Insolvency Oracle

Developments in UK insolvency by Michelle Butler

Leave a comment

The Economic Crime Levy – a disaster averted

Regulations introduced last year appeared to make insolvency office holders personally liable for the new economic crime levy due from insolvent businesses, whether incurred pre- or post-appointment.  Was this another example of HMRC looking to jump the queue over ordinary unsecured creditors?

Fortunately, R3 took up the baton and, eventually, amendment regulations were created to curtail these effects.  Phew!

The original regulations, the Economic Crime (Anti-Money Laundering) Levy Regulations 2022 (“the Regs”), can be found at:

The Economic Crime (Anti-Money Laundering) Levy (Amendment) Regulations 2023 (“the Amendment Regs”), are at:

How does the levy work in general?

Don’t panic!  The charge is not levied on all businesses.  It is attracted only by businesses that carry out AML-regulated businesses… so banks, solicitors, accountants, art dealers, estate agents, casinos, insolvency practitioners…


Honestly, there’s no need to panic… at least not this year.

Relating to the 2022/23 year, the levies are:

  • For small businesses (under £10.2m UK revenue): nil
  • For medium businesses (£10.2m – £36m): £10,000
  • For large businesses (£36m – £1bn): £36,000
  • For very large businesses (over £1bn): £250,000

The levy for the 2022/23 financial year becomes due on 30 September 2023.  The levy rates have been fixed by the Finance Act 2022, so it will be interesting to see if/when this changes in future and whether small businesses will be made to contribute.

What if the trader goes insolvent?

Regulation 15 of the Regs states:

  • (1) This regulation applies where a person liable to pay the levy—
  • (a) who is an individual—
  • (i) has died or become incapacitated; or
  • (ii) has become bankrupt; or
  • (b) is subject to winding-up, receivership, administration or an equivalent procedure.
  • (2) The person (“P”) who—
  • (a) in the case of an individual, carries on the regulated business on behalf of an individual who has died or become incapacitated; or
  • (b) acts as the liquidator, receiver or administrator in relation to the business of the person liable to pay the levy or acts in an equivalent capacity,
  • may be treated by the appropriate collection authority as the person liable to pay the levy and must satisfy the requirements of Part 3 of the Act and the requirements of these Regulations as if they were the person liable to pay the levy.

And that was it!  There was nothing limiting the scope or slipping the levy into any insolvency order of priority: if the insolvent business couldn’t pay, then the levy could be charged to the office holder.

Disaster averted!

After I had realised the effect of this regulation (with the help of the R3 GTC chair), I raised it at an R3 General Technical Committee meeting and fortunately R3 – as well as, I think, the Insolvency Service (after all, Official Receivers could be liable too) – took up the issue with HMRC, as they are the “appropriate collection authority” in the majority of cases.

The Amendment Regs were made on 27 March 2023 and they insert the following:

  • (3) Any amount of levy which relates to UK revenue attributable to a period before the date when the winding-up, receivership, administration or other equivalent procedure takes effect is payable by the person subject to the winding-up, receivership, administration or an equivalent procedure, and not by the person treated as the person liable to pay the levy under paragraph (2).
  • (4) Any amount of levy which relates to UK revenue attributable to a period on or after the date when the winding-up, receivership, administration or other equivalent procedure takes effect is to be regarded as an expense of that winding-up, receivership, administration or equivalent procedure.

The effect of this amendment

In other words, if the levy relates to pre-appointment revenue, it will remain due and payable by the insolvent entity, i.e. it will be a normal unsecured claim.  It is only if the levy relates to post-appointment revenue that we will need to worry, because then it will be an expense.

The thought of trading-on an AML-regulated business probably sends shivers down most of our spines already.  Now, the attraction of an additional expense just adds another nail in the trading-on in insolvency coffin.

“Equivalent procedures”?

As you can see, the Regs specifically reach to liquidators, receivers, administrators and trustees in bankruptcy.  What about VA Nominees and Supervisors?  Personally, I can think of many arguments as to why a VA is not an equivalent procedure and moratorium monitors are even less likely to be caught, I think.  However, it may well be up to the courts to decide on those.

It’s not all good news: more work for office holders

Regulation 15 imposes more than a direct financial cost on insolvency office holders.  They also “must satisfy the requirements of Part 3 of the Act and the requirements of these Regulations as if they were the person liable to pay the levy”.

This means that insolvency office holders will need to submit returns to HMRC (or the FCA or the Gambling Commission, depending on the type of business) for pre-appointment periods and probably also for the first post-appointment period to the end of the tax year unless the collection authorities introduce an end-of-trading return process.  I very much doubt that HMRC etc. will be able to accommodate office holders who want to submit returns offline – that will be interesting.

If there is no post-appointment trading and no prospect of an unsecured dividend, will office holders still be required to submit missing returns?  Let’s hope the collection authority doesn’t get all jobsworth over this requirement.

A new regime and a new registration process

Of course, we’ve only just got to the end of the first levy year and, although the Regs came into force on 1 April 2022, HMRC is not yet receiving registrations (see  Therefore, office holders taking appointments of AML-regulated entities over the next few months may also need to do the work of registering the entity in the first place.

Is it all a conspiracy?

Actually, no, I don’t think HMRC tried to jump the queue by getting this levy some kind of super priority.  I think it was just poor drafting.  But, goodness, what poor drafting!

It goes to show that we all need to stay alert to new legislation: the more eyes on these things, the better.

Leave a comment

What will “Transparency & Trust” mean for IPs?

0222 Cairns skyrail

My thanks to Mr Cable for re-appearing in the headlines and making this two month old consultation suddenly seem current again. The proposal in his “Transparency & Trust” paper that got everyone talking was the attempt to curb future excesses of the banks and demand by legislation that their directors take care to be socially responsible, but is there anything in the paper for IPs..?

The consultation can be found at, although regrettably it closed to responses yesterday. Well, it’s been a busy summer!

Identifying Beneficial Owners

I’ve been doing a bit of work recently on compliance with the Money Laundering Regs and it has reminded me of the rigmarole around identifying, and verifying the identities of, an insolvent company’s beneficial owners. Identifying the >25% shareholders is the easy bit (although, of course, it gets a bit more complicated where the shareholders are corporate entities), but how, on day minus-one of an insolvency appointment, are you supposed to identify other beneficial owners, those who “otherwise exercise control over the management of the company”? People don’t often stand up and introduce themselves as shadow directors. The consultation describes other complications to identifying the beneficial owners, such as where a number of shareholders have agreed to act in concert.

BIS’ suggested solution: let’s make it a requirement for companies to disclose their beneficial owners. The consultation considers the details of such a system: when companies would be required to make such disclosure; to which companies it would apply; what about trusts; what powers would need to be granted and to whom to ensure compliance; whether such a registry would be publicly available or restricted only to law enforcement and tax authorities… but what I cannot help asking myself is: if a company is being misused for illegal purposes by some hidden beneficial owner, would the company really have complied with the legislation and disclosed him/her? Or is it more likely that such requirements would just put more burden on law-abiding companies in ensuring that their registers of beneficial owners, in which no one is really interested (the information only really has any value if money laundering has taken place, doesn’t it?), are kept up-to-date?

Although, personally, I cannot see such a system doing anything much to help prevent illegal activity, at least if IPs are able to see information on companies’ beneficial owners, it might help in their Anti-Money Laundering checks, and I think that anything that helps with that chore would be a bonus. So how likely is it that the information would be made public? It seems from the consultation that it is the Government’s preference and, even if that doesn’t happen, the second option is that it might be accessible to “regulated entities”, i.e. anyone who is required to make MLR checks.

There’s a sting in the tail, however. Slipped into the consultation is: “If they were given access to the registry, regulated entities would incur additional costs if they were required to check and report any inconsistencies between their own data and that held on the register” (paragraph 2.74). Can you imagine? Would they seriously require office holders to inform whoever that a defunct company’s register of beneficial owners was not up to date? My perception is that IPs do not really feature as a separate group in the minds of those who oversee the MLR, so I doubt that they would see the pointlessness of such a task.

Changing Directors’ Duties

Okay, this proposal won’t directly affect IPs, but I couldn’t help passing a quick comment. As no doubt you’ve heard, the proposal is to amend the directors’ duties in the CA06 “to create a primary duty to promote financial stability over the interests of shareholders” (page 61). It is noticeable that more consultation space is taken up listing the potential drawbacks of the proposal than its advantages. In addition to the described issues of how to enforce such a duty, how shareholders would react, how UK corporate banks would fare competing against banks not caught by the CA06, I was wondering how you could measure promoting financial stability: it seems to me that it would depend on whether you were to ask Vince Cable or George Osborne.

The consultation includes many other proposals, which would affect the disqualification regime – some of these are:

• whether the regime should be tougher on directors where vulnerable people have suffered loss (is the absence of a jubilant Christmas for a Farepak customer a more worthy cause than that for a redundant employee who’d worked hard up to the end of an insolvent company’s life?)
• whether the courts should take greater account of previous failures, even if no action has been taken on them (surely the just and socially-responsible solution would be to fund the Service adequately to tackle any misconduct of the first failure?)
• whether to extend the time limit for disqualification proceedings from two to five years (what about the Service’s method of prioritising cases? I appreciate that this is a gross simplification, but don’t they hold a big pile of potentials and progress those that they feel are in the public’s greatest interest, leaving the rest in the pile until it gets to the critical time when they have to make a decision one way or the other? Won’t the extension to five years simply mean that their potential pile holds four years’ worth of cases, rather than one year’s? Again, unless the Service is granted more resources, I cannot see that this measure would really help. I also object to the consultation’s comment that “it can quite easily be several months before the relevant insolvency practitioner reports to the Secretary of State detailing the areas of misconduct that may require investigation. In such cases, the limitation period might mean that misconduct is not addressed” (paragraph 12.2))
• whether “sectoral regulators”, such as the Pensions Regulator, FCA and PRA, should be granted the ability to ban people from acting as a director in any sector.
• whether directors who had been convicted/restricted/disqualified overseas should be prevented from being a director in the UK.

“Improving Financial Redress for Creditors”

The Government anticipates that, if liquidators and administrators (as the Red Tape Challenge outcome proposes to extend the power to take S213/4 actions to administrators) were entitled to sell or assign fraudulent and wrongful trading actions, a market for them would develop. Do you think so..?

BIS has thought about the possibility that directors (or someone connected to them) might bid for the action and, although they suggest an, albeit not water-tight, safeguard, they also point out that, if the director did buy the right of action, at least the estate would benefit from the sale consideration. Although, personally, I’d feel uncomfortable with that – and I’m not sure what the creditors would say (but, of course, the office holder could ask them, and maybe that would be a better safeguard?) – I guess it makes commercial sense.

The consultation also proposes to give the court the power to make a compensatory award against a director at the time it makes a disqualification order. The consultation states: “This measure could potentially affect the timeliness of obtaining disqualifications if it deterred directors from offering a disqualification undertaking and therefore resulted in more disqualification cases needing to be taken to court” (paragraph 11.16), but personally, I would have thought that this measure would increase exponentially the number of director undertakings, as there seems to be no suggestion that an undertaking would expose a director to the risk of an award.

It is envisaged that the award would not be used to cover the general expenses of the liquidation and “there is a question as to who should benefit from any compensatory award. This could be creditors generally or it could be left to the court to determine based on the facts of the case” (paragraph 11.14), although I assume that, if it were for the general body of creditors, the office holder would be expected to pay the dividend. I wonder how the office holder’s fees and costs would be viewed, if he had to keep the case open purely for the purposes of seeing through the outcome of any such action.

The consultation also states that “Liquidators would still be expected to consider whether there are any actions they could bring themselves, as they ought to now” (paragraph 11.15). Could liquidators be criticised for taking actions, the proceeds of which would settle first their costs, when, if it were left to the court on the back of a disqualification order, the creditors would see the full amount? It is a liquidator’s function to get in and realise the assets, so probably not, but administrators..?

The same paragraph states: “If by the time the disqualification action comes before the court, liquidators have successfully recovered monies from the directors, that is something the court would be expected to take into account when deciding whether or not to make a compensatory award (or in setting the amount of it)” – it could get fun if the actions were running in parallel.

Despite my quibbles, generally I think the proposals are a step in the right direction. However, I wonder how those in the Service’s Intelligence and Enforcement Directorate feel about the proposals, which would lead to so much more work and high expectations laid upon them. Let’s hope that these proposals give them a sound case for increasing their access to funds and people.