David Kirk outlines what the changes mean in practice.

The new Insolvency Rules applied from the 5 April 2017 (although they are called the Insolvency Rules 2016). They are a major revision to the rules, last overhauled to this extent back in 1986.

They are designed to have a threefold effect, to:

• Recognise how new technology has changed communications, meetings and the decision process in insolvency.
• Modernise the language used, remove old-fashioned statutory forms and remove gender bias.
• Consolidate everything else that has changed over the years into the new rules. For example, the 26 Statutory Instruments and the Small Business Enterprise and Employment Act 2015.

As a practising, licensed insolvency practitioner, the biggest change for me has been the removal of physical creditors’ meetings at the start of a liquidation process, and it has taken a while to perfect the forms and the new process of actually getting a company into liquidation. I am going to explore this area in more detail first, as it is by far the most common insolvency procedure.

Creditors’ voluntary liquidation

The procedure to get a company into liquidation is now twofold:

• Call a meeting of shareholders: nothing has changed here, it is still a physical meeting with shareholders given 14 days’ clear notice (unless 90 per cent of them consent to short notice).
• Call a virtual meeting of creditors (such as a group video call): or don’t even do that, just write to them with a deemed consent date.

The deemed consent date means that creditors can be told that if they don’t object or ask for a physical meeting, then on a certain day (usually in about eight days’ time), the company will be deemed to have gone into liquidation. This is to deal with creditor apathy, where no one turned up to creditors meetings in order to be told that they were not going to get anything much back.

If creditors actually want a creditors’ meeting that they can attend, then one has to be called if one the following is applicable:

• 10 per cent of creditors by value want one
• 10 creditors want one
• 10 per cent of the total number of creditors want one

Interestingly, even where the proposed liquidator thinks this is a case that needs a physical meeting, they can't call one. They have to choose the virtual meeting or deemed consent route first.

The end of the need for physical meetings applies to all insolvency procedures, including administrations and company voluntary arrangements, but interestingly, does not apply to shareholders. 

Another change is that a full report is now sent to, or is made available to, creditors online before the liquidation date (previously, the first creditors would see of the report was on the day of the old style creditors’ meeting). This report, also called a SIP6 report, as it is covered by Statement of Insolvency Practice 6, covers a brief history of the company, previous trading figures and a current snapshot of its current finances.

All insolvency procedures

Correspondence with creditors can now default to email where they have used email with the insolvent business in the past. Previously, they had to opt in to accept emails, rather than correspondence by post. Clearly, this is a cost saving on time, paper and postage.

If a creditor wants to opt out, they can request not to receive any more communication, unless there is a chance of a dividend, which is a useful change.

Companies House

In the past, statutory forms were laid out by the rules. This made them harder to change, but had the convenience of making sure that everything that should be disclosed was disclosed. Now, all statutory forms have gone. (See also: Prescribed forms: the new rules)

This is a problem for Companies House, as the standard layout of forms helped them to make sure that they were receiving the right information. Faced with the prospect of each insolvency practitioner designing their own bespoke forms, Companies House has decided to issue their own, which makes sense.

Final thoughts

Although I welcome the ease of use of technology, I’m not sure that getting rid of the initial creditors’ meeting is a good idea. It served a useful function in making the directors have to face their creditors, and usually the more creditors that attended the meeting, the more issues there had been, and useful information would emerge from this.

I also feel that the amount of paperwork now sent to creditors (or emailed and requiring printing) is too complicated, and will lead to confusion and an increase in queries made to insolvency staff.

About the author

David Kirk is a chartered accountant and licensed insolvency practitioner based in the south west. Follow @kirksinsolvency or visit www.kirks.co.uk.

See also:

• The new insolvency rules: what they mean for the profession
• Qualifying Decision Procedure, Deemed Consent (Winding Up by the Court), Deemed Consent (Bankruptcy), Deemed Consent (Administration), Deemed Consent (Administrative Receivership), Deemed Consent (CVL)