As we as a nation attempt to extract ourselves from the complexities of EU legislation with Brexit, we thought it might be helpful if we provided some quick pointers to New UK Insolvency Rules (April 6) and EU related Recast regulations (June 26). There are in fact some important elements to note for administrators and businesses alike and we’ve categorised our thinking into some key guidance notes and a ReSolve insight.
New Insolvency Rules
Introduced on April 6, the key change here is around the new ‘decision procedure’ which has a significant impact upon appointing liquidators in a voluntary insolvent liquidation and this procedure itself centres on the concept of ‘deemed consent’.
What are the key considerations of ‘deemed consent’?
- Various information has to be circulated to creditors prior to the decision date, therefore the first correspondence with creditor will now often include the directors’ report and statement of affairs.
- The onus is now on the directors to provide as much information at the outset and for urgent cases this may be required to be compiled and finalised within 1-2 business days of engagement.
- So this has two implications – (i) the onus is now on whether an objection is raised, rather than obtaining consent to the appointment and (ii) a liquidator can be appointed absent any meeting of creditors (although sufficient creditors are able to call a physical meeting if desired).
Other key considerations are around general correspondence and agreeing creditor claims:
- Creditors now have the option to opt-out of certain routine correspondence and if reports are to be posted online, there is also no requirement to notify creditors each time a new report is loaded. The first circulation will simply note reports will be posted online at certain key dates.
- New Rules allow for any claims of £1k or less to be automatically agreed by the office holder provided he/she is satisfied with a company’s records or directors’ statement of affairs.
EU recast regulations
They came into force on June 26, 2017, and are intended to produce better administration of pan-EU group insolvencies – note they don’t apply to Limited Liability Partnerships. There is a particular focus around a 3 month rule.
- To prevent ‘forum shopping’ the general presumption that a debtor’s Centre of Main Business (COMI) is located in the place of the registered office does not apply now if the registered office has been moved to another member state within 3 months prior to the request for the opening of proceedings. The definition of ‘Establishment’ has been changed in line within this.
- Whilst it needs approving by creditors, to prevent opening secondary proceedings in another member state, an insolvency practitioner may offer an Undertaking in respect of the assets located there to confirm they will comply with the distribution and priority rights under the laws of that member state.
- A company subject to proceedings may not be dissolved until all proceedings in respect to that company have concluded or dissolution has been consented to.
So how does ReSolve see the implications of these changes working through in reality?
Both of these draftings are intended to reduce burdensome administration and seem well intended.
In the case of the new Insolvency rules we think they will save time and money, particularly regarding smaller dividends for whom the relative time cost of locating and providing copy invoices often meant there was little benefit.
There are, however, some inconsistencies in places meaning some immediate amendments are needed.
More importantly, there may be a loss of some checks and balances; for instance whilst the online portal saves on office holder disbursements, we believe creditors are less likely to routinely check an online portal and may therefore not keep up to date with a case.
Other administrators should also note whether their own systems will need to change in order to allow a reliable record to be maintained.
On the Recast Regulation, the aspiration re pan EU insolvency implications is applauded. Two questions arise, however:
Will all practitioners have the ability to provide the Undertakings required – and if not will we see a consolidation across larger practices of EU administrations?
The second is the trumpeting elephant in the room – these regulations do not take account of the implications of Brexit and were drafted in advance of the referendum. ReSolve awaits with interest the development of the negotiations in this regard and expects more changes in the not too distant future.