“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.
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.
- 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.
- 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 ( 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 😉