, then surely the determining factor should not be the medium that is used to propose a decision.

Another bewildering outcome of the Rules is that you need to give notice to bankrupts of meetings (R15.14(2)), but again no notice to the bankrupt is required if you are seeking decisions by another route.

 

  1. Delivering statutory documents by email

R1.45 explains that electronic delivery can be achieved where the recipient has given actual or deemed consent.  Deemed consent occurs where the recipient “and the subject of the insolvency proceedings had customarily communicated with each other by electronic means before the proceedings commenced”.  So… how did a company customarily communicate with its director before insolvency?  If an office holder wants to rely on email delivery for statutory documents such as notice for submitting a SoA in an Administration, it seems to me likely that they need to get actual consent.

And I suspect it is only a matter of time before a creditor relies on the requirement that the “electronic address [be provided] for the delivery of the document” (R1.45(2)(c)) to support a claim that e-delivery under deemed consent to an address used by the insolvent before the insolvency proceedings does not constitute delivery, as such an email address was only meant for receipt of the company’s sales invoices etc.

 

  1. Postal delivery to overseas persons

As acknowledged by the Insolvency Service in Dear IP 76, the Rules are silent on when delivery occurs using overseas post.  Dear IP 76 is helpful in flagging up the Interpretation Act’s direction, which leads us to calculate timelines by looking up when delivery would occur “in the ordinary course of post”.  But is it really robust guidance for the InsS to write effectively: do your best to extend timelines “if at all possible”?  Granted, some of the Rules’ timelines can become impossible (even for delivery within the UK), especially when meetings are adjourned, leaving us to contemplate the consequences of such breaches: are they simply technical breaches with no real consequences or do they threaten the validity of the proceedings?

 

  1. R1.50 delivery by website

Please don’t get me wrong, I love R1.50 delivery.  At a sweep of the hand, it eliminates enormous amounts of time and money posting documents that no one reads… although I think it is anti micro-business as some IPs don’t have the capacity to upload docs to a website.  However, it is clearly open to abuse: what is to stop an IP uploading a decision process on their website… say on approval of fees… and then, in light of the inevitable silence from creditors, giving a nudge to one or two (selected) creditors to lodge votes?

 

  1. Notices of Appointment of Administrators

Re NJM Clothing Limited, The Towcester Racecourse Company Limited, Spaces London Bridge Limited – need I say more..?

 

  1. Repeatedly inviting a committee… except in compulsory liquidations

It makes no sense to me to invite creditors to decide on forming a committee every time you propose a decision and it makes even less sense to exclude compulsory liquidations from this requirement.  And it makes still less sense to invite creditors to consider forming a committee when you’re seeking a decision to extend an Administration, which is a decision that is never in the gift of a creditors’ committee.

 

  1. The OR’s duty to send notices

Is it any wonder that the InsS/OR keep telling everyone how much cheaper they are than IPs?  ORs have to comply with few notice (or reporting) requirements.  And the response-deadline of the only material notice that ORs do issue – on the nomination of IPs to be appointed as liquidator or trustee (R7.52 and R10.67) – is measured from the date of the notice (and is only 5 business days!), not from the date of delivery of the notice, which is the complication that all IPs live with.

 

  1. But don’t worry, as we can overlook “immaterial” departures, can’t we?

Oh I wish!  Yes, indeed we do have R1.9(1)(a), which states that a document may depart from the required contents where the departure is immaterial… and interestingly this works even where such a departure is intentional!  This rule could be handy when, say, trying to deal pragmatically with creditors’ proofs of debt.  Otherwise, I wonder how many PoDs would fail to hit the prescribed contents (see, for example, gripe no. 6).  But I don’t know how it would go down if you quoted this rule to an RPB monitor who considered your notices to be flawed!

So too, from my compliance consultant’s perspective, I have to remember that IPs instruct me to tell them about statutory breaches, so regrettably where I see them – even the immaterial departures – I have to list them.  But believe me, it pains me as much as it pains you!

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New Rules, Part 15: Decisions, Decisions!

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More than one IP has asked me: ok, I know the New Rules pretty-much remove creditors’ meetings, but what’s all the fuss about? It gets me every time! Not only are the changes far more widespread than this, but also this change is hardly simple. It sounds simple though, doesn’t it: just replace all creditors’ resolutions with some kind of postal vote?

From what I believe was a desire to provide options – to creditors mainly, but also to directors and IPs – has evolved a web of overlapping timescales and feedback mechanisms, not to mention reams more information to creditors, which cannot fail to bamboozle and further dissuade them from engaging.

 

Decision 1: what type of decision do you have?

The SBEEA15 introduced the idea of two tiers of decisions (by the way, in our new world, there are few resolutions anymore, just decisions… although some decisions are made by resolution, if considered at a meeting, whether physical or virtual). There are decisions that can be made by Deemed Consent and others that must be made by a Qualifying Decision Procedure (although the New Rules drop the “Qualifying” bit). In the latter category are:

  • any “decision about the remuneration of any person” (S246ZE(2)); and
  • the acceptance of IVA and CVA Proposals.

So what decisions might be dealt with by Deemed Consent? The biggie is the appointment of a CVL Liquidator (you might also have thought about the appointment of an IP in court cases, but this involves first the removal of the incumbent OR – aha, now the reason for the change so that the OR becomes Trustee immediately on the order becomes clear, doesn’t it..?). Other Deemed Consent decisions could include several ADM items, e.g. extensions, discharge and even the Proposals themselves. But other than these, Deemed Consent is unlikely to get out much.

I think the Insolvency Service saw Deemed Consent being useful to office holders in seeking creditors’ approval to certain strategies, e.g. to commence litigation. I agree that this is a possibility, however the abolition of the statutory requirement to seek sanction to exercise many old Schedule powers has meant that more often than not IPs feel empowered to take such decisions in the interests of creditors in any event.

 

Decision 2: should you use Deemed Consent?

The key point to note about Deemed Consent is that, unless more than 10% in value of creditors (entitled to vote) positively object to the decision, then it is approved as proposed. If this proportion of creditors objects, then the IP has another bite of the cherry by proposing the decision by one of the other decision processes (excluding a physical meeting unless the proposed decision is for your CVL appointment).

There is a wrinkle: creditors who meet different criteria can respond by asking for a physical meeting, rather than (or in addition to) objecting to the decision proposed by Deemed Consent. If this happens, then the Insolvency Service has stated that the Deemed Consent process is superseded and the decision must be considered at a physical meeting. Personally, I have failed to spot where this consequence is set out in the rules, so I have asked the Service for clarification.

The thresholds for seeking a physical meeting are either 10% in value of creditors, 10% in number, or 10 creditors (the “10/10/10” criteria). (UPDATE 23/03/17: recently-issued Amendment Rules affect this, although their application is unclear.  I have blogged a question on the Insolvency Service’s blog.) This time, the criteria relate to all creditors, not just those entitled to vote. Thus it seems to me more than just a theoretic possibility that a creditor/s might reach the threshold to seek a physical meeting but fall short of the threshold to object to a Deemed Consent decision… hence the need, I believe, for the rules to be clear on the consequences of a request for a physical meeting.  (UPDATE 02/05/2017: the Insolvency Service has blogged: “The intention here is that the creditors that have an interest in the decision being taken are the ones who determine whether the costs of holding a physical meeting should be incurred. Therefore the convener would consider the value of the potential vote of the creditor(s) making the request, and compare them to the total value of the potential vote.”  Got that? 😉 )

Whilst there are potential complications, I think the Deemed Consent advantages are clear, especially where you need to seek approval from uninterested creditors, e.g. the ADM extension and discharge questions (although if you need secured creditors’ approval, silence from the unsecureds is only half the battle won).

What if you are seeking a CVL appointment, should you go for Deemed Consent? Well, one downside is that you will need to add on another decision procedure if you want to get your fees, including your pre-appointment fee, approved. However, if another IP starts showing an interest, they will first have to object to the Deemed Consent process before the scene is re-set to count votes on nominations. Granted however, it may mean that you’re looking at an unexpected Centrebind.

Another strange characteristic of seeking a CVL appointment by Deemed Consent is that, if unopposed, there is no statutory requirement for any pre-appointment Gazette notice – how odd is that?!

 

Decision 3: which other Decision Procedure might you use?

How else might you seek a decision? In the order that I think they will be used, the methods are:

  • vote by correspondence (no longer a “meeting” by correspondence and not defined in the rules);
  • virtual meeting (yes, cumbersome and in some respects risky, but the only way effectively to negotiate decisions);
  • electronic voting (hmm… maybe not for some time yet);
  • only if sufficient creditors request it, a physical meeting;
  • and A N Other process that none of us has yet thought up.

Virtual meetings are prepared for pretty-much as physical meetings are now: they require Gazetting and they involve proxy forms, which can be delivered anytime up to the start of the meeting in any case, no longer just for VA meetings. Proofs of debt also need to be delivered and, although there is a deadline of 4pm the business day before the meeting, there is also provision for the chair to accept late proofs, if he is “content”.

Of course, the obvious difference is finding an appropriate virtual meeting resource. From those who I know have been exploring this, I understand that there is no clear winner. Issues include: being able to identify attendees, especially when they join and leave, and being able to block access to people not entitled to attend. The main risk in holding a virtual meeting is that an “excluded person” (i.e. someone who tried to participate but could not through no fault of their own; say, they just happen to live in an area of the UK with unreliable broadband connections) can influence the decision after the meeting (assuming you did not decide to adjourn it). They are given a very short window of opportunity to complain that, had they participated, they would have swung the vote, but this is clearly not an uncertainty you want to be left with after a decision on your appointment or on a VA Proposal. There is also the practical uncertainty in knowing how many people are likely to want to join in to a virtual meeting: multi-party conference calls are exasperating at the best of times and the prospects of being surprised by a virtual room full of fired-up creditors doesn’t bear thinking about.

So should you go for a correspondence vote? Well, if you’re looking for a CVL appointment, it’s worth clocking now that this is not an option: Deemed Consent and virtual meeting are your only options. It is also worth remembering that the deadline for correspondence votes (and other non-meeting processes, including Deemed Consent) is one minute to midnight on your chosen day (the “Decision Date”), so we will have to get used to not knowing the outcome of a proposed decision until the day after… which could prove challenging if you’re trying to coordinate it alongside a members’ meeting. Correspondence votes need to be supported by proofs of debt submitted by the Decision Date and importantly, once a vote has been lodged, it cannot be changed. This makes correspondence vote a risky choice for VA Proposals, I think. I also wonder where correspondence votes will get us on fee approvals: if there is no negotiating possible, then will it result in an increase in court applications?

As with Deemed Consent, on receiving an invitation to a virtual meeting or to vote by another means, a creditor may react by asking for a physical meeting. They have 5 business days after delivery of the notice of the decision procedure in which to have delivered a request (but see Timetables below) and the 10/10/10 thresholds apply.

There is also no ability to ask creditors for a deposit as security for the costs of convening a physical meeting on request… unless it is a requisitioned decision (yes, there is a difference!). The latter may arise for example as a consequence of issuing Para 52 Proposals, although the rules allow you only to ask for the costs of seeking a “decision”, not a physical meeting… however it is not clear whether creditors could ask explicitly for a physical meeting at this stage (that’s another question to the Insolvency Service).  (UPDATE 02/05/2017: the Insolvency Service has blogged that they think it is reasonable to interpret the rules as allowing the creditor to request a physical meeting at the same time as requisitioning a decision, although they have also confirmed that the deposit sought should only be for requesting a decision, not holding a physical meeting.)

 

Invitations to Form a Committee

In all cases (except, strangely, in Compulsory Liquidations unless the meeting is to appoint a liquidator), whenever a Deemed Consent or decision procedure notice is issued, creditors must be asked at the same time whether they wish to establish a Committee and to propose nominations. This requirement sits unhappily besides the other rules, especially the Deemed Consent process. For starters, how do you ask creditors “whether” they want something? You must propose it as a decision, e.g. I propose the decision that a Committee be established. But if you were to propose this as a Deemed Consent decision and received no objections, this would mean that the decision had been made and you would need to canvass for (more) nominations, thus postponing your original objective until the sorry “no we didn’t mean we wanted a Committee, we simply don’t care” response was made certain. Therefore, several have designed the proposed decision in the negative: I propose the decision that a Committee should not be established (which personally I think also sits better ethically where the IP does not believe a Committee is warranted: is it honest and straightforward for an IP to propose a decision he does not himself desire?). In this case, creditors’ silence works well.

But is it truly necessary to go through this rigmarole every time you propose a decision? Yes, it seems so. And of course we will need to highlight the SIP15 Committee Guidance… however I am puzzled by the SIP15 reference to highlighting it prior to inviting creditors for nominations: does this mean that we need to write to creditors separately before our first proposed decision? For once, this is not a question for the Insolvency Service!

 

Timetables

In most cases, notice of a decision – by Deemed Consent or other process – must be at least 14 days (plus delivery time). CVL appointment is the obvious exception: in this case, notice must be 3 business days after delivery, which including a weekend makes it very slightly shorter than the current requirement. Because of the short timescale in CVL appointments, requests for a physical meeting can be made at any time up to the Decision Date.  (UPDATE 02/05/2017: oops!  Sorry, the rules set the deadline as between the notice and the Decision Date and Dear IP 76 suggests that the Decision Date is not included in this period.  See https://goo.gl/ygnWjg for more analysis.)

 

There’s more

The rules contain prescriptive details about the content of notices and how to deal with “excluded persons”. In addition, the interaction of Deemed Consent/decision procedures with other requirements such as the need to send a Statement of Affairs before the CVL appointment Decision Date adds another layer of complexity to the work.

If you want to know more:

  • on the detail of decision processes especially in the context of CVL appointments, then access Jo Harris’ webinar, “New Rules: Decision Procedures and Changes on CVL Appointments” (mailto:info@thecompliancealliance.co.uk for details);
  • on the pros, cons and strategies of decision processes, then join me at the R3 breakfast seminar, The New Rules for Insolvency Work-Winners (16 March in London), or any of the three R3 SPG Technical Reviews (28 March in London, 6 June in Huddersfield, 4 July in Bristol)… and there are more Compliance Alliance webinars to come on these topics;

… or feel free to get in touch with me… but don’t expect many simple answers!