Insolvency Oracle

Developments in UK insolvency by Michelle Butler

Tag Archives: Insolvency Rules 2016


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The Rules’ complexities: get used to them!

In their report on the 2016 Rules’ review, the Insolvency Service all but acknowledges that some of the Rules leave IPs playing Twister, being forced into shapes that just won’t fit.  However, there are few admissions that things need to change.  Generally, all we can hope for is a review-on-the-review, which will consider further what, if anything, should change.

In this article, I cover:

  • The CVL process – top of the InsS’ list for change
  • The InsS maintains a general reluctance to fix fees
  • The new decision processes – successful or too complicated?
  • The InsS sees few problems with committees, dividends, the lack of prescribed forms, SoAs and personal data
  • But there are a handful of odds-and-sods that the InsS intends to change

The InsS report on their review can be found at https://www.gov.uk/government/publications/first-review-of-the-insolvency-england-and-wales-rules-2016/first-review-of-the-insolvency-england-and-wales-rules-2016

My personal consultation response is at https://insolvencyoracle.com/consultation-responses/

CVLs to change

One area that the InsS does appear committed to change is the CVL process.  In scope for consideration are:

  • The fact that the Rules only empower an office holder, not a director (or an IP acting on their instructions), to deliver documents by website
  • The fact that, although the Temporary Insolvency Practice Direction allows remote statutory declarations, a more permanent change to verifying Statements of Affairs would be beneficial
  • The fact that the Rules do not provide for the liquidation estate to pay any non-R6.7 pre-appointment expenses, e.g. the costs of seeking the shareholders’ resolution to wind up
  • Some respondents’ requests for more time to consider S100 decisions and SoAs

I find the last point a irritating: the new Rules’ S100 process for commencing CVLs is already more creditor-friendly than the IR86’s S98.  Now, the Statement of Affairs must be received by creditors at the latest the business day before the decision date, whereas under the IR86 the SoA only needed to be provided to the meeting.  Also, the new Rules’ 3-business-days-between-delivery-and-the-decision-date means that the notice period is usually one day longer than it was under the IR86. 

True, few CVLs need to happen quickly, but an extension in the period really must be accompanied by wider scope for the advising IP’s costs, as well as those of agents and solicitors, to be paid from the estate where the work is done with a view to the CVL.

 

A lacklustre response on fees

It was disappointing to read the InsS’ opening comment on the general subject of fees that:

“It is not certain that the rules on a necessarily moderately complex topic can be made clearer”. 

Pah!  You’re just not thinking hard enough, guys.

But at least we have some comfort that the InsS has “particularly noted concerns around rules 18.24 to 18.27 on changes to the bases of remuneration”, a topic on which I have blogged on several occasions, and they propose to review these fees rules “at a future date”.

While the InsS notes “concerns that the new Rules are not effective for small cases, including the absence of the ability of remuneration in a CVL to default to Schedule 11 scales”, they stated that “stakeholders”suggested “that reintroducing this measure… would make the process more complicated”.  Strange, I’m not sure why anyone would be against this measure.

They also stated that it might make “the process burdensome and more expensive rather than more efficient” if the rules were to provide different fee criteria for small cases, although the report does not make clear to what suggestion this was alluding. 

In my consultation response, I had suggested a de minimis statutory fee (after all, the OR has a set fee of £6,000) in recognition of the basic statutory and regulatory requirements of all CVLs, BKYs and WUCs.  This IP statutory fee either could be granted as automatic or, if the InsS weren’t comfortable in taking off all the reins, could be approved using the deemed consent process.  Personally, I was not suggesting different fee criteria for small cases, I was suggesting that this could be the standard for all cases, leaving the office holder to seek approval in the usual way for any fees above this de minimis level. 

I’m not entirely surprised that they’ve ignored such a suggestion from little me.  However, to suggest that there is no process by which the Rules could be changed to help IPs avoid the burden and expense of seeking the court’s approval where creditors refuse to engage in a decision procedure on fees is disappointingly defeatist and, I suspect, reflects a persistent lack of understanding of the difficulties encountered by many IPs.

Not even fees estimates to change

The report also noted that several respondents had made suggestions to simplify the fees estimate requirements.  The InsS gave several reasons why they felt there should be no changes, including:

  • the fees estimate provisions align with the statutory objective that regulators ensure that IPs provide high quality services at a fair and reasonable cost (hmm… does spending truck-loads of time creating a fees estimate pack really achieve this?);
  • “the level of fees charged by officeholders have often been a cause of complaint amongst creditors and sanctions by their regulators” (“often”?  Really??  The InsS Regulatory Report for 2021 reported that 5 out of 423 complaints were about fees and only one of the 53 regulatory sanctions listed was about the level of fees); and
  • “amending the Rules in the ways that have been suggested would have the effect that creditors would once again find it difficult to scrutinise and challenge remuneration due to a lack of timely information”. 

It’s a shame that the InsS appears to view the time that IPs spend in complying with the copious information requirements as time – and cost to the estate – well spent.

The case for physical meetings

Before the new Rules came into force, I think that many of us thought that removing the power to convene a physical meeting and replacing this with a variety of decision processes was unhelpful and an unnecessary complication.  Although the InsS report indicates that these views have persisted, personally I think that 5 years of experience with the new decision processes, as well as the pandemic lockdowns, has led many of us to think that maybe this new normal of decision-making isn’t so disastrous after all. 

But I do struggle to accept the report’s contention that “there is some suggestion that the new processes have not been detrimental to creditor engagement”, unless by “engagement” they simply mean “voting”.  It seems the InsS is arguing that correspondence and deemed consent decision processes “may encourage creditor engagement precisely because they reduce the need to spend time and money actively interacting with officeholders in cases of lesser interest”.  Hmm… this might explain why it seems that some creditors lodge objections to deemed consents and then fail to engage when the IP is forced thereafter to convene another decision procedure. 

I also had to smile at the InsS’ suggestion that the increased number of creditor complaints over the complexity of the decision processes may actually reflect creditors’ increased interest in engaging!

Decisions, decisions…

Fundamentally, the InsS report concludes that the new processes require no material changes.  In particular:

  • The InsS is happy with the 11.59pm cut-off time;
  • The InsS is happy that non-meeting votes cannot be changed (R15.31(8)); they state that, to provide otherwise “would require a framework to govern exactly how and when that could happen” (Would it really?  It’s not as if we have a framework for changing a vote submitted by proxy, do we?)
  • The InsS is happy that there is no ability to adjourn a non-meeting process; they consider that “naturally officeholders would not use a non-meeting process where there was any indication that an adjournment might be needed”
  • The InsS is happy that their Dear IP 76 encouragement for IPs to take a pragmatic approach as regards the statutory timescales for delivering documents to overseas creditors is sufficient
  • In response to some comments that office holders would value the discretion to convene a physical meeting, the InsS believes that at present “the restriction on physical meetings is operating correctly, this does not rule out future changes in this area”

But the InsS has indicated that a couple of suggestions are worthy of further consideration:

  • That creditors with small debts should not be required to prove their debt in order to vote
  • Fixing the apparent inconsistency in requiring meetings, but not non-meeting decision procedures, to be gazetted

Information overload

The InsS report does acknowledge that “information overload” as regards creditors’ circulars for decisions is “a core concern”.  However, they suggest that this is in part because some IPs “are still in the process of determining how best to use and present the new decision-making options”.  Charming!  But, InsS, you cannot escape the truth that the new Rules require an extraordinary amount of information – R15.8 alone covers a page and a half of my Sealy & Milman!

Surely we can cut out some of the gumpf, can’t we?  For example, some people raised the point that R15.8(3)(g) requires pre-appointment notices to include statements regarding opted-out creditors even though no such creditors would exist at that stage.  The InsS suggests the solution lies in adding yet further information in such notices if IPs “think that reproducing the literal wording of the rules could cause confusion”. 

This implied confirmation that IPs do need to provide such irrelevant statements in notices is frustrating, given that the court had previously expressed the view (in re Caversham Finance Limited [2022] EWHC 789 (Ch)) concerning the similarly irrelevant requirement of R15.8(3)(f) for notices to refer to creditors will small debts:

“I think that Parliament cannot have intended that redundant information should be included on the notice”. 

Well, the InsS has spoken: they do require such redundant information.

Are decisions like dominoes?

I love it when the InsS writes something that makes me go “ooh!” 

The report describes the scenario where a decision procedure was convened to address several decisions, but then “a physical meeting is requested in one of those decisions but not the others”.  Someone had suggested that the physical meeting be convened to cover all the original proposed decisions or that the Rules make clear that the request applies only to one. 

The InsS has responded that they consider that:

“the Rules are clear that each decision is treated separately for the purposes of requests for physical meetings”. 

While I can see this from Ss 246ZE(3) and 379ZA(3) – these refer to creditors requesting that “the decision be made by a creditors’ meeting” – I have not seen this being applied in practice. 

So this means that every time a creditor asks for a physical meeting, it seems the director/office-holder should ask them what decision(s) they want proposed at the meeting and, if there are any decisions that they don’t list, then these decisions should be allowed to proceed to the original decision date.  Interesting.

What about concurrent decision processes?

The report noted comments that the Rules are unclear as to whether a decision procedure can run concurrently with a S100 deemed consent process in order to seek approval of pre-CVL expenses or the basis of the liquidator’s fees. 

The InsS’ reaction to this issue is curious.  The report merely flags the “risk” that the decision procedure on fees would be ineffective where the creditors nominate a different liquidator to that resolved by the company (would it?  Why??). 

So… does this mean that the InsS doesn’t see any technical block to these concurrent processes?  Are we any clearer on this debate that has been running since 2017?

What about the reduced scope for resolutions at S100 meetings?

The report notes that the new Rules have excluded the IR86’s provision that S98 meetings may consider “any other resolution which the chairman thinks it right to allow for special reasons”, which was previously used as the justification for S98 meetings also considering the approval of pre-CVL fees.  Does this omission affect the ability for fees/expenses decisions to be made at S100 meetings?

The InsS’ response to this one is equally cryptic.  They appear to be saying that, as “rule 6.7 now includes expenses that were omitted from the Insolvency Rules 1986”, the “any other resolution” provision is no longer necessary. 

I don’t get it: R6.7 is no wider in scope than the old Rs 4.38 and 4.62, so there’s no remedied omission as far as I can see.  The problem is that the new Rules still lack an explicit provision that the initial S100 meeting may consider other resolutions, such as approval of the R6.7 expenses and indeed the basis of the liquidator’s fees.  At least it’s nice to have the InsS’ view that there is no problem, I suppose!

Committee complexities

The InsS report does not pass comment on whether respondents’ questioning “the value of continually requesting that creditors decide whether to create a committee” was a good point worth taking forward.

The report does suggest that the InsS won’t be taking forward issues around the establishment of a committee where there are more than 5 nominations.  The InsS considers that the decision in Re Polly Peck International Plc (In Administration) (No. 1), [1991] BCC 503, “remains relevant”.  This decision concluded that, “where more nominations are received than available seats on the committee, that a simple election should be held with those nominees who receive the greatest number of votes (by value) filling the vacancies”.  Ah yes, the simple election – simples! 

The more recent decision, Re Patisserie Holdings Plc (In Liquidation) ([2021] EWHC 3205 (Ch)), suggests that even where fewer than 5 nominations are received, those nominations will only be decisive where they have been made by the majority creditors.  Therefore, it seems to me that we are still left with a cumbersome committee-formation process stretching over two decision processes.

No going back on prescribed forms

The InsS is of the view that the decision to abolish prescribed forms was the correct one.  The report states that there does not appear “to be truly widespread difficulty” and they maintain that their impact assessment had accommodated the familiarisation cost appropriately. 

Although I think this unfairly plays down the impact on small businesses, I do think the boat has sailed on this debate.  I would have loved the InsS to have provided optional templates to support the prescribed content rules, but given that even the InsS’ own proof of debt form does not help creditors to meet all the Rules’ requirements, it is probably safer that they did not.

No easy fixes for dividends

An age-old bugbear is the hassle for all parties where a dividend payment is paltry.  It does the profession no favours when office holders are required to post out cheques for sums smaller than the postage stamp. 

I understand that the InsS did consider the pre-IR16 request to provide a statutory threshold for dividend payments below which they need not be paid.  But I’d heard that this had been considered unconstitutional, as every creditor has the right to the dividend no matter how small.  Instead, the InsS gave us the “small debts” provisions, which I think do the opposite and only increase the likelihood that office holders will be sending small payments to creditors who consider it is just not worth their trouble. 

This time around, it was suggested to the InsS that creditors be entitled to waive their dividend rights in favour of a charity or that this process could be automatic for payments below a certain amount.  The InsS rejected this suggestion, citing that it would simply add a different administrative burden onto office holders and creation of an automatic process would impair creditors’ rights to repayment.

The report does a good job of explaining why a NoID for an ADM must be sent to all creditors, not just those who have not proved as in other cases.  This is because the ADM NoID triggers the set-off provisions of R14.24, so all creditors need to know about it.  So no change there either.

Some respondents commented on the generally unnecessary duplication of requiring employees to submit proofs even though the IP receives information about their claims sent to the RPO.  This is an area that the InsS has noted for future consideration.

SoAs and personal data

I’m sure we remember the kerfuffle created by Dear IP chapter 13 article 97, which seems (or attempts) to grant IPs the discretion to breach the Rules requiring the circulation to creditors of personal data in Statements of Affairs.  Well, it seems that the InsS has already forgotten it.

As regards suggestions that the Rules might restrict the circulation of the personal details of employee and consumer creditors, the report states that the InsS is:

“satisfied that the current balance struck by the Rules remains an appropriate one” 

Oh!  So does that mean they will be recalling the Dear IP article?

Respondents also raised other concerns regarding the disclosure of personal details:

  • the requirement for non-employee/consumer creditors’ details to be filed at Companies House, so this would include personal addresses of self-employed creditors etc.
  • the need to disclose an insolvent individual’s residential address on all notices
  • the fact that, if the InsS is truly concerned with creditors being able to contact each other, then wouldn’t email addresses be more relevant?

The report states that “these issues will remain under consideration for amendment in future updates to the Rules”.

The opt-out process: who cares?

In my view, far too much space in the report was devoted to explaining the feedback of the creditor opt-out process, with the conclusion that the InsS “will give further thought to whether there should be any changes to, or removal of, these provisions”. 

I was not surprised to read that few creditors – “less than 1%” (personally, I would put it at less than 0.1%) – have opted out.  One respondent had a good point: don’t the opt-out provisions give the impression “that information provided by officeholders has no value or interest”?  Even the report referred to creditors opting out of “unwanted correspondence”.  Doesn’t this suggest something more fundamental, that in many respects the Rules are overkill and that communications could be made far more cost-effective?

Odds-and-sods to fix

The report acknowledged the following deficiencies in the Rules… or in some cases the InsS admitted merely the potential for confusion:

  • ALL: the court’s ruling in Manolete Partners plc v Hayward and Barrett Holdings Limited & Ors ([2021] EWHC 1481 (Ch)), which highlighted the limited scope of “insolvency applications” in R1.35 leading to additional costs – this issue has been singled out by the InsS as being one of the “most pressing” to resolve
  • ADM: the requirement for the notice of appointment of Administrators to state the date and time of their appointment – in view of the expansive comments by the courts on this topic, it is surprising the InsS only intends to “give further consideration to removing this requirement”
  • ADM/CVL/MVL/WUC: oddly, the report states that, as R18.3(1)(b) does not explicitly require a progress report to include details of the company (but just the bankrupt), this “gives the appearance of an error so may be confusing”.  However, R18.3(1)(a) states that reports need to identify “the proceedings”, which under R1.6 includes information identifying the company, so I don’t understand the problem.  In contrast with some of the items mentioned above, the InsS apparently thinks that this issue is of such significance that they “will look to rectify this in a future update to the Rules”.  Guys, where are your priorities?!
  • CVL: “The differing use of the word ‘between’ in rules 6.14(6)(a) and 15.4(b)” (i.e. in one case, the InsS believes it does not include the days either side of the “between”, but in the other case, I think they believe it does) – the InsS has set aside for further review whether the contexts make this inconsistency sufficiently clear
  • BKY: the fact that R10.87(3)(f) lists the contents of a notice being that the Trustee will vacate office once they have filed a final notice with the court, but the Act/Rules do not require the Trustee to file such a notice
  • BKY/WUC: the 5-day period in which to nominate a liquidator or trustee after the date of the OR’s notice – the InsS acknowledged that the short timescale has caused issues (indeed! Especially considering this seems to be the only Rules’ timescale that does not start on delivery of the notice, but rather on the date of the notice)
  • CVA/IVA: Rs 2.44(4) and 8.31(5) appear to have caused some confusion as they now state that a supervisor “must not” (previously: “shall not”) vacate office until the final filing requirements have been met
  • CVA: the fact that there is no provision to file at Companies House any notice of a change of supervisor – again, the InsS’ response is surprisingly non-committal; they will merely “consider whether this justifies creating an additional filing requirement for officeholders”
  • IVA: R8.24 was overlooked in the EU Exit changes and still reflects the wording required when the UK was part of the EU

So much to do, so little opportunity

This article demonstrates the Insolvency Service’s long to-do list.  And this is only the Rules’ review.  Last month, the InsS issued a call for evidence on the personal insolvency framework and they will have a fundamental role in the statutory debt repayment plan process expected to be rolled by the end of this year… and of course no doubt behind the scenes they are working on the response to the proposed single regulator consultation. 

With such high profile projects, when on earth are they going to find the time to get back to the Rules?!


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A tale of two views: is a paid creditor still a creditor?

The Insolvency Service’s report on the 2016 Rules review contains some interesting gems.  It’s a detailed report, which demonstrates they have scrutinised the consultation responses.  The result is a list of proposed fixes to the Rules – most are welcomed, a few are alarming.

In this blog, I describe what I found was the most surprising and alarming statement in the report.  It relates to the age-old question: is a paid creditor still a creditor?  The report’s statement is surprising, as it is the polar opposite of a comment published by the Insolvency Service 5 years’ ago.  And it is alarming because the report states merely that the Rules need to be made “clearer”, which suggests that we have all been misinterpreting the Rules over the past 5 years.  But hey ho, we’re only talking about fee-approval and Admin extensions!

The Insolvency Service’s report is available at: https://www.gov.uk/government/publications/first-review-of-the-insolvency-england-and-wales-rules-2016/first-review-of-the-insolvency-england-and-wales-rules-2016

Is a paid creditor still a creditor?

If a creditor’s claim is discharged (and not subrogated to the payer) after the start of an insolvency proceeding, should that creditor still be treated as a creditor for decision procedures and report deliveries?

Before I left the IPA in 2012, the question began to be discussed at the JIC.  It turned out to be a hotly debated topic and I never did learn the conclusion.  I’d always hoped that there would be a Dear IP on the subject to settle the matter once and for all (subject to the court deciding otherwise, of course).  It was such a live topic at that time that surely the 2016 Rules were drafted clearly, weren’t they?

The general principle?

I had heard a rumour long ago that the Insolvency Service’s view was once-a-creditor-always-a-creditor.  I understood that the basis for this view was that creditors are generally defined as entities who have a claim as at the relevant date, so the fact that the creditor’s claim may have been discharged later does not change their status as a creditor.

Of course, this doesn’t work if, after the insolvency commences, the creditor sells their debt (or it is otherwise discharged by a third party): the purchaser/settlor tends to acquire the creditor’s rights, so the original creditor would no longer be entitled to a dividend or to engage in decision procedures – there are Rules and precedents to address these scenarios.

I can see where this view might come in handy, e.g. where an office holder had already paid creditors in full and only afterward realises that creditors have not yet approved their fees.

However, this view always seemed illogical to me: why should a paid creditor be entitled to decide matters that no longer affect them, e.g. the office holder’s fees or the extension of an Administration?  Indeed, some paid lenders refuse to engage where their debt has already been discharged, even though an Administrator may need all secured creditors’ consents to move forward.

Setting aside this issue, it could be argued that in some respects the 2016 Rules support a once-a-creditor-always-a-creditor view.  For example, R15.31(1)(c) states that in CVLs, WUCs and BKYs, a creditor’s vote is calculated on the basis of their claim “as set out in the creditor’s proof to the extent that it has been admitted”, which could indicate that post-commencement payments are ignored for voting purposes. 

But then what about R14.4(1)(d), which states that a proof must:

“state the total amount of the creditor’s claim… as at the relevant date, less any payments made after that date in relation to the claim… and any adjustment by way of set-off in accordance with rules 14.24 and 14.25”? 

Is the “claim” the original sum or the adjusted sum?  If, for the purposes of identifying the “claim” for voting purposes, conveners are supposed to ignore post-commencement payments made, then doesn’t R14.4(1)(d) (and R15.31(1) – see below) mean that they should also ignore any set-off adjustment?  That doesn’t make sense, does it?

Administrations are always “special”, aren’t they?!

R15.31(1)(a) provides that creditors’ claims for voting purposes are calculated differently for ADM decision procedures.  It states that in ADMs creditors’ votes are calculated:

“as at the date on which the company entered administration, less (i) any payments that have been made to the creditor after that date in respect of the claim, and (ii) any adjustment by way of set-off…”.

This seems pretty unequivocal, doesn’t it?  A paid creditor would have no voting power in an ADM decision procedure.

It is not surprising therefore that R15.11(1) provides that notices of ADM decision procedures must be delivered to:

“the creditors who had claims against the company at the date when the company entered administration (except for those who have subsequently been paid in full)”.

So the natural meaning of these Rules seems to be that paid creditors have no voting power and therefore do not need to be included in notices of decision procedures.  This seems logical, doesn’t it?

What about prefs-only decision procedures?

These Rules led me to ask the Insolvency Service via their 2016 Rules blog: what is the position where an Administrator is seeking a decision only from the prefs, especially where those creditors also have non-pref unsecured claims?  Do the Rules mean that, where a pref creditor’s claim has been paid in full, the pref creditor is ignored for the prefs-only decision procedure? 

Or does the fact that the creditor hasn’t actually been “paid in full” because they have a non-pref element mean they should still be included in the prefs-only process?  And does that mean that, per R15.31(1)(a), they would be able to vote in relation to their non-pref claim? 

Yes, I know this would seem a perverse interpretation, but it seemed to me the natural meaning of rules that were not designed to apply to a prefs-only process.

The Insolvency Service’s view in 2017

The Insolvency Service’s response on 21 April 2017 (available at https://theinsolvencyrules2016.wordpress.com/2016/11/30/any-questions/comment-page-1/#comments – a forum on which the Service aimed to “provide clarity on the policy behind the rules”) was:

“Our interpretation is that 15.3(1)(a) (sic) would lead an administrator to consider the value of outstanding preferential claims at the date that the vote takes place. This would only include the preferential element of claims, and if these had been paid in full then the administrator would not be expected to seek a decision from those creditors.”

Now: the Government’s “long-standing view”

However, the Insolvency Service’s Rules Review report (5 April 2022) states:

“Several respondents asked for clarification on the position of secured and preferential creditors that had received payment in full. It has been the Government’s position for some time that the classification of a creditor is set at the point of entry to the procedure and that this remains, even if payment in full is subsequently made. We believe that to legislate away from this position could cause more problems than it would seek to solve. Accordingly, the Government has no plan to change its long-standing view on this matter. We will amend rule 15.11(1) to be clearer that where the Insolvency Act 1986 or the Rules require a decision from creditors who have been paid in full, notices of decision procedures must still be delivered to those creditors.”

Wow!  If only the Insolvency Service had published the Government’s long-standing view 5 years’ ago, before all those fees had been considered approved by only unpaid prefs or secureds!

Is it only a R15.11(1) issue?

The Service’s report makes no mention of the voting rights of paid prefs.  So does this mean that paid prefs should receive notice of decision procedures, but, in line with the Service’s statement in 2017, they have no voting rights?  Or do they think that R15.31(1)(a) also needs to be changed?

And what about paid secured creditors?  They’re not involved in decision procedures at all, so R15.11 is irrelevant where an Administrator is seeking a secured creditor’s approval or consent. 

What is a “secured creditor”?

A secured creditor is defined in S248 of the Act as a creditor “who holds in respect of his debt a security over property of the company”.  “Holds” = present tense.  If a secured creditor no longer holds security over the company’s property at the time when an Administrator seeks approval/consent, are they in fact a secured creditor?

It seems to me that, if the Service wishes to amend the Rules to make them clearer as regards the Government’s position, they may need to look at amending the Act too.

The consequence of a clarification of the Rules

If the report had stated that the Service intended to change the Rules to give effect to the Government’s view, I would not have been so alarmed – that would be a problem for the future.  But they have said that they want to make the Rules “clearer”.  This suggests that they believe the existing Rules could be interpreted to give effect to the Government’s view.  In that case, are we expected to apply the existing Rules in the way that this report describes?

And what about all the earlier cases in which paid secured or pref creditors’ approvals were not sought?  What effect does this have on previously-deemed approved fees, extended Administrations and discharged Administrators?

And what does this approach achieve?  Are IPs really expected to seek approvals/consents from paid creditors, most of whom have no theoretic, or even real, interest in the process?  Why should paid prefs get to decide, even if they have non-pref unsecured claims, when no other unsecured creditors have this opportunity?

Are the ADM Para 52(1)(b) Rules fit for purpose?

I have often blogged that I think the Rules around the consequences for Para 52(1)(b) ADMs are confused and illogical.  The Insolvency Service acknowledged some issues in the Rules Review report:

“Some respondents raised issues related to administration cases where statements had been made pursuant to paragraph 52(1)(b) of Schedule B1 to the Insolvency Act 1986, highlighting the difficulties that can sometimes occur when only secured and/or preferential creditors need to be consulted on certain matters under the Rules. It is clear that in some cases engagement with this smaller group of creditors can be difficult. However, we consider that the overall efficiencies provided for by the Insolvency Act and Rules across all such cases outweigh the difficulties that can occur in a minority of them.”

“The overall efficiencies”?  Is the Insolvency Service saying that, because it is useful in many cases not to have to bother with non-pref unsecureds, this outweighs the issues arising in a minority of cases?  If that’s true, then why not roll out this alleged more efficient process across all insolvency case types..?

The advantage of HMRC pref status?

Ok, a silent secured creditor can be a real headache and a silent paid secured creditor is going to be particularly reluctant to lift a finger.  But now that HMRC is a secondary pref creditor in most cases, at least this eases the problem of getting a decision from the prefs, doesn’t it?

I understand that HMRC is still acting stony in the face of many decision procedures.  Oh come on, guys!  If you want IPs to waste estate funds applying to court, you’re going the right way about it.

Other issues with the Rules Review report

This is only one of a number of issues I have with statements in the report.  In the next article, I will cover some others as well as highlight some items of good news for a change.

And apologies for my silence over the past months: an extremely busy working season and an unexpected health issue sapped me of my time and energy.  Last August, I had planned on covering other effects of the IVA Protocol – this will emerge one day.


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50 Things I Hate about the Rules – Part 3: Closures… and a bit more Fees

In this post, I add to my previous list of fees-related gripes and cover some issues with the new closure processes… and, as the end of the list is nearing, if anyone has any other gripes they want me to add to the list, please do drop me a line (because, between you and me, I’m struggling to come up with 50!)

On the topic of fees, I think that my last list and these additions demonstrate how madly intricate the statutory requirements are, especially for fees in Administrations and for fees based on time costs.  Is it any wonder that so many fee non-compliances arise?  And more than a few are treated by the RPBs as “unauthorised fees” issues, thus attracting the risks of fines and other sanctions.  This seems unfair as many trip-ups only occur because the Rules are such a jungle.  There must be a simpler way, mustn’t there?

 

A Few More Fees-Related Gripes

  1. Capturing Past Work

I appreciate that the fees Rules were drafted in the expectation that office holders would seek approval for the fee basis up-front (although how the drafters believed that IPs would be able to put together a realistic, case-specific, fees estimate on Day 1, I don’t know).  However, I think the Rules should have been designed to accommodate the possibility that fee-approval would be sought after an IP has been on the case for some time.  After all, the fact that Administrators’ Proposals must address how the company’s affairs have been managed since appointment and the proposed fee basis indicates that even the drafters envisaged some occasions when work will have been done before approval is sought, not to mention all the tasks demanded of every office holder swiftly on appointment.

My problem is that the Rules’ language is all prospective: the fees estimate/proposal must provide “details of the work the IP and the IP’s staff propose to undertake” (Rs1.2 and 18.16(7)) and the IP must provide “details of the expenses the office-holder considers will be, or are likely to be incurred” (Rs18.16(4) and (7)).  I think that we’ve all interpreted this to mean that, if time or expenses have already been incurred, these need to be explained also – and indeed SIP9 has plugged this statutory gap – but it is a shame that the Service did not see the 2016 Rules as an opportunity to fix the flaws in the 2015 fees Rules, which had been so hastily pushed out.

 

  1. Capping a Fees Estimate

The Rules don’t seem to have been written with any expectation that creditors will want to agree fees on a time costs basis subject to a cap different from that set by the fees estimate.

Firstly, although the Oct-15 Rules changed the fee basis to “by reference to the time… as set out in the fees estimate” (e.g. old R4.127(2)(b)), those final words were omitted from new R18.16(2)(b), so now creditors are asked simply to approve a decision that fees be based on time costs.

Thus, if creditors want to cap those fees at anything other than the fees estimate, they have to modify the proposed decision unilaterally… which isn’t really catered for in decisions by correspondence. In effect, the creditor is proposing their own decision, which the Rules strictly provide for as a “requisitioned decision” (R15.18), but of course office holders cut to the chase by accepting the creditor’s cap if their vote is conclusive.  The alternative is to count their vote as a rejection of the office holder’s proposed decision and start again with a new decision procedure.

But then how do you frame a request to creditors to increase this kind of cap?  The process for “exceeding the fees estimate” is set down in R18.30.  Let’s say that your original fees estimate was £50,000 and the creditors agreed a cap of £30,000.  If you want to ask them to reconsider whether you can take up to £40,000, R18.30 doesn’t work.  You’re not asking to exceed the fees estimate, you’re still looking to be within your original fees estimate.

R18.29 also doesn’t work here: the fee basis has been agreed as time costs, so you’re not asking creditors to change the basis (and there may be no “material and substantial change in circumstances” from that which you’d originally estimated when you’d quoted £50,000).  It seems to me that you’re asking creditors a whole different kind of question – to lift their arbitrary cap – which is not provided for at all in the Rules.

 

  1. Trying Again for Fee Approval

Commonly, IPs will propose a fees decision to creditors and receive no response at all.  Invariably, they will try again, often emphasising to creditors that, if no one votes, they may take it to court, thus increasing the costs demanded of the insolvent estate quite substantially.

But what if your original fees estimate was for £30,000 and then, when you go back for a second attempt some time later, you think that £50,000 is more realistic?  Or maybe your first fees estimate was proposed on a milestone basis, say £30,000 for year 1, and then you go to creditors at the start of year 2 with a fees estimate for £50,000 for two years?

Do you look to R18.30 on the basis that this is an excess fee request?  After all, you are looking to exceed your original estimate, so the scenario seems to fit R18.30(1).  However, read on to R18.30(2) and a different picture emerges: R18.30(2) instructs office holders to seek approval from the party that “fixed the basis”, so if no basis has been fixed, then R18.30 cannot be the solution.

So is your original fees estimate completely irrelevant then?  Do you simply start again with a new fees estimate?  Well, if you’re issuing a progress report before the creditors agree the basis, the original fees estimate is not completely irrelevant: R18.4(1)(e)(i) states that you must report whether you are “likely to exceed the fees estimate under R18.16(4)”.  That Rule refers simply to providing the information to creditors.  It does not say that that fees estimate must have been approved.  So at the very least, you would explain in your progress report why your original £30,000 was inadequate, even though you might also be providing a new fees estimate for £50,000.

 

  1. When Administration Outcomes Change (1): Disappearing Para 52(1)(b) Statements

This question proved contentious long before the 2016 Rules: if an Administrator has achieved fee approval under R18.18(4) (as it is now), where they have issued Proposals with a Para 52(1)(b) statement, is this approval still sufficient if the circumstances of the case change and it transpires that the Para 52(1)(b) statement is no longer appropriate? And conversely, if an Administrator issued Proposals with no Para 52(1)(b) statement, is the unsecured creditors’ approval of fees still sufficient in the event that it now appears that there will not be a dividend to unsecureds (except by means of the prescribed part)?

Personally, I believe that technically the approvals are still valid.  R18.18(4) refers specifically to making a Para 52(1)(b) statement: if that statement has been made, it’s been made; the fact that the statement may no longer be appropriate does not change the fact that it was made (although issuing revised Proposals may overcome this… but how many Administrators ever issue revised Proposals..?).  Also, R18.33 provides that, if the Administrator asks to change the fee basis, amount etc. or for approval to fees in excess of an estimate, the Administrator must go to the unsecureds if the Para 52(1)(b) statement is no longer relevant.  Surely, if it were the case that Administrators needed to go to unsecureds (or indeed issue revised Proposals) every time a Para 52(1)(b) statement were no longer relevant, i.e. to ratify a fees decision previously made by secureds/prefs, the Rules would similarly demand this.

However, while I think that this is the technical position, I have sympathy with IPs who decide to go to other creditors for fee approval even though strictly-speaking it does not seem as though this is required by the Rules.  Although clearly it costs money to seek decisions from creditors, I don’t think anyone will challenge an IP who has chosen to ensure that all relevant creditor classes are in agreement.  This would also help counteract any challenge that the Proposals had made a Para 52(1)(b) statement inappropriately, thus disenfranchising the unsecureds from having a say on the Administrators’ fees.

 

  1. When Administration Outcomes Change (2): Appearing Preferential Distributions

But what is the technical position for an Administrator who has made a Para 52(1)(b) statement, thought that they would not be making a distribution to prefs, but then the outcome changed so that a distribution became likely?

I think the technical position for this scenario does create a problem.  R18.18(4) states that the basis is fixed: (i) by the secured creditors and (ii) if the Administrator has made or intends to make a distribution to prefs, then also by the prefs (via a decision procedure).  It seems to me that overnight the question of whether the Administrator’s fees have been approved or not changes.  Originally, the Administrator thought that they only needed secured creditors’ approval, so they drew fees on that basis.  But then, as soon as they intend to make a distribution to prefs, they have no longer complied with R18.18(4).  Although it would seem mighty unfair for anyone to view the Administrator’s fees drawn up to that point as unauthorised, it certainly seems to me that the Administrator must take immediate steps to seek preferential creditors’ approval.

 

Closure Processes

  1. Inconsistent Closure Processes

There is a distinct difference between the MVL closure process and those for CVLs, BKYs and compulsory liquidations (“WUCs”).  In an MVL, the liquidator issues a “proposed final account” (R5.9) and then, often 8 weeks’ later, the “final account” is issued along with a notice that the company’s affairs are fully wound up (R5.10).  However, in a CVL, before the 8-week period begins the liquidator issues a final account with a notice that the company’s affairs are fully wound up (R6.28).  BKYs and WUCs follow this CVL model.

I have no idea why there should be these differences in the two main processes.  But what I do know is that it causes confusion on what a final account should look like… even for Companies House staff.

R6.28(1) states that the CVL final account delivered to creditors at the start of the 8-week process is the one required under S106(1) – not a draft or a proposed version of the final account – and it must be accompanied by the notice confirming that the affairs are fully wound up.  Therefore, it is clear to me that this final account is pretty-much set in stone at this point.  The final account date is fixed as at the date it is issued to creditors and it does not get changed when the time comes to deliver a copy of the final account to the Registrar of Companies at the end of the 8 weeks (S106(3)).

I don’t think that this is a misinterpretation… but I have doubted myself, not least as some IPs have complained to me over the last couple of years that Companies House has rejected their final accounts, requiring them to be re-dated to the “final meeting” or “closure” date.  I have asked Companies House twice to explain to me why they believe the final account should be re-dated… and both times Companies House conceded that there is no such requirement.  Thank you, Companies House, but would it be possible for you to avoid reverting to 1986 habits again so that, over time, we might all settle into a routine of complying with the Rules?!

 

  1. Closing Bankruptcies

I explained in Gripe no. 4 that R10.87(3)(f) seems to contain an anomaly.  It states that the final notice to creditors 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 seems to be no Section/Rule that actually requires a notice to be filed with the court.

I’m repeating this gripe here because others have been puzzled over the filing requirements when closing BKYs, especially in debtor-application cases where of course there is no court file.  Quite frankly, I don’t think any of us would care, if it were not for the fact that the trustee’s release is dependent on filing a final notice with “the prescribed person” (S298(8), S299(3)(d)).  As I mentioned previously, the person at the Insolvency Service with whom I’d been communicating seemed to express the view that “the prescribed person” is the court in creditor-petition (and old debtor-petition) cases and is the OR in debtor-application cases, but my attempts to get them to be more categoric in their response (and to explain with reference to the Rules how they reach this conclusion) have been unsuccessful to date.

It is unfair that the Act/Rules deal so unsatisfactorily with the trustee’s release and it makes me wonder if, to be certain, it would be beneficial to ask the Secretary of State to confirm one’s release in debtor-application cases where filing a notice at the court seems insensible.

 

  1. Closing Fees

When I explain to clients how I see the closure process for CVLs, BKYs and WUCs working, I sometimes hear the retort: so, you’re telling to me that I have to get everything finished before I issue my final account/report at the start of the 8 weeks, are you?  But how do I get paid for being in office over that period?

It is true that, under the old Rules, it was possible for IPs to factor the costs to close into their draft final report so that they could incur the time costs during that 8-week period and draw the fees (and deal with the final VAT reclaim) before vacating office and finalising their final report.  Under the new process, this looks impossible: in order to issue a notice confirming that the affairs have been fully wound up, it seems to me that at that point the affairs must have been fully wound up 😉

Most IPs are prepared to forgo the final costs to close a case.  Let’s face it, how many cases have enough funds to pay IPs anywhere near full recovery of their costs anyway?  But, I had to agree with my client who was disgruntled at the prospect of having to work for free from the point of issuing the final report: it does seem unfair.  But there is a simple solution: why not ask creditors to consider approving your fees to close a case as a set amount?  You could propose this at the same time as seeking approval for fees on a time costs basis for all other aspects of the case.  If your closing fees were approved as a set amount, you could invoice and draw those fees long before issuing your final account/report… and this way you could also get the VAT all wrapped up in good time as well.

 

  1. Stopping a Closure

Over the years, there have been occasions when an IP has wanted to stop a closure process.  It’s true that, under the old Rules, there were no provisions cancelling a final meeting.  But under the old Rules, it was possible to re-start the closure process for example if your draft final report turned out to be flawed; in fact, the old Rules required you to re-issue a draft final report and re-advertise for a new final meeting.

But as the 2016 Rules for CVLs, BKYs and WUCs only require you to issue a final account/report and then wait 8 weeks for creditors to take any action they see fit, there seems to be no way to stop this process once it has begun.  In fact, even if a creditor objects to the office holder’s release, this does not stop the IP vacating office at the 8 weeks; it simply means that, after vacating office, the IP needs to apply to the Secretary of State for release.  The only actions that stop (or rather postpone) a closure process are a creditor exercising their statutory rights to request information or challenge fees or expenses.

 


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50 Things I Hate about the Rules – Part 2: Fees

New Rules, Old Problems

Regrettably, most of the things I hate in this category are the Rules’ ambiguities, so I apologise in advance for failing to provide you with answers.  Nothing is as licence-threatening as fees failures, so it is particularly unfair that the Rules aren’t written in a way that helps us to comply.

In addition, most of these bug-bears were issues under the 1986 Rules.  What a missed opportunity the InsS had to fix them in 2017!  Jo and I had met with InsS staff and tried to attract their attention to many of these issues.  Their answer was that the 2016 Rules were not intended to change the status quo and that, as IPs had evidently coped with the 1986 Rules, surely they could continue to cope!

 

  1. Fee Approval at S100 Meetings

In December last year, out of the blue, I heard an ICAEW webinar raise questions about the validity of fee resolutions passed at S100 virtual meetings.  The speaker said that she was “flag[ging] the risks” only – and, to be fair, it did seem that she was highlighting that most of the risks lay in seeking fee approval via S100-concurrent decision procedures other than at a meeting (about which I have blogged before) – but it worried us enough to alert our clients to the voiced concern.

The speaker’s concern related to the absence of any Rule empowering the director/convener of a S100 meeting to propose a fee-related resolution.  Indeed, such an explicit power is absent, and the drafters of the 2016 Rules saw fit not to reproduce Rs4.51(1) and 4.53, which had set out the resolutions that could be passed at first liquidation meetings – thanks guys!  Presumably, they believed that it was unnecessary to define what resolutions could be proposed at meetings, because I cannot believe that the Insolvency Service wished S100 meetings to be handled any differently from S98s (other than the obvious shift from physical to virtual meetings), especially in light of the fact that they introduced the ability for proposed liquidators to issue fee-related information pre-appointment (R18.16(10)) – why would they do that if the fees could not be approved at the S100 meeting?

In light of the webinar speaker’s observations, if the Rules are considered inadequate to allow a director’s notice of S100 meeting to set out a proposed resolution on the liquidator’s fees, then it seems to me that the argument applies equally to resolutions seeking approval of a pre-CVL fee… and I suspect there may be hundreds of IPs who have drawn fees, either pre or post, on the basis of a S100 meeting resolution.

 

  1. Pre-CVL Fees

Over the last couple of years, RPB monitors have been taking issue with pre-CVL fees that have included payment for work that does not strictly meet the Rules’ definition, where those fees are paid for out of the liquidation estate after appointment.

I think it is generally accepted now that, ok, R6.7 does not provide that the costs relating to advising the company and dealing with the members’ resolutions can be paid from the estate after appointment.  In practice, most IPs have reacted to this by, in effect, doing these tasks for free or by seeking up-front fees from the company/directors.

But the Rules’ restriction seems unnecessarily restrictive: why should these tasks, especially dealing with the members’ winding-up resolution, not be paid for from the estate?  After all, it’s not as if a S100 CVL can be started without a members’ resolution.  Why couldn’t R6.7 mirror the pre-Administration costs’ definition, which refers to work carried on “with a view to” the company entering Administration?

 

  1. The 18-month Rule

The long-running debate over the 1986 Rule has continued, albeit with a subtle change.  The question has always been: if fees are not fixed by creditors in the first 18 months of an appointment, can they be fixed by creditors thereafter?

Firstly, in relation to ADM, CVL and MVL, those in the “no” camp point to R18.23(1), which states that, if the basis of fees is not fixed by creditors (etc.), then the office holder “must” apply to court for it to be fixed… and, as the office holder can only make such application within 18 months, then this time limit applies similarly to creditors’ approval, because it would be impossible to deal with the consequences of a creditors’ failure to fix fees after 18 months.

However, those in the “yes” camp (in which I sit) do not see this as an issue: true, if creditors do not approve fees in month 19, then the office holder cannot go to court, but why does this somehow invalidate a creditors’ decision to fix fees in month 19?  In my view, R18.23(1) is not offended, because the scenario does not arise.  The “must” in R18.23(1) is clearly not mandatory, because, for instance, surely no one is suggesting that an office holder who decides to vacate office without drawing any fees “must” first go to court to seek fee approval.  Similarly, R18.23(1) seems to be triggered as soon as an IP takes office: on Day 1, the basis of their fees is usually not fixed, but surely no one is suggesting that this means the IP “must” go to court.

I think that another reason for sitting in the “yes” camp goes to the heart of creditor engagement in insolvency processes: why should creditors lose the power to decide the basis of fees after 18 months?

Also compare the position for compulsory liquidators and trustees in bankruptcy: R18.22 means that, if the creditors do not approve the basis of fees within 18 months, the office holder is entitled to Schedule 11 scale rate fees.  So does this mean that the office holder has no choice but to rely on Scale Rate fees after 18 months?  I think (but I could be wrong) that, as R18.29(2)(e) specifically refers to fees “determined under R18.22”, this enables the office holder to seek a review of that fee basis after 18 months, provided there is “a material and substantial change in circumstances which were taken into account when fixing” the fees under R18.22 (which perhaps can be met, because the only factor taken into account in the statutory fixing of R18.22 fees was the creditors’ silence, which hopefully can be changed by proposing a new decision procedure).

Thus, in bankruptcies and compulsories, there seems to be a fairly simple way to seek creditors’ approval to decide on the basis of fees after 18 months, but the “no” camp does not think this works for other case types… but why as a matter of principle there should be this difference, I do not understand.

 

  1. Changing the Fee Basis… or Quantum..?

We all know that the Rules allow fees in excess of a time costs fees estimate to be approved.  But what do you do if you want creditors to revisit fees based on a set amount or percentage?  It would seem that the fixed/% equivalent of “exceeding the fee estimate” is at R18.29.  As mentioned above, this enables an office holder to ask creditors to “review” the fee basis where there is a material and substantial change.  However, it may not be as useful as it at first appears.

R18.29(1) states that the office holder “may request that the basis be changed”.  The bases are set out in R18.16(2), i.e. time costs, percentage and/or a set amount.  R18.29(1) does not state that the rate or amount of the fee may be changed.

But surely that’s what it means, doesn’t it?  Not necessarily.  Compare, for example, R18.25, which refers to an office holder asking “for an increase in the rate or amount of remuneration or a change in the basis”.  If R18.29 were intended to encompass also rate and amount changes, wouldn’t it have simply repeated this phrase?

Ok, so if we can’t use R18.29, then can we use any of the other Rules, e.g. R18.25?  There are a number of Rules providing for a variety of routes to amending the fee in a variety of situations… but none (except for the time costs excess Rule) deal with the most common scenario where the general body of creditors has approved the fee and you want to be able to ask the same body to approve a revised fee.

This does seem nonsensical, especially if you want to propose fees on a “milestone” fixed fee basis.  Surely you should simply be able to tell creditors, say, what you’re going to do for Year 1 and how much it will cost and then revert later regarding Year 2.  After all, isn’t that what the Oct-15 Rule changes were all about?

It may be for this reason that I understand some RPB monitors (and InsS staff) see no issue with using R18.29 to change the rate or amount of a fixed/% fee… but I wish the Rules would help us out!

 

  1. Excess Fee Requests

R18.30 sets out what must be done to seek approval for fees in excess of an approved fee estimate.  Well, sort of…  What I have trouble with is the vague “…and rules 18.16 to 18.23 apply as appropriate” (R18.30(2)).

For example, do you need to provide refreshed details of expenses to be incurred (R18.16(4)(b)), even though it would seem sensible to have listed this requirement in R18.30 along with the menu of other items listed?  It seems to me unlikely to have been the intention, as a refreshed list of expenses does not fit with R18.4(1)(e)(ii), which requires progress reports to relate back to the original expenses estimate.

And does R18.16(6) mean that the “excess fee” information needs to be issued to all creditors prior to the decision in the same way that the initial fees estimate was, even if there is a Committee?  (See Gripe 21 below.)

And trying to capture Rs18.22 and 18.23 with this vague reference seems to me particularly lazy, given that those Rules require fairly substantial distorting to get them to squeeze into an excess fee request scenario, if R18.22 has any application to excess fee requests at all.

 

  1. Who gets the information?

So yes: R18.16(6) requires the office holder to “deliver to the creditors the [fee-related information] before the determination of” the fee basis is fixed.  Who are “the creditors”?  Are they all the creditors or did the drafter mean: the creditors who have the responsibility under the Rules to decide on the fees?

Here are a couple of scenarios where it matters:

  1. Administrators’ Proposals contain a Para 52(1)(b) statement and so the fees are to be approved by the secured creditors… and perhaps also the prefs
  2. A Creditors’/Liquidation Committee is in operation

If the purpose of R18.16(6) was to enable all creditors who may be able to interject in the approval process to have the information, then I can understand why it may mean all creditors in scenario (a), because unsecured creditors may be able to form a Committee (although it seems to me that the non-prefs would need to requisition a decision procedure in order to form one) and then the Committee would take the decision away from the secureds/prefs.

However, what purpose is served by all creditors receiving the information where there is a Committee?  The time for creditors to express dissatisfaction over fees in this scenario is within 8 weeks of receiving a progress report, not before the Committee decides on the fees.

But, setting logical arguments aside, it seems that R18.16(6) requires all creditors to receive the information before the fee decision is made, whether or not they have any power over the decision.

 

  1. All secured creditors?

I had understood that the Enterprise Act’s design for an Administrator’s fee-approval was to ensure that the creditors whose recovery prospects were eaten away by the fees were the creditors who had the power to decide on the Administrator’s fees.

Clearly, a Committee’s veto power crushes that idea for a start, especially in Para 52(1)(b) cases.  Also, in those cases, I confess that I have struggled to understand why all secured creditors must approve the fees.  Where there are subordinate floating charge creditors with absolutely zero chance of seeing any recovery from the assets even if the Administrator were to work for free, why do they need to approve the fees?  And try getting those creditors to engage!

 

  1. What about paid creditors?

This question has been rumbling on for many years: if a creditor’s claim is discharged post-appointment, should they continue to be treated as a creditor?

I understand the general “yes” answer: a creditor is treated as someone with a debt as at the relevant date and a post-appointment payment does not change the fact that the creditor had a debt at the relevant date, so the creditor remains a creditor even if their claim is settled

In view of the apparent objective of the fee-approval process (and a great deal of case law), it does seem inappropriate to enable a “creditor” who no longer has an interest in the process to influence it.  In addition, I am not persuaded that the technical argument stacks up.

Firstly, let’s look at the Act’s definition of creditor for personal insolvencies: S383(1) defines a creditor as someone “to whom any of the bankruptcy debts is owed”, so this seems to apply only as long as the debt is owed, not after it has been settled.

It would be odd if a creditor were defined differently in corporate insolvency, but unfortunately we don’t have such a tidy definition.  There is a definition of “secured creditor” in S248, which also seems temporary: it defines them as a creditor “who holds in respect of his debt a security…”.  Thus, again, it seems to me that this criterion is only met as long as the security is held.

But, over the years, my conversations with various RPB and InsS people have led me to believe that, even if a creditor – especially a secured creditor in a Para 52(1)(b) Administration – is paid out in full post-appointment, IPs would do well to track down their approval for fees… just in case.  But also on the flip-side, I suspect that it would be frowned upon (if not seriously questioned) if an office holder relied on a creditor’s approval where they were not a creditor at the time of their decision.  You’re damned if you do, damned if you don’t.

 

  1. What about paid preferential creditors?

I know of one compliance manager (and I’m sure there are others) who strongly maintains that pref creditors must still be invited to vote on decisions put to pref creditors even when their pref elements have been paid in full.

In addition to the points made above, we have R15.11, which states in the table that creditors whose claims “have subsequently been paid in full” do not receive notice of decision procedures in Administrations.  You might think: ah, but usually pref creditors also have non-pref claims, so they won’t have been “paid in full”.  Ok, but R15.31(1)(a) states that creditors’ values for voting purposes in Administrations are their claims less any payments made to them after the Administration began.  I think it is generally accepted (although admittedly the Rules don’t actually say so) that, to determine a decision put to pref creditors, their value for voting purposes should be only their pref element… so, if prefs have been paid in full, their voting value would be nil… so how would you achieve a decision put to paid pref creditors?

But if you take it that the intention of Rs15.11 and 15.31(1)(a) was to eliminate the need to canvass paid pref creditors in Para 52(1)(b) Administrations (which is certainly how the InsS answered on their pre-Rules blog), it gets a bit tricky when looking at excess fee requests…

 

  1. What about paid pref creditors and excess fee requests?

R18.30(2)(b) states that excess fee requests must be directed to the class of creditors that originally fixed the fee basis.  For Para 52(1)(b) cases, this is varied by R18.33, which states that, if, at the time of the request, a non-prescribed part dividend is now likely to be paid, effectively the Para 52(1)(b) route is closed off so that unsecured creditors get to decide.

But what if you still think it is a Para 52(1)(b) case and the prefs have been paid in full?  It is impossible to follow R18.30(2)(b) and achieve a pref decision, isn’t it?

The moral of the story, I think, is to make sure that you don’t pay creditors in full until you have dealt with all your fee requests, which to be fair is what many Trustees in Bankruptcy have been accustomed to observing for years.

 

  1. Fee Bases for Para 83 Liquidators

R18.20(4) states that the fee basis fixed for the Administrator “is treated as having been fixed” for the Para 83 Liquidator, provided that they are the same person.  This seems fairly straightforward for fees fixed on time costs and it can work for percentage fees, but what about fees as a set amount?

Is it the case, as per Gripe 19, that the basis has been fixed as a set amount, but the quantum isn’t treated as having been fixed?  First, let me take the approach mentioned at Gripe 19 that I understand is fairly widely-held amongst regulator staff, which is that “basis” should be read as meaning the basis and the quantum.  This would lead to a conclusion that, say, creditors approved the Administrator’s fees at £50K all-in, then the subsequent Liquidator’s fees would also be fixed at another £50K.  This cannot be right, can it?

The alternative is that “basis” means basis, so the Liquidator’s fees would be fixed as a set amount (which they could always ask to be changed under R18.29), but the quantum of that set amount would not.  In this case, presumably there would be no problem in the liquidator reverting to creditors to fix the quantum of their set-amount fee.  This would be similar to the position of a liquidator on a time costs basis where the Administrator had not factored in any fee estimate for the liquidation: in my view, the liquidator effectively begins life with a time costs basis with a nil fee estimate, so the next step would be to ask creditors to approve an “excess” fee request.

 

  1. What to do if Creditors won’t Engage

Up and down the country, I understand that IPs are having problems extracting votes from creditors.  The consequence is that more and more applications are being made to court for fee approvals.  This should not be the direction of travel.

This problem cannot be put entirely at the new Rules’ door, but I think that the 2016 Rules have not helped.  The plethora of documents and forms that accompany a fees-related decision procedure must be seriously off-putting for creditors (after all, it’s off-putting for all of us to have to produce this stuff!).  Also, this world’s climate of making every second count does not encourage creditors to engage, especially if their prospects of recovery are nil or close to it.

Of course, not every case of silence leads to a court application.  Applications can be relatively costly animals and so where funds are thin on the ground, I’m seeing IPs simply foregoing all hope of a fee and deciding to Bona Vacantia small balances and close the case.

When the Oct-15 Rules were being considered, many people suggested a de minimis process for fees.  Much like the OR’s £6,000 fee, could there not simply be a modest flat fee for IP office holders that requires no creditor approval?  Most IPs would dance a jig if they could rely on a statutory fee of £6,000, like the OR can!  It wouldn’t even need to be £6,000 to help despatch a great deal of small-value insolvencies… and the costs of conducting the decision process could be saved.  We all know the work that an IP has to put in to administer even the simplest of cases, including D-reports, progress and final reporting, not to mention the host of regulatory work keeping records and conducting reviews.  If IPs cannot rely on being remunerated for this work in a large proportion of their cases without having to resort to court, then we will see more IPs leaving the profession.

 


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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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The Insolvency Rules 2016: One Year On

“Please don’t make the 2016 Rules any harder than they have to be.”

Since receiving this feedback on an R3 event last year, I’ve been left feeling nervous about how to present on this topic. I don’t mean to make the Rules complicated and I wish they were simpler. One year on, some fairly common confusing blind spots seem to be emerging. I hope this post helps to clear away some troublesome clouds.

In this post, I’ll be covering issues seen around:

  • the CVL Statement of Affairs
  • if/how/when to deliver the SoA and S100 report
  • incomplete – and sometimes completely missing – notices
  • information to creditors on opting out
  • deemed approval -v- deemed consent of Administrators’ Proposals

 

The S100 Perfect Storm

Many IPs have had to weather the perfect storm affecting their bread-and-butter work, the CVL: the 2016 Rules have clashed noisily against the revised SIP6 as regards information-delivery and against the 2015 Rules as regards fee-approval; and everything needs to be done in a short timescale with directors who, no longer facing the fear of attending a physical meeting, quickly become as disengaged from the process as most creditors. Add to this some surprising pronouncements from RPB monitors on pre-CVL fees, bounce-backs from an overflowing HMRC inbox, and requests from creditors for physical meetings that no one attends (not even the requesting creditor) and it’s no surprise that some cry: there must be an easier way to make a living!

What to deliver when and how?

Old habits die hard, so, because we had been accustomed to sending a S98 pack to creditors post-appointment, I think it has taken some time for the S100 and SIP6 requirements to settle in.

The Statement of Affairs

In brief, regarding the Estimated Statement of Affairs (“SoA”):

  • R6.14(7) states that creditors must receive a copy of the SoA required under S99 – so this must be a full copy of the director’s SoA verified by a statement of truth; a draft will not do
  • as it needs to be verified by the director, it is difficult to see how this can be a prospective SoA – it might be tempting to produce an SoA as it should look on the decision date, but this seems impossible;
  • so don’t produce it too early: R6.3 requires the SoA to show the position not more than 14 days before the winding-up resolution;
  • but it must be sent in sufficient time for creditors to receive it at the latest on the business day before the decision date; and
  • it must be sent to creditors – unless you can send this by email, it must be sent by post.

Pre-appointment deliveries

Why can’t you deliver the SoA by website? Because only an office-holder can make use of the rules on website-delivery (R1.49 and R1.50). Unless you’ve already been appointed liquidator by the members by the time you send the SoA – which of course may be the case in a Centrebind – you won’t be an office-holder… and in fact I still don’t think R1.49 can be used in a Centrebind, because it refers to a document that is required to be delivered by the office-holder but of course the requirement to deliver the SoA is on the directors… but oddly R1.50 is worded differently, so it might be possible for a Centrebind liquidator to help a director to deliver an SoA under R1.50.

So why can docs be delivered by email pre-appointment? R1.45 simply sets out the criteria for delivery by email; there are no restrictions on who may follow the rule or when. There is a the small wrinkle that “deemed consent” to email delivery (R1.45(4)) refers to delivery by an office-holder, but Dear IP 76 states that “the assumed consent provision applies to all senders”.

The SIP6 report

However, as regards the SIP6 information (which is still generally produced as a “report”):

  • this is not a Rules’ requirement, so the statutory delivery provisions do not apply; and
  • as the SIP6 states, this report only needs to be “made available on request… and may be made available via a website”.

This seems very odd to some: why put so much effort into producing the SIP6 report when probably no one is going to ask to see it? Well, if you want to seek a decision from creditors on your pre-CVL fees and/or your post-appointment fees, the SIP6 report may prove valuable in justifying the work done and setting out the work you propose to do, so you may well want to provide it to creditors anyway. I think that a significant proportion of IPs are sending out the SIP6 report, but I am also seeing a growing number deciding not to.

After the S100 decision process

What about after appointment? Should the SoA and the SIP6 report be sent out then? Of course, after appointment you can start using the Rules on website-delivery, so it all gets a lot less burdensome. Again, the SIP6 report may be useful if proposing fee decisions, but there is no strict requirement to deliver it.

The SoA is different: R6.15(1)(a) requires a copy or summary of the SoA to be delivered to “any contributory or creditor to whom the notice under rule 6.14 [i.e. notice of the S100 decision] was not delivered”. In many cases, not all members will have received the S100 decision notice. Therefore, to save you the trouble of having to determine whether you’re circulating to any previously-missed members or creditors and especially if you’re using website-delivery, why not include a copy of the SoA as routine in all cases?

 

A Flood of Notices!

When it comes to the 2016 Rules’ treatment of notices, I think the Insolvency Service have absolutely failed to meet their apparent objectives of creditor-engagement and reducing costs. There are many more notices required under the 2016 Rules and each notice requires more information.

I can truly see no advantage in these new requirements: no one wants to see all this extra gumpf, do they? Apparently not all the RPB monitors agree: we have even heard from one client that an RPB monitor has been asking for more items on certain notices, going over and above the statutory requirements. When will this madness end?!

More standard contents

Far from escaping the shackles of prescription, the 2016 Rules list detailed and sometimes puzzling “standard contents” for notices, some of which we might not have been accustomed to including previously. I have found that the following are sometimes overlooked from notices to creditors etc.:

  • the company number
  • the bankrupt’s address
  • the court reference
  • either an email address or a telephone number “through which the office-holder may be contacted”
  • the relevant section or rule reference

I would also ask that, if you are relying on an external provider’s notices and you wonder what on earth a certain statement is doing in the notice, please resist the urge to delete it. Although of course none of us are perfect, some required contents don’t make any sense – for example, reference in a S100 notice to the fact that opted-out creditors can still vote (i.e. before they’ve even been told about opting out).

Notices where none were needed before

A common notice to omit is a R15.8 Notice of Decision Procedure when proposing a vote by correspondence. In the old days, all we used to issue was a circular explaining the proposed resolution and enclosing a voting form, what could have been simpler? But now the circular needs to include a Notice of Decision Procedure – this isn’t a notice solely for meetings.

Notices Inviting a Committee

Where you are proposing a decision (including where you’re proposing it by deemed consent), you will also need to send a Notice Inviting a Committee in all the following cases:

  • CVLs, including pre-liquidation, when giving notice of the S100 process (R6.19 and as explained on the Insolvency Service’s Rules blog)
  • ADMs – even if your proposed decision cannot be affected by a Committee, e.g. when asking creditors to approve the timing of your discharge (R3.39)
  • BKYs (R10.76)
  • and MVL conversions (R6.19)

However, compulsory liquidations are different. You only need to invite creditors to form a Committee when you’re posing a decision on the appointment of a liquidator (which of course is going to be very rare for IPs already in office). But, where you’re appointed by the SoS, you still need to tell creditors in your first letter to them on appointment that they can form a Committee and how they go about that (S137(5)).

The 2016 Rules mentioned above make clear that you are “inviting [the creditors] to decide whether a [creditors’/liquidation] committee should be established”. Therefore, as a “decision” is mentioned, you need to ensure that you list on the other items in your pack – the R15.8 Notice of Decision Procedure (or R15.7 Notice seeking Deemed Consent) and the voting form or proxy form – a proposed decision on the establishment of a Committee.

You should also make sure that the R15.40 Record of Decision – your statutory internal record of the outcome of the decision process (which will be either minutes of a meeting or some other record in all non-meeting decisions, including decisions sought by deemed consent) – lists the proposed decision on the establishment of a Committee and the outcome.

The Opting-Out Notice?

It seems to have taken some time for the issuing of opting-out information, as required by R1.39, to have become embedded successfully in our practices.

R1.39(1) states that “the office holder must, in the first communication with a creditor, inform the creditor in writing that the creditor may elect to opt out of receiving further documents relating to the proceedings”. A few things are worthy to note:

  • The Rules do not call this a “notice” that we must “deliver”. Therefore, although it means that we don’t need to worry about ensuring the standard contents for notices are covered, it does mean that it is not something we can simply upload to a website and tell creditors where to find it.
  • The Rule states it must be “in the first communication”, so again uploading it to a website will not work.
  • “Communication” does not mean just by letter – if we are emailing a creditor on appointment (e.g. an MVL director owed a DLA balance), we need to ensure the information is “in” the email. Incidentally, personally I think that this Rule must only apply to written communication, not oral, as you cannot provide information “in writing” in your first telephone conversation.
  • The Rule refers to our first communication “with a creditor”, so we need to think wider than just the first on-appointment circular to creditors as a body – if any creditors emerge later, we need to provide the opt-out information in our first communication with each of them (arguably once we have established that they are – or perhaps may be – a creditor).

 

It’s Raining “Deemed”s

Even under the 1986 Rules, the Administration processes caused problems. Now – in a world where we deal both with “deemed consent” and “deemed approval” – confusion truly is raining down.

  1. Deemed Approval

The 1986 Rules’ deemed approval process has continued largely unaltered. Thus, if the Administrator’s Proposals contain a Para 52(1) Statement, you’re still looking at a “deemed approval” process:

  • The Administrator does not ask creditors to approve the Proposals.
  • Creditors are simply provided the Proposals and given 8 business days (from delivery, which is a change from the 1986 Rules) in which to request that a decision process be instigated.
  • If no (or insufficient) creditors respond within the time period, the Proposals are deemed approved.
  • This is not deemed consent.
  1. Deemed Consent

Deemed consent may be relevant where the Proposals do not include a Para 52(1) Statement.

In this case, the Administrator does ask creditors to approve the Proposals. This decision may be posed via a virtual meeting, correspondence (or electronic) vote, or by a Notice seeking Deemed Consent.

If we choose the deemed consent process, then we are asking creditors to make a decision “that the Administrator’s Proposals be approved”. Then, if no (or insufficient) creditors respond, the decision is made, i.e. the Proposals are actually approved – they’re not deemed approved, they are approved.

Does it matter?

Actually, probably not a great deal. A practical consequence is that different forms must be delivered to the Registrar of Companies:

  • If the Proposals have been “deemed approved”, you should use Form AM06, Notice of Approval (yep, that’s right: we were all accustomed to the Notice of Deemed Approval, but this no longer exists)
  • If the Proposals have actually been approved (by deemed consent or another decision process), you should use Form AM07, Notice of Creditor’s Decision (yep, the incorrect placing of the apostrophe gets under my skin too)

Interestingly, the case of Promontoria (Chestnut) Limited v Craig & Harold ([2017] EWHC 2405 (Ch)) (http://www.bailii.org/ew/cases/EWHC/Ch/2017/2405.html) illustrates that the confusion is far wider than just with some IPs. Para 46 of this judgement states that the Administrators’ Proposals in this case were approved by deemed consent. However, the very next para, which refers to proposals containing a Para 52(1) Statement, states that the Proposals were “deemed approved”, but then the rest of para 47 is an argument about the status of proposals approved by deemed consent. What a mess!

 

Eclipsing the 2015 Fees Rules

RPB monitors seem unanimous in their recent messages, with which I concur: all this focus on the 2016 Rules seems to have had a detrimental effect on the general standards of compliance with the fees rules that were introduced in October 2015.

Unfortunately of course, if we don’t meet the fees rules and the decision-making rules, there could be serious consequences. So, while you may discover that an ICR, self cert or monitoring visit reveals 101 things to fix, I think that realistically many of us would do well to prioritise our efforts to fix the fundamentals of fee-approval for some time to come. After all, the 21st century is all about risk management 😉


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Emerging from the fog: some Amendment Rules

 

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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Two old(ish) debates: S100 fees decisions and old rules IVAs

 

Firstly, I should warn you: if you find my singular views often wind you up, you might want to skip this post. Here, I air what I suspect are unpopular opinions about two New Rules issues that have been doing the rounds over the past few months: (1) can fees decisions be taken by means of a correspondence vote set to run concurrently with a S100 deemed consent decision; and (2) to what extent do the 2016 Rules apply to IVAs that were approved before 6 April 2017 or that have been approved since then but with terms that refer to 1986 Rules?

 

1. Correspondence votes running concurrently with S100 deemed consent decisions

The Problem with S100 Deemed Consent Decisions

As we know, the deemed consent process cannot be used “to make a decision about the remuneration of any person” and the Insolvency Service has confirmed on its Rules blog that this applies to decisions approving the payment of any SoA/S100 fee. Therefore, unless you are paid the SoA/S100 fee before the liquidation begins, at some stage you will need to instigate a qualifying decision procedure to seek approval and of course you will also want to seek approval of your fees as liquidator at some point.

If these decisions cannot be posed via the S100 deemed consent process, what do you do? Do you wait until after your appointment has been confirmed via the S100 process and then seek a decision, e.g. via a correspondence vote? Or can you instigate a correspondence vote before your appointment? After all, doesn’t R18.16(10) provide for a “proposed liquidator” in a CVL to deliver information on their fees to creditors and doesn’t the table at R15.11(1) refer to “decisions of creditors for appointment of liquidator (including any decision made at the same time on the liquidator’s remuneration)”?

 

The Problems with Pre-Appointment Correspondence Votes

  1. Signing the Notice of Decision Procedure

Can the proposed liquidator sign the notice convening the proposed decision by correspondence? I don’t see any rule empowering a proposed liquidator to act as “convener” of such a process.  Could a director sign the notice?  R6.14 empowers a director to sign a notice for a decision by deemed consent or virtual meeting, but that’s all.  The rules do not appear to empower a director to sign a notice for correspondence vote.

Do the rules need to empower someone to sign such a notice? Isn’t it sufficient that they don’t say that it cannot be done?

It is true that “convener” is defined as an office holder or other person who seeks a decision in accordance with Part 15 of the Rules… but that is simply a definition. To view this definition as giving free rein for any old decision under Part 15 seems a nonsense to me.  If a proposed liquidator or director (other than as provided for under R6.14) were entitled to convene any decision procedure they liked, then this entitlement could surely extend to any “other person”, e.g. a creditor, shareholder, company agent/adviser, receiver… Surely it cannot be open to just anyone to instigate a decision procedure on anything, can it?

Ok, what about if the members had already appointed a liquidator? Could the liquidator sign a notice of decision procedure if he had already been appointed in a Centrebind process? I think the difficulty here is S166(2), which restricts the liquidator’s powers before the S100 decision. The only powers the liquidator can exercise at this time are those in S166(3) and I do not think that instigating a decision procedure on fees falls into the categories of taking control of or protecting company property and disposing of perishable/diminishing-value goods.

  1. Clashing timelines (1)

Setting aside the issue above about who signs the notices, I think there are other reasons why the concurrent correspondence vote for fees pre-S100 does not work: the impossible statutory timelines governing these processes.

R15.11(1) sets the notice period of 3 business days for the S100 decision on the appointment of the liquidator and “any decision made at the same time on the liquidator’s remuneration”.  If the S100 decision is sought by deemed consent and a fees decision is sought by a correspondence vote, two processes are set in motion. That’s fine so far: you could set both processes going with the same decision date, say 14 September. With R15.11(1) in mind, let’s “deliver” the notices on 8 September, to give a clear 3 business days’ notice.

If a >10% creditor objects to the deemed consent decision, then that process terminates and the director must now convene a physical meeting for the purpose of seeking the S100 decision on the appointment of a liquidator. But what happens to the correspondence vote process? This is a different process altogether, so it seems to me that it keeps on going.

But does this create a problem? Yes, I think so. As I mentioned, R15.11(1) sets the notice period for a “decision made at the same time” as the S100 decision at 3 business days, but the correspondence vote decision has now deviated from the S100 decision; the decisions will no longer be made at the same time. However, the notice period for correspondence votes not made at the same time as a S100 decision is 14 days, so in hindsight the liquidator/director has failed to provide enough notice for the correspondence vote. Does this mean that the correspondence vote decision is invalid? Could you abandon the correspondence vote process? There doesn’t seem to be any power in the rules to postpone or cancel a correspondence vote process once started (unless it is terminated by reason of a physical meeting request).

Ok, so one solution might be to make sure that the correspondence vote is arranged with at least 14 days’ notice in any event, so that you don’t fall foul of the notice period if the two processes were to diverge. That may be so, but surely the fact that you could breach the statutory notice period in hindsight in this way is an indication that it was not envisaged that the rules would provide that two independent processes could run concurrently with a shorter notice period.

  1. Clashing timelines (2)

Returning to the example above: notices of a S100 deemed consent decision and a correspondence vote are delivered on 8 September with decision dates of 14 September. What happens if a >10% creditor submits a request for a physical meeting on 15 September? That’s a silly question, you may think, surely they are out of time as the decisions have been made.

I would agree that they out of time for the S100 decision, because R6.14(6)(a) states that “such a request may be made at any time between the delivery of the notice… and the decision date”. However, are they out of time for the correspondence vote? As the correspondence vote for fees is not provided for in R6.14, it would have a deadline for physical meeting requests of 5 business days from the date of delivery of the notice (R15.6(1)). Therefore, notwithstanding that the decision date had already passed, it seems that the creditor’s physical meeting request could impact the proposed fees decision. That’s nonsense, you say. I would agree, so I believe this is another reason why the rules could not have been intended to provide for a correspondence vote to run concurrently with a S100 deemed consent process.

Ok, what if you followed the same solution suggested above: convene the correspondence vote with at least 14 days’ notice? Wouldn’t this easily accommodate the 5 business days timescale for requesting a physical meeting? Yes, I suppose it could, but imagine then that you received a request for a physical meeting on business day 6. What would be the consequence: would you consider that the request only stopped the S100 liquidator decision, whereas the correspondence vote on fees could continue to its original decision date? Interesting… so the S100 physical meeting could decide on a different liquidator, who would take office with an already-approved fees decision in which he had taken no part. That would be odd!

 

So where does this leave correspondence votes running concurrently with a S100 deemed consent decision?

I think that, for these reasons, concurrent correspondence votes just do not work: the statutory timescales throw up all sorts of impossible or at least risky scenarios, but more fundamentally there is no one empowered by the rules to sign the notice of decision procedure.

 

But then why do the rules allow proposed liquidators to issue fees-related information?

I believe this is because a fees decision could be proposed pre-appointment: via a S100 virtual – or indeed, where required, a physical – meeting.

Such meetings do not suffer any of the problems described above:

  • the notice of the meeting decision procedure is signed by the director under R6.14;
  • the fees decision(s) can be proposed and made at the meeting “at the same time” as the S100 liquidator decision and therefore the fees decisions can be sought on 3 business days’ notice;
  • there is no possibility of the S100 liquidator decision and the fees decisions diverging, because a S100 virtual meeting can only be stalled by a physical meeting request (not also by a deemed consent objection) and this would terminate the virtual meeting process set up to consider all the decisions; and
  • as the fees decisions have been proposed via a notice of decision procedure issued under R6.14(2)(b), the deadline for requests for a physical meeting is set by R6.14(6), which would apply to all decisions proposed for consideration at the virtual meeting.
  • The possibility of proposing fees decisions via a S100 virtual/physical meeting also makes sense of R18.16(10), because in order for the creditors to consider a fees decision at the meeting, the proposed liquidator needs to send the fees-relevant information beforehand.

 

Haven’t we been here before?

I accept that my concerns above are purely technical. I am reminded that so too was the debate that arose in October 2015 about whether IPs could issue fee-related information before they were appointed liquidators so that fees resolutions could be considered at the S98 meetings. It seemed to me that the profession quickly became divided into two camps: those who took comfort in Dear IP 68 that stated that the intention was not to preclude pre-appointment fee estimates and those who, notwithstanding the clarification of such intention, chose to avoid falling foul of an apparent technicality in the rules by seeking fee approval only after appointment. The 2016 Rules – R18.16(10) referred to above – have resolved that old issue, but we now have a different set of technicalities affecting attempts to seek fee approval by S100-concurrent correspondence votes.

Can we expect the regulators to clarify their intentions and regulatory expectations on this question? We can only hope! However, if the answer were on the lines of Dear IP 68 (i.e. the rules might not exactly say this, but this is what we intended), then would this help or would we, without a legislative fix, still be left to choose between two camps? I hasten to add that I have no idea on which side of the fence the regulators might fall on this new question in any event.

 

Are the issues only about the technical?

In exploring the above issues with people at the Insolvency Service and the IPA, both have raised concerns – aside from the purely technical – about the appropriateness of proposing decisions on liquidators’ fees before appointment.

I understand that there are concerns about the huge amount of documentation – the Statement of Affairs, SIP6 information, fees and expenses related information – that creditors would be expected to absorb and vote on potentially in less than 3 business days. There seems to be slightly less concern attaching to fee-approval sought via a S100 virtual meeting, I think because this is seen to provide creditors with a forum in which to explore matters in an attempt to assess the reasonableness of fee requests. However, I believe there are also concerns about how IPs can put forward a reasoned and justifiable case for post-appointment fees before they have got stuck into the appointment.

There are clearly lots of factors to weigh up here, factors that may impact more than simply the rights and wrongs of correspondence votes running concurrently with S100 deemed consent decisions. In view of the serious ramifications of getting fees decisions wrong, I do hope that the regulators put their heads above the parapet and tell us all their views on these matters soon.

 

2. VAs incorporating 1986 Rules

The Problems with VAs based on 1986 Rules: the story so far

The issue I’ve blogged about before (https://insolvencyoracle.com/2017/05/02/new-rules-emerging-interpretations-part-1/) is: how far should you apply the 2016 Rules as regards VAs that incorporate 1986 Rules?

Dear IP 76 contains the following statements by the Insolvency Service:

  • the IVA Protocol’s Standard Terms’ reference to calling meetings “in accordance with the Act and the Rules” means the amended Act and the 2016 Rules;
  • the Act and 2016 Rules “remain silent on how decisions are taken” in VAs;
  • supervisors should not “feel restricted to only using a physical meeting”; and
  • the Insolvency Service “expect[s] supervisors to take advantage of the new and varied decision making procedures”.

I blogged my concerns about these statements:

  • If calling meetings “in accordance with the Act and the Rules” means the new provisions, which are indeed silent as regards meetings in approved VAs, then we must look to the statutory provisions for Trustees, because paragraph 4(3) of the Protocol Standard Terms states that supervisors should “apply the provisions of the Act and Rules in so far as they relate to bankruptcy with necessary modifications”. Therefore, does this mean that in fact a supervisor is prohibited from calling a physical meeting by reason of S379ZA(2) in the same way as a Trustee is?
  • How can a term stating that “a supervisor may… summon and conduct meetings” equate to “a supervisor may seek a decision by, say, an electronic vote”?
  • Dear IP focused on the wording of the IVA Protocol, whereas I believe that consideration of the R3 Standard Terms leads to very different conclusions, because the R3 Standard Terms are almost entirely independent from any Act and Rules provisions.

However, after I’d blogged, R3 issued its own statement, which included:

“The current R3 Standard Conditions refer to ‘meetings of creditors’ rather than making specific reference to the Rules. R3 is also of the opinion that IPs are not restricted to using physical meetings of creditors only when seeking the views of creditors and that the full range of decision making procedures introduced by the new Rules are available to the supervisor. It could also be argued that section 379ZA of the Act which prevents physical meetings being held except in limited, defined circumstances, applies to existing arrangements…

“We are of the opinion that the current version of the Standard Conditions continues to be relevant and supervisors using the current version of the Standard Conditions for arrangements approved post 6 April 2017 should apply the new Rules when seeking decisions of creditors. For the avoidance of doubt however nominees may wish to seek their own legal advice on the wording to be used when seeking variations of the arrangement and supervisors may wish to seek their own legal advice on the procedures to be followed for decisions of creditors to be taken on arrangements approved before the introduction of the new Rules.”

My problems with R3’s Statement

R3’s statement floored me. Not only did it repeat what I consider are the Insolvency Service’s flawed arguments, but in view of the wording of R3’s Standard Conditions for IVAs, it gave me even more reasons to disagree:

  • Again, how can the R3 Standard Conditions’ “meetings of creditors” be translated to mean “the full range of decision making procedures”, especially as the R3 Standard Conditions do not make specific reference to the Rules? That is, the R3 Standard Conditions contain the entire process of calling and holding a meeting, which is not dependent on any Rules, and so what entitles a supervisor of an IVA incorporating the R3 Conditions to walk away from those Conditions and decide to do something completely different contained in Rules, which are “silent” on VA processes?
  • I am doubtful that S379ZA “applies to existing arrangements” that incorporate the R3 Standard Conditions. The reason why I blogged that S379ZA(2) might apply to Protocol IVAs is because the Protocol Standard Terms refer to calling meetings “in accordance with the Act and the Rules”, but these words are missing from R3’s Standard Conditions. S379ZA(1) states that the section “applies where, for the purpose of this Group of Parts, a person seeks a decision from an individual’s creditors about any matter”. The “Group of Parts” comprises Ss251A to 385, but as we all know this Group of Parts does not refer to a decision to vary an IVA (it only speaks of approving the IVA). Therefore, how can S379ZA, which prevents physical meetings from being held unless requested by creditors, apply to already-approved IVAs incorporating R3’s Standard Conditions? I appreciate that R3 has only stated that “it could… be argued”, but is it responsible to give some weight to such a feather-light argument?
  • I am also not persuaded that “supervisors using the current version of the Standard Conditions for arrangements approved post 6 April 2017 should apply the new Rules when seeking decisions of creditors” because of the principles in the case set out below.
  • (And, if I wanted to be really picky, I’d question what “nominees” have to do with varying arrangements!)

 

William Hare Ltd v Shepherd Construction Ltd

In the case of in William Hare Ltd v Shepherd Construction Ltd [2009] EWHC 1603 (TCC) (25 June 2009), a subcontractor (“H”) was engaged in December 2008 to carry out some work for the main contractor (“S”). The sub-contract defined the employer’s insolvency with reference to: the appointment of an administrative receiver, insolvent liquidation, winding-up by court order and “an administration order made by the court”.

When the employer was placed into administration, S issued notices withholding payment. H argued that, because the employer had gone into administration via a directors’ appointment and not via a court administration order, the withholding notices were invalid, as the employer had not gone insolvent according to the sub-contract’s definition. S argued that it would be absurd for the sub-contract to be construed as ignoring the later amendments to the 1986 Act and that all routes to administration under the 1986 Act as amended were covered by the wording of the sub-contract.

The judge was “in no doubt” that H’s construction of the sub-contract was to be preferred and he held that the court should not rewrite the sub-contract to allow for the amendments to the 1986 Act. His reasons included the following:

  • The meaning of the words was plain and there was no reason to believe that the parties did not intend to use the words as they were written or that they had made a mistake in using the words. In contrast, S’s construction involved “a significant rewording of the clause”.
  • The sub-contract had been made long after the Act had been amended. In this case, the parties agreed that they must be deemed to have known about the amendments to the Act when they made the sub-contract. “In these circumstances it is appropriate to view the failure to amend clause 32 as a choice, as a deliberate decision to include one particular method of administration.”
  • If it were needed, the principle of contra proferentem – that, when there is doubt about the meaning of a contract term, the words may be construed against the person who put them forward – supported H’s construction.
  • Because the sub-contract was executed after the change in the legislation, sections 17 and 23 of the Interpretation Act 1978 (which incidentally are the provisions that Dear IP cited in support of the opinion that the 2016 Rules replaced the 1986 Rules in the Protocol Terms, because they refer to the 1986 Rules “as amended”) were not relevant.

 

The relevance of this case to New IVAs using Old Rules Terms

Say, you are a supervisor of an IVA that was approved last week and the IVA Proposal incorporates R3’s current Standard Terms (or indeed any Terms) that continue to refer throughout to the 1986 Rules.

Surely the principles in the case above cast serious doubt on whether you are free to translate those 1986 Rules into 2016 Rules, don’t they? You, as the debtor’s adviser, had deliberately put forward a Proposal that refers to 1986 Rules in the knowledge that the Rules have changed and it seems that the Interpretation Act 1978, which was the backbone of the Insolvency Service’s argument set out in Dear IP 76, is of no effect. Therefore, is there not a strong argument that you intended to incorporate 1986 Rules into the IVA?

I think also about the debtor and unsophisticated creditors: based on the Terms, they might expect a meeting of creditors in order to vary the Proposal, so what could their reaction be if they were to receive notice of a correspondence vote or perhaps even a notice seeking deemed consent? It seems to me that, if you were to say: “ah yes but the 2016 Rules changed things”, I might respond: “yes, but those changes happened in April, so why did you produce Terms after this that still referred to creditors’ meetings?”

 

Maybe I should accept that the Emperor is wearing clothes!

I have no doubt that the Insolvency Service and R3 have opinions backed up with legal advice. Of course, I am not suggesting for one moment that their statements should be ignored, but I feel I must say things as I see them. I am also not the only one who believes that the InsS and R3 have got this one wrong. I am not surprised therefore that R3 refers to seeking legal advice. No one can be certain how a challenge in court would pan out.

But in practice does the answer to this question really matter? If debtors, creditors and supervisors are happy to consider agreeing variations proposed in a manner that is not strictly according to the Terms, who is going to challenge it? Presumably also the RPBs aren’t going to take a different tack to that set out in Dear IP. And even if a debtor were to dispute the soundness, say, of a creditors’ decision to terminate an IVA, maybe the court would conclude that it was simply a technicality that has no real practical effect on the majority creditors’ wishes… but nevertheless it could make for an expensive debate.


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More little gems from the Insolvency Service’s blog

As promised in my last blog (but later than planned – sorry), here is my second selection of news from the Insolvency Service’s blog and Dear IP 76 that I think is worthy of spreading… with some further commentary from me, of course.

The questions fall into the following topics:

  • S100 Decisions
  • Other Decision Processes
  • Timing Issues

As I mentioned previously, I am very pleased that the Insolvency Service has shared their views on many issues and I do hope they will continue to be this open. I would also like to thank the technical and compliance managers and consultants with whom I have spent many hours debating the rules; without these valuable exchanges, many of the issues would not have occurred to me.

 

S100 Decisions

  • Can the Statement of Affairs and SIP6 Report be delivered by website?

As the director is responsible for delivering the Statement of Affairs, it is the Insolvency Service’s view that the Statement cannot be delivered by means of a website, as the rules governing website delivery – Rs 1.49 and 1.50 – only apply to office holders. Therefore, the Statement must be either posted or emailed to creditors.

Of course, delivery of the SIP6 report is not a statutory requirement and strictly-speaking SIP6 simply requires the report to “ordinarily be available”. I understand that at least one RPB is content for the SIP6 report to be made available via a website.

  • Does an invitation to decide on whether to form a committee need to be sent along with the S100 proposed decision notice?

The question arises because R6.19 requires such an invitation where any decision is sought from creditors in a CVL, whereas usually the company is not in CVL when the S100 proposed decision notice is signed.

The Insolvency Service has answered “yes”, the director needs to seek a decision from creditors on whether to form a committee when they propose the S100 appointment.

  • Can the SoA/S100 fee be approved via deemed consent?

In view of the Insolvency Service’s approach to IPs’ fees in general, the answer to this might seem an obvious “no”. However, the background to the query was that the rules require creditors to approve the payment of the fee, not its quantum, and therefore it is not quite so obviously “a decision about the remuneration of any person”, which the Act limits to decision procedures, i.e. not including the deemed consent process.

But unsurprisingly the Service answered: “no”.

This has led some people to rethink their process of getting paid the SoA/S100 fee. We have been receiving quite a few questions on whether such fees need approval if they are paid pre-appointment and/or by a third party.

The Insolvency Service has confirmed that R6.7(5) – which requires approval of payments made to the liquidator or an associate – applies to payments referred to in R6.7(4), i.e. those made by the liquidator. R6.7(3) provides that, where payment is made from the company’s assets before the winding-up resolution, the director must provide information on the payment along with the SoA, but they do not require creditor approval.

  • Does R15.11’s timescale for decisions on the liquidator’s remuneration (when made at the same time as the S100 decision on the liquidator) apply also to decisions on the SoA/S100 fee?

R15.11 provides that at least 3 business days’ notice must be given for S100 proposed decisions on the liquidator. This rule also provides that the same timescale applies to “any decision made at the same time on the liquidator’s remuneration”. It stands to reason that, if a virtual meeting were convened to consider a decision on the SoA/S100 fee at the same time as the decision on the liquidator, the same notice requirements would apply, but does the SoA/S100 fee strictly fall under “the liquidator’s remuneration”?

The Insolvency Service has stated that R15.11 should be taken to include the proposed pre-liquidation payments referred to in R6.7(5).

 

Other Decision Processes

  • What access information needs to be provided on a notice summoning a virtual meeting?

This question arises from the requirement of R15.5 that the notice to creditors must contain “any necessary information as to how to access the virtual meeting including any telephone number, access code or password required”.

The Insolvency Service has answered: “we think that sending a contact number or email address for creditors to contact in order to obtain such details is also acceptable under this rule”.

Personally, I am pleased with this answer, as I think it makes the logistics of virtual meetings far more manageable. It almost eliminates the risk of unknown “excluded persons”, as you would know who is planning to attend. You could also set up ways of verifying who participants are; you could contact them beforehand, maybe send them agendas and meeting packs. Also during the meeting if they get cut off, you would have a ready alternative contact for them, and it would be easier to count votes or set participants up with electronic voting. I don’t think that some kind of pre-meeting contact is too much to ask from creditors; to illustrate, if I want to sign up to an open-access webinar, I think nothing of contacting the convener beforehand in order for a link to be sent to me.

  • Can creditors ask upfront for an Administrator’s Para 52(1) Proposals to be considered at a physical meeting?

As we know, when Administrators include a Para 52(1) Statement in their Proposals, they do not ask creditors to vote on whether to approve the Proposals, but they must start a decision process going if the requisite number of creditors ask for a decision within 8 business days of delivery of the Proposals. Para 52(2) makes it clear that the request from creditors is for a decision, not a meeting as was the case before the Small Business Act. However, R15.6(1) states that “a request for a physical meeting may be made before or after the notice of the decision procedure or deemed consent procedure has been delivered”. Therefore, if the consequence of creditors asking for a Para 52(2) decision is that the Administrator issues a notice of decision procedure (say, a correspondence vote on the Proposals), then this rule seems to allow creditors to ask for a physical meeting before this notice is delivered.

The Insolvency Service has confirmed that this is the case: “there is no reason that the requisitioning creditor should not at the same time request a physical meeting. We note your comment that the request for a physical meeting is being made here before a decision process has even commenced, but we think that is it reasonable to interpret the rules this way on this occasion because the request does clearly relate to a decision”.

  • Ok, so does a creditor asking for a physical meeting to consider the Para 52(1) Proposals need to pay a deposit to cover the costs of this meeting?

R15.6 sets out how creditors’ requests for a physical meeting should be handled. It includes no reference to paying a deposit to cover the costs of the meeting. Mention of paying a deposit appears at R15.18, which relates to requisitioning decisions.

Therefore, quite rightly (albeit unfairly) in my view, the Insolvency Service has stated that “it would follow that where costs of the decision are met by the requisitioning creditor then these would be for a decision which is not made by a physical meeting. Any costs of the physical meeting over and above the security paid by the creditor for a decision process would be an expense to the estate”.

Thus, it would seem that, on receiving sufficient requests for a physical meeting to be summoned to consider Para 52(1) Proposals, the Administrator would need to calculate hypothetically how much it would cost to organise this via a non-physical-meeting procedure and ask the requisitioning creditor for this sum. As the rules require “itemised details” of this sum to be delivered to the creditor, this would take some explaining in order to put the creditor’s mind at ease that we weren’t ignoring their request for a physical meeting even though we were asking them to pay the costs for conducting, say, a correspondence vote!

  • Does a creditor need to lodge a proof of debt in support of a request for a physical meeting?

The Insolvency Service’s simple answer is “no”. This is what I thought when I read the rules, but it does seem odd… and could lead to all sorts of controversy.

  • Can approval for an Administration extension be sought by deemed consent?

Understandably I think, the Insolvency Service has answered “yes”. It almost goes without saying, however, that seeking secured creditors’ consents is not a decision process; the positive approval of each and every secured creditor is required (just thought I’d mention it).

  • How do you deal with the need to invite creditors to make a decision on whether to form a committee when seeking a decision by deemed consent?

The Insolvency Service has confirmed that this committee decision can be posed by deemed consent.

Via Dear IP 76, the Service also endorses the format of a proposed decision in the negative, i.e. that a committee shall not be formed… although it adds a sticky proviso: “in this way, if creditors have already indicated a lack of desire to appoint a committee, the office holder could simply propose that no committee be formed”. How do creditors indicate a lack of desire? In S100 CVLs, this seems straightforward enough in view of the fact that, as mentioned above, the director will have needed to invite such a decision in the first place. However, whether an absence of anything but the usual creditor concerns in, say, the first few weeks of an Administration is sufficient to indicate a lack of desire to satisfy the Service, I don’t know.

What is the alternative: that a positive deemed consent decision be posed, i.e. that a committee will be formed? The problem here is that, unless creditors object, then this decision will be made by default. In the light of probable creditor apathy, this could be unhelpful. Therefore, if a positive deemed consent decision is posed, it would seem necessary to describe it something like “a committee will be formed if there are sufficient creditors nominated by [date] and willing to act as members”, which to be fair is almost the wording set out in the Rules (e.g. R10.76). In this way, if the invitation for nominations is similarly ignored, then the positive decision, even if technically made, is of no effect.

However, it’s all a bit of a faff, isn’t it? It hardly makes for a Plain English process. I also dislike the idea that an office holder must propose a decision that he/she may not support. It doesn’t sit right with me for an IP to invite creditors to approve a decision to form a committee when the IP does not see the need or advantage in having one on the case in hand.   However an IP words the proposed decision, creditors can take action to appoint a committee and, as the Rules do not prescribe a form of words, then surely office holders are free to propose a decision as they see fit.

  • If a Notice of General Use of Website has already been issued, what is the effect of Rs3.54(3/4), 2.25(6/7) and 8.22(4/5), which require additional wording about website-delivery in certain circumstances?

This question requires some explaining. As we know, R1.50 provides that the office holder can send one notice to creditors informing them that all future circulars (with a few statutory exceptions) will be posted onto a website with no further notice to them – this is what I mean by a Notice of General Use of Website. However, we also have R1.49, which repeats the 2010 provision that each new circular can be delivered by posting out a one-pager notifying creditors that the specific document has been uploaded to a website.

Things get complicated when looking at Rs3.54, 2.25 and 8.22. These rules govern how we invite creditors to decide on an Administration extension and a CVA/IVA Proposal. They state that the notice regarding such a decision may also state that the outcome of the decision will be made available for viewing and downloading on a website and that no other notice will be delivered to creditors and these rules go on to specify additional contents of such a notice, which draw from R1.49.

So the question arises: if you have already given notice under R1.50 to confirm that a website is going to be used for (almost) everything, do you need this extra gumpf?

The Insolvency Service has clarified that you don’t. If you have already followed (or are following simultaneously) the R1.50 process, then you need not worry about adding such references to your R3.54/2.25/8.22 notices; you can simply issue the notice via the website and then issue the outcome via the website also. Of course, given that you’re inviting creditors to consider an important decision, you might also want to post something out to them, but this does not appear necessary under the rules.

 

Timing Issues

  • If an Administration has already been extended pre-April 2017, when should I next produce a progress report?

As covered in a previous blog, the issue here is that, before April 2017, an extension would have resulted in the reporting schedule moving away from 6-monthly from the date of appointment and instead it will be 6-monthly from the date of the progress report that accompanied the request to approve the extension. As drafted, the 2016 Rules had not provided a carve-out for these cases, so it seemed that the reporting schedule for these extended Admins would be reset on 6 April back to 6-monthly from the date of appointment.

An attempt was made to fix this in the Amendment Rules, but in my view it was not wholly successful. They state: “Where rules 18.6, 18.7 or 18.8 prescribe the periods for which progress reports must be made but before the commencement date an office-holder has ceased to act resulting in a change in reporting period under 1986 rule 2.47(3A), 2.47(3B) 4.49B(5), 4.49C(3), or 6.78A(4), the period for which reports must be made is the period for which reports were required to be made under the 1986 Rules immediately before the commencement date.” The intention is clear: where the 1986 Rules have moved a reporting schedule away from the date of appointment, this adjusted schedule should continue. However, the reference to an IP ceasing to act is unfortunate, because in the scenario described above, this has not happened.

The Insolvency Service acknowledged that this rule “could perhaps have been more explicit” (ahem, I think the problem is that it was too explicit), but emphasised that the intention is clear. Presumably therefore the Registrar of Companies will not reject filings made on the extended 6-monthly schedule.  (UPDATE 04/12/2017: the Amendment Rules that come into force on 8 December 2017 settle this matter once and for all.)

Also, just in case you haven’t already picked it up, I should mention that the Amendment Rules have most definitely fixed the issue I raised some months ago about the length of a month, so progress reporting now continues pretty-much in the pre-April way… although of course we now have to factor in the time taken to deliver reports.

  • Do Administrators’ Proposals really have to include a delivery date?

Sorry, this is more just me having a whinge: R3.35(1)(e) requires Administrators’ Proposals to state the date that the Proposals “are delivered” to creditors. When the Proposals are signed off, this will be a date in the future.

The Insolvency Service has confirmed that this is the case: they require the future “deemed” delivery date to be listed.

Of course, there are practical issues with this. If you deliver Proposals using more than one method, e.g. by R1.50 general website-delivery but also by post where some creditors have asked for hard copies (which admittedly will be rare), then you may well have more than one delivery date.

More practically, how will you/your staff complete this little nugget? It is commonplace for Proposals to go through lengthy drafting processes (despite some non-appointment taking IPs’ views that Proposals should be simple to produce in the first few days especially where there has been a pre-pack); drafts are turned over to several different people, being edited as they go. It is going to be a real faff to keep an eye on this insignificant date. My personal recommendation, if the issue date cannot be guaranteed at the outset, is to keep this delivery date coloured/highlighted on draft Proposals so that it is the very last item completed just before the Proposals are signed off.

  • Do you have to wait until the MVL final account has been delivered to members before submitting a copy to the Registrar of Companies?

When closing an MVL, the liquidator is required to confirm to the Registrar that s/he “has delivered” the final account to members (R5.10(3)).

The Insolvency Service does not believe that the liquidator has to wait until the final account has been “delivered” to members at this stage; it is sufficient that the liquidator has sent it. From what I can decipher, it seems they are viewing delivery here as “deemed” delivery, i.e. once it has left your office, it will end up being delivered a couple of days’ later (if sent by post).   Personally, I still think it is odd to confirm at this point that the final account has been delivered, but at least we have an answer for any pedant who wants to debate this.

  • Do you have to wait until the Notice of Establishment of the Committee is delivered to the Registrar/Court before holding the first Committee meeting?

Despite the paradoxical “no” for the previous question, the answer to this one is “yes”.

The issue arises because R17.5(5) states that “the committee is not established (and accordingly cannot act) until the office-holder has delivered a notice of its membership” to the Registrar/Court.   The Insolvency Service has confirmed that, yes, the notice must be delivered before the first meeting is held.

The frustration here, of course, is that we will no longer be able to hold the first committee meeting immediately after any meeting that establishes it, but because the rules require us to hold a first meeting (although this can be by remote attendance), we will have to call the committee members back again.

Personally, I wonder if practically it would still be valuable to hold an informal meeting with the (elected) committee members immediately – so that matters for investigation can be discussed and so that you can help them understand how committees work, maybe even discuss the office-holder’s fee proposal with a view to agreeing this later on – and then, hopefully, the actual first meeting will be little more than a formality.  (UPDATE 04/12/2017: the Amendment Rules that come into force on 8 December 2017 fix this issue… sort of.  See my explanation at https://insolvencyoracle.com/2017/12/04/emerging-from-the-fog-some-amendment-rules/)

 

The next instalment..?

As we apply the new rules in practice, I am sure that more issues and ambiguities will emerge. As I mentioned previously, I am grateful to the Insolvency Service for their openness.

Emerging interpretations and views force me to revisit my previous conclusions, which is a good thing, although I am very conscious that earlier blog posts and presentations quickly become out-of-date. Even my presentation for the R3 SPG Technical Review at the end of March needed an update and this is now available to Compliance Alliance webinar subscribers (drop me a line – info@thecompliancealliance.co.uk– if you want to know more 😉 ).

I am also looking forward (err… sort-of!) to presenting on the rules at other R3 events – 6 June SPG Technical Review in Leeds; 7 June Southern Region meeting in Reading; 28 June North East Region meeting; and 4 July SPG Technical Review in Bristol. I welcome your queries and quirky observations on the rules, which will help me to make my presentations useful to the audience. I’m sure there are many more gems to unearth.


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Emerging Interpretations of the New Rules – Part 1: the biggies

Along with Dear IP 76, the Insolvency Service’s Rules blog has been a fascinating read. If you don’t fancy trawling through all 148 comments, here are my personal favourites. There are too many to cover in one go, so I’ll start here with a handful of the more contentious:

  • How do the New Rules affect existing VAs?
  • What is the deadline for forcing a S100 physical meeting?
  • What happens if a Centrebind is longer than 14 days?
  • How should you handle decisions sought from preferential creditors alone?
  • How should creditors comply with the Rules when submitting notices and forms?

 

I’ll also take this opportunity to reflect on how these emerging interpretations and the Amendment Rules have impacted on my previous blog posts. I have tried to update old blog posts as time has moved on, but I cannot promise that old blog posts – or indeed this one – will remain current. Things are moving fast.

Dear IPs can be found at: https://goo.gl/wn8Vog (although no. 76 has yet to appear)

The Insolvency Service’s Rules blog is at: https://theinsolvencyrules2016.wordpress.com/

 

Can we rely on the Insolvency Service’s answers?

Nick Howard’s introduction to Dear IP 76 states candidly “While it is only a Court that can give a binding interpretation of the law, the enclosed article sets out the policy intentions and how we believe the Rules support those”. That’s understandable. Much as we thirst for a cut-and-dried answer, we cannot have it. Just like the 1986 Rules, it will take decades to establish robust interpretations and even then there will always be the Minmar-like decision that takes us by surprise.

  • What about the Rules blog?

To be fair, the Service provided it with the purpose “to offer users the chance to share their thoughts and experiences as they prepare for commencement” of the Rules. It was never meant to be an inquisition of the Insolvency Service, but it was inevitable that it would turn out that way and I am very grateful that the Service has grasped the nettle and been prepared to post their views publicly for the benefit of us all.

  • So what comfort can we draw from the answers?

At the very least, the Service’s explanations are extremely valuable in understanding how they meant the Rules to work and in giving us all a starting point. I wonder if it could be seen a bit like the new mantra, “comply or explain”: if we don’t trust an answer, we need to be certain that our reasons for departing from it are well-founded. And at the very best, the Service has provided explanations that make us say: “right, yes I can see that. Thanks, I’ll work on that basis”.

 

What are the New Rules’ Impacts on Existing VAs?

The difficulty for the Insolvency Service – and indeed for all of us – is that of course each VA is dependent on its own Proposals and Standard Terms & Conditions (“STC”), so expressing any opinion on the effect of the New Rules on VAs in general is going to be dangerous.

  • The difference between IVA Protocol and R3 STCs

The majority of IVAs use either the IVA Protocol or R3’s STC, so you might think it would be relatively straightforward at least to establish some ground rules for these two documents and then leave each IP to determine whether the Proposal itself has any overriding effect. Dear IP seems to have made a stab at this in relation to the IVA Protocol at least. However, I think it is important to bear in mind that Dear IP makes no mention of R3’s STCs and from what I can see there is a chasm of difference in how the two STCs have incorporated the 1986 Rules.

True, both STCs define the “Rules” as the Insolvency Rules 1986 as amended and the Service makes the case for equating this to the 2016 Rules. I have heard argument that the Service’s reliance on S17 of the Interpretation Act 1978 does not stack up: if a contract – which is what we’re talking about here – refers to Rx.xx of the Insolvency Act 1986 (as amended), does it not remain as such notwithstanding that the 1986 Rules have been revoked?

This takes me to the chasm between the two sets of STC: for example, the IVA Protocol STC state that “The Supervisor may… summon and conduct meetings of creditors… in accordance with the Act and the Rules” (19(1)), whereas the R3 STC describe in detail how to convene meetings and conduct postal resolutions with no reference to the Act or Rules. Therefore, personally I am struggling to see how the 2016 Rules affect existing VAs’ methods of seeking creditors’ agreements where those VAs are based on the R3 STC. However, I also question whether the R3 STC restrict meetings to physical ones – when I read the STC cold, I’m not persuaded that they don’t also work for virtual meetings (but then again, don’t most meetings happen only on paper anyway?) – so it seems to me that the R3 STC may allow a variety of routes but, thankfully, without all the baggage that the 2016 Rules carry with them, which may load down Protocol IVAs in view of their vague reference to “in accordance with the Act and the Rules”.

  • Does Dear IP make the IVA Protocol position clear?

It’s Dear IP’s treatment of the Protocol STC’s wording, “The Supervisor may… summon and conduct meetings of creditors… in accordance with the Act and the Rules”, that puzzles me. On the one hand, Dear IP acknowledges that the Act and Rules “remain silent on how decisions are taken once in (sic.) a voluntary arrangement is in place”… so they seem to be saying that the Act and Rules are irrelevant to a supervisor looking to call a meeting. But then Dear IP says: “we do not believe [supervisors] should feel restricted to only using a physical meeting. We expect supervisors to take advantage of the new and varied decision making procedures that are available under the Act as amended and the 2016 Rules”.

But how possibly can the phrase, “the supervisor may summon and conduct meetings of creditors”, morph into for example: “the supervisor may seek a decision by means of a correspondence vote”? This is too much of a stretch, isn’t it? Rather than be meant as a comment on the application of the 2016 Rules to existing VAs, perhaps the Service is simply stating that it would like IPs to incorporate the various processes in future VA Proposals and STC, don’t you think?

Because the Act and Rules in themselves do not empower supervisors to seek decisions, does this mean that the Protocol STC’s words “in accordance with the Act and the Rules” are redundant? Or are these words supposed to mean that the supervisor should “apply the provisions of the Act and Rules in so far as they relate to bankruptcy with necessary modifications”, as paragraph 4(3) of the Protocol STC states? Ok, if the latter is the case, then what is the effect of S379ZA(2), i.e. that a trustee cannot summon a physical meeting unless sufficient creditors request one? This would seem to take us far from the Dear IP position where supervisors should not “feel restricted to only using a physical meeting”.

For these reasons, I think the Dear IP is horribly muddled. Perhaps the IVA Standing Committee might like to clarify the position in relation to their STC..?

 

What is the deadline for forcing a physical meeting in a S100 scenario?

This is another area that seems to have got horribly muddled. It seems to me that much of the confusion over this arises because of the conflating of two potential creditor responses: (i) a creditor can object to a decision sought by deemed consent; or (ii) a creditor can request a physical meeting. It is true that, when a S100 decision on the liquidator is sought by deemed consent, the consequence of either response is the same: a physical meeting is summoned. However, the Rules around each response are different.

  • The deadline for objections

R15.7(2)(a) states that the notice seeking deemed consent must contain “a statement that in order to object to the proposed decision a creditor must have delivered a notice, stating that the creditor so objects, to the convener not later than the decision date”. “Not later than the decision date” must surely mean that objections delivered on the decision date are valid (note: although this rule only specifies what must appear in a notice, S246ZF(4) makes clear that “the procedure set out in the notice” is binding).

  • The deadline for physical meeting requests

For a S100 decision, R6.14(6)(a) states that “a request [for a physical meeting] may be made at any time between the delivery of the notice… and the decision date”. I have heard argument that “between” excludes the days at each end, which would mean that the deadline for requests would be the end of the day before the decision date. At first, I was persuaded by this interpretation, given that, if I were to count how many people in a queue were between me and the ticket office, I would not include myself in the number… but then someone asked me to pick a number between 1 and 10..!

This interpretation of “between” also makes little sense when considering R15.4(b), which states that an electronic voting system must be “capable of enabling a creditor to vote at any time between the notice being delivered and the decision date”… so the IP isn’t interested in votes cast on the decision date then..?

  • The Insolvency Service’s policy intentions

How does Dear IP pull these threads together? It states: “The policy intention (in all cases) is that a request for a physical meeting must arrive before the decision date. The policy intention with regard to electronic voting is that creditors may cast their votes up until the decision closes (i.e. 23:59 on the decision date). We believe that the 2016 Rules are capable of supporting both these policy intentions.”

The Insolvency Service appears blinkered in their statement that the 2016 Rules support the policy intention, because they simply focus on requests for a physical meeting. Irrespective of how “between” is interpreted, the fact is that a deemed consent can be objected to up to 23.59 on the decision date and such an objection would force a physical meeting. Therefore, a members’-appointed liquidator will still be left in the position of not knowing whether there will be a last-minute objection that will force an unexpected c.week-long Centrebind.

 

What happens if a Centrebind is longer than 14 days?

I feel I should apologise for wasting people’s time in explaining (via this blog (https://goo.gl/hikYKr), R3 presentations and our webinars) the risks that a Centrebind could last longer than 14 days if material transactions need to be reported or a physical meeting needs to be convened.

  • The Insolvency Service’s simple answer

The Insolvency Service gave the simple answer on their blog that “it is sufficient that the original decision date was within the required timescale”. In other words, provided that the convener fixed the decision date for the S100 deemed consent process or the virtual meeting not later than 14 days after the winding-up resolution, it is of no consequence that this decision date falls away because the date of a consequent physical meeting falls outside this timescale.

I find the Insolvency Service’s answer startling. Personally, I would expect the Rules to make explicit that it is the original S100 decision date that matters, in the same way as Para 51(2) uses the expression “initial decision date” when setting down the 10-week deadline for Administrators to seek approval of their proposals (i.e. Para 51(3) explicitly provides that Administrators do not get into a pickle if creditors reject a decision by deemed consent and then the Administrator convenes another decision process with this second decision date falling outside the 10 weeks).

  • Can this principle apply also to VA Proposal decision dates?

What about the other instance when an important decision date deadline must be met: the approval of an IVA Proposal? R8.22(7) states that this decision date must be not more than 28 days from the date on which the nominee received the Proposal (or when the nominee’s report was considered by the court). Given that 14 days’ notice is required, it would be very possible for a physical meeting decision date to be outside this timescale. Would it matter as long as the original decision date was inside it? The Rules do not address this point, but neither do they address the unintended Centrebind position.

Much as my heart’s cockles are warmed by the Insolvency Service’s answer, personally I would be nervous in relying on it.

 

How do you deal with preferential creditors’ decisions?

The Insolvency Service’s answers on this topic are eminently sensible and I am more than happy to live with them… but it’s just that I cannot help but continue to ask myself: “yes, but where does it say that?”

The questions surround the New Rules’ defined process for seeking prefs’ approval of matters such as the Administrators’ fees. Exactly how do you conduct a decision procedure of prefs alone?

Firstly, what do you do with pref creditors who have been paid in full? R18.18(4) states that pref creditors must make a decision on fees, if the Administrator “has made or intends to make a distribution” to prefs (in a Para 52(1)(b) case). This would seem to include prefs who have been paid in full, but R15.11 excludes them from receiving notice of the decision procedure.

But, actually, what do we mean when we refer to pref creditors being paid in full? Usually we mean that the pref element of their claim has been paid in full, but often they will still have a non-pref unsecured claim. How do you calculate a pref creditor’s value for voting purposes?

R15.31(1)(a) states that, in an administration, votes are calculated “according to the amount of each creditor’s claim as at the date on which the company entered administration, less any payments that have been made to the creditor after that date in respect of the claim”.

  • Another simple answer from the Insolvency Service

The Insolvency Service’s answer to these questions was: “Our interpretation is that [R15.31(1)(a)] would lead an administrator to consider the value of outstanding preferential claims at the date that the vote takes place. This would only include the preferential element of claims, and if these had been paid in full then the administrator would not be expected to seek a decision from those creditors.”

Personally, I don’t see that R15.31(1)(a) gets us anywhere: it doesn’t state that a creditor’s claim is only its preferential element when a decision procedure is only open to pref creditors and it doesn’t state that you do not need to seek a decision from pref creditors who have been paid their pref elements in full… but in all other respects I like the Service’s answers!

 

Do creditors need to get forms absolutely correct?

There is no denying that the 2016 Rules have placed a heavier burden on us all to get the details correct. Many things that we were used to doing in simple text form are now described as “notices” and every statutory notice must include “standard contents”, which often require the addition of new detail such as insolvents’ company registered numbers or residential addresses.

  • The validity of old proofs of debt

In many cases, creditors are not spared these requirements. For example, the prescriptive detail of proofs of debt – R14.4 – is quite different from the old requirements. If you are adjudicating on pre-April proofs, can you accept them for dividend purposes? Indeed, can you rely on a Notice of Intended Dividend process commenced before 6 April?

As regards the need for creditors to submit new proofs to meet the New Rules’ requirements, the Insolvency Service answered: “Section 16 of the Interpretation Act 1978 may be relied upon here, and proofs which have already been submitted do not become invalidated.”

Incidentally, S16 of the Interpretation Act 1978 states that a “repeal does not, unless the contrary intention appears… affect the previous operation of the enactment repealed or anything duly done or suffered under that enactment [or] affect any right, privilege, obligation or liability acquired, accrued or incurred under that enactment”, so does this help as regards NoIDs? Are IPs safe to rely on old NoIDs as protecting them from late creditors? This wasn’t the question put to the Service, but it would seem to me the only way the New Rules could possibly work.

However, I’m not quite sure how S16 helps IPs decide now whether to admit an old proof for dividend purposes, when surely they must measure proofs against the New Rules, mustn’t they? But, realistically, what could an old proof possibly be lacking that might struggle to get it admitted under the New Rules?

  • Providing the detail required for new proofs

I asked the Service about the requirement for a proof to be authenticated. R1.5(3) states that “if a document is authenticated by the signature of an individual on behalf of… a body corporate of which the individual is the sole member, the document must also state that fact”. If a creditor failed to state this on a proof, would it render the proof invalid? And, if so, does this obligate office holders to check this point?

Alternatively, does R1.9(1)(b) help us all out? This rule states that “where a rule sets out the required contents of a document, the document may depart from the required contents if… the departure (whether or not intentional) is immaterial”.

The Insolvency Service’s answer was: “The extent to which an office-holder could rely on rule 1.9(1)(b) here would be a matter for them to decide, possibly in liaison with their regulatory body.” I can understand why the Service was not tempted to put their neck on the block on this question, but it does demonstrate to me the nonsensical nature of the New Rules: they set out prescriptive detail of what must be provided… then add a rule that states it’s okay if a departure is “immaterial”. Why put prescriptive immaterial requirements in the Rules in the first place?!

  • Do creditors need to meet the notice requirements?

I felt a similar irritation when I read Dear IP’s article, “Do creditors’ notices have to comply with standard content”, for example when creditors object to a decision sought by deemed consent. The Service seems to be implying that the answer is no: “if it is clear what the creditor is seeking in their notice, it should be accepted”. Again, this leaves me wondering: if a creditor is free to run a red light, why put the lights up in the first place?

Having said that, R1.9(1)(b) might be a useful one to remember the next time the RPB monitors call… although we might expect some debating over what is “immaterial”.

  • The detail (not) required for proxy forms

I think it is also worth mentioning here the observation made on the Service’s blog at the lack of prescription when it comes to proxy forms. The Service explained that “the requirement to authenticate [a proxy form] was removed as a deregulatory measure, because authentication does not confer legitimacy. As long as the office-holder is satisfied that the proxy comes from the creditor then the requirements for submission are met.” So a creditor must sign a hard copy proof but need not sign a proxy form. Well, fancy that!

 

In my next post, I’ll set out some other nuggets gleaned from the Insolvency Service’s blog.