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What do the new 2017 insolvency rule changes mean for creditors?

Written by: Claire Januszewski

Reviewed: Wednesday 18th January, 2017

On 6th April 2017 new rules come into play which will guide the future of insolvency practice. The new rules aim to consolidate the Insolvency Rules 1986 and its 28 subsequent amendments. This update represents the biggest change to insolvency law in 30 years.

The updated rules see a modernisation of some of the more antiquated processes, including a greater use of digital communications to both speed up the process and to lower overall costs, hopefully leaving more money in the estate for distribution among the insolvent company’s creditors.

While the changes listed in the 446 page document are numerous, the key points are as follows:

Increased use of digital communications

The methods we use to communicate have been transformed over the past 30 years and as to reflect this, a number of key communication changes are set to be implemented from April. One of these is the increased use of email throughout the insolvency process. A creditor who has engaged in an email exchange with the debtor prior to the commencement of insolvency proceedings, will be deemed as having consented to receive documents by email going forward. This consent can be revoked at any point.

Along with the increased use of emails, the reliance on digital platforms to aid the process will continue with the use of online web portals which will allow certain documents to be downloaded by creditors. There are some exceptions to this with some of the more important papers continuing to be delivered by more traditional channels.

Abolishment of compulsory creditors meetings (S.98 meeting)

Under current rules, a meeting is held following the appointment of a liquidator during which creditors can learn about the financial position of the insolvent company. The vast majority of creditors meetings take place with only the director(s) and the insolvency practitioner present. This arguably makes the meeting unnecessary in the majority of cases. It is not just a waste of time, it is also a waste of money, as holding creditors’ meetings comes with its own cost which is passed to the insolvency estate. These additional costs ultimately have a detrimental impact on the amount of money available for creditors. From April therefore, a physical meeting of creditors will not be summoned unless this is explicitly requested by at least

  • 10% by value of creditors or
  • 10% in total number of creditors or
  • 10 individual creditors

Ability for creditors to ‘opt out’ of receiving certain notices

The new rules will allow creditors to opt out of receiving on-going correspondence; this is primarily geared towards situations where there is little hope of the creditors receiving any monies from the liquidation process. This however, excludes notices of dividend payments, which will continue to be sent regardless of whether the opt-out option has been triggered.

Changes for small creditors

Creditors with smaller claims no longer need to submit proof to the Insolvency Practitioner. Rather the financial records and accounts of the insolvent company will be used to check claims from creditors which are under £1,000.

Deemed consent

The decision of the Insolvency Practitioner will automatically be approved unless is met with objection from at least 10% of creditors (in value or number). If such an objection is received an alternative decision-making process will be implemented; this could involve electronic voting, telephone conferencing or a virtual meeting.

No more final meetings for the creditors

Along with the end of S.98 creditors meetings, the updated rules also signal the end of the final meeting which is currently used to formally conclude the insolvency proceedings and releases the Insolvency Practitioner from duty. From April 2017 however, this process along with any creditor objections, will be performed through email. It is once again hoped this will help to speed up the process while also reducing the financial cost.

Modernisation of wording

It is not only the content of the Rules which is undergoing a change; the language used to present the legislation has also been freshened up. Through the utilisation of more contemporary wording it is hoped that the new Rules will be more user-friendly. There will be less ambiguity and repetition which should help to limit the chance of misinterpretation. There is also a shift towards gender-neutral wording.

Claire Januszewski

Author
Claire Januszewski
Copywriter

Claire is a copywriter working within the digital content team at Begbies Traynor. Her areas of expertise are business insolvency and all areas of personal finance. She has written for a variety of online and print publications, and her work has been published in a number of national newspapers, including the Daily Mail, the Daily Telegraph, and the Daily Express.

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