Changes for the New Insolvency Rules

Back in April 2017 a new set of rules were introduced which have radically changed the way practitioners approach formal insolvency.

The new rules, which represent the most significant legislative change to the process since the introduction of the Insolvency Act in 1986, mean more say for creditors who find themselves affected by the financial fall-out of a formal insolvency.

The rules work alongside the existing Insolvency Act. They aim to modernise the current procedures by cutting administrative ‘red tape’ and associated costs, and to make it simpler and more accessible for those affected by the financial failure of a business or an individual to be involved in the decision-making process around the insolvent case.

How will the new changes affect you if you are a creditor in a formal insolvency process?

Farewell to creditor meetings.
The old regime of the 1986 Act and rules relied on formal face-to-face meetings as the default forum for creditors to arrive at decisions relating to insolvency proceedings. Under the new rules, these physical face-to-face meetings have been abolished, unless requested by the creditors, to be replaced by virtual ones. The actions of office holders will be determined by new decision-making processes, through email exchanges, telephone & video conferencing and electronic voting. Office holders will now be able to obtain agreement to decisions by deemed consent, so if less than 10%, by value, of the creditors object, a decision is approved.

Insolvency practitioners can be appointed as liquidator of a company by deemed consent or a virtual meeting.

The new regime sees the end of the ‘Section 98′ creditors’ meeting for a company liquidation, the meeting which company directors were previously obliged to attend and put forward their explanation as to why the company failed. Whilst the removal of this meeting from the formal proceedings may result in reduced costs, some creditors may miss the opportunity to question company directors. Creditors will still retain the option to ask the office holder for a meeting if they want one, but to be able to do so, need to hold over 10% in value of all claims, represent 10% of the number of creditors or be part of a group of ten individual creditors.

Agreement of creditor claims
If a creditor is owed less than £1,000, an office holder may now treat the debt as proved without the requirement for the creditor to submit a formal claim, providing that the debtor’s accounting records, or statement of affairs record the debt. The key to this new power is in the ‘may’. Creditors cannot assume that the office holder will apply this rule in all cases, so if there is any element of doubt, and to guarantee receipt of dividends, it may be safer to submit claims in any event.

Cutting down on correspondence
The new rules recognise the current reality of business communication and encourage email communication with creditors. If a debtor has always communicated with its creditors by email, then it is deemed that this can continue, without the need for any further permission. Office holders are now also permitted  to make greater use of their website to make information available to creditors and can publish all reports and notices online.

Creditors are now able to opt out at any time from receiving any contact from the Insolvency practitioner, with the option to opt back in again at any time during the process. This excludes correspondence relating to the notification of a dividend. Whilst some may welcome the reduction in unwanted mail, particularly in those processes where there is little prospect of a dividend, those creditors that opt-out may find they miss important and relevant updates from the Insolvency practitioner, such as reporting on delinquent directors.

The future
As these new rules have only been in place for a matter of weeks, it is still early days to be able to say whether their introduction has resulted in a more simplified and cost-effective process for creditors. What is clear is that there is an even greater level of responsibility on the Insolvency practitioner to ensure that all creditors are aware of the new rules and procedures and of their rights & obligations under them.

If you wish to discuss any of the issues raised in this article please contact John White on 07906083028 or at