Impact on Insolvency of the draft Deregulation Bill
The draft Deregulation Bill was published in July 2013 and has wide implications in relation to many areas, including use of land, measures affecting business, housing and transport. It also includes provisions which relate to insolvency law and practice. The purpose of this note is to highlight the most important of those changes.
The draft Bill introduces a new regime for the partial authorisation of insolvency practitioners. Currently, individuals who are authorised to act as an insolvency practitioner are authorised in relation to all categories of appointment. Under the new regime, a person may be authorised to act only in relation to companies or only in relation to individuals. If a partially authorised insolvency practitioner becomes aware that they have been appointed to act in relation to such a company or individual, they will commit an offence if they continue to act in that insolvency without the court's permission. There is provision for the insolvency practitioner to be able to continue to act for a limited period without committing an offence whilst the court's permission is obtained.
The new paragraph 25A of the draft Bill clarifies that the prohibition on appointing an administrator when a winding-up petition has been presented and not yet disposed of applies only to a petition presented before an interim moratorium comes into effect.
Notice to prescribed persons
Paragraph 6 removes a requirement in paragraph 26(2) of Schedule B1 to the Insolvency Act 1986 (‘IA 1986') to give notice of intention to appoint an administrator to persons who are not themselves entitled to appoint an administrative receiver or administrator.
At present a company or its directors intending to appoint an administrator must give notice of the intention to appoint to anyone entitled to appoint an administrative receiver of the company, to any holder of a qualifying floating charge entitled to appoint an administrator, and to other prescribed persons. The prescribed persons are set out in rule 2.20 of the Insolvency Rules 1986, and include the company (if the company is not intending to make the appointment), a landlord exercising distraint over the property of a company and a supervisor of a company voluntary arrangement (CVA). Unlike those entitled to appoint a receiver or administrator, the prescribed persons cannot block the appointment of an administrator. This brings to an end the conflict between the decision in Hill v Stokes Plc  EWHC 3726 the Court declared that the appointment of administrators was not rendered invalid or ineffective by reason of the failure of directors to give a copy of the notice of intention to appoint to landlords who were distraining. But in Minmar (929) Limited v Khalatschi  EWHC 1159 (Ch) the Chancellor held (in an obiter passage) that administrators had not been validly appointed where notice of intention has not been given to the company.
Release of office holders
Currently paragraph 98(2)(b) of Schedule B1 to the IA 1986 provides that an administrator obtains his release by a resolution of a creditors' committee or by a resolution of the creditors. Paragraph 98(3) of Schedule B1 to the IA 1986 goes on to provide that where an administrator makes a statement under paragraph 52(1)(b) of Schedule B1 to the IA 1986 (company has insufficient property to make a distribution to unsecured creditors), a resolution requires the approval of every secured creditor and (where distributions to preferential creditors have been or may be made) the approval of at least 50% of the preferential creditors by value. This implies that a normal resolution of all the creditors is required plus a resolution of all of the secured creditors.
The proposed amendments made by the draft Bill distinguish paragraph 52(1)(b) cases from non-paragraph 52(1)(b) cases. Thus, where the unsecured creditors have no interest in the administration (other than by virtue of the ‘prescribed part'), it will be clear that the unsecured creditors are not involved in the administrator's release - the release only needs to be given by (all of) the secured creditors (together with at least 50% of the preferential creditors if relevant) and is effective from the time they decide. It will not be necessary for the secured creditors to hold a meeting.
The Bill inserts a new subsection into section that states that the liquidator when a winding-up order is rescinded has his or her release with effect from the time the court may determine.
There draft Bill also makes some changes in relation to personal insolvency.
Deeds of arrangement
Deeds of arrangements in respect of individuals are abolished. This belatedly implements a recommendation in the Cork Report and recognises that they have been replaced by individual voluntary arrangements (IVA) and debt relief orders.
There is only one deed of arrangement still in existence, which was registered in 2004. This has its own saving provision. Deeds of arrangements are not necessarily binding on all creditors whilst IVA's are even where a creditor was unaware of the proposal at the time it was approved.
Statement of affairs
Currently in all bankruptcy cases a bankrupt is required to complete and lodge a statement of affairs with the Official Receiver, whether that is on a debtor's or creditor's petition. The amendments of section 288 IA 1986 provide that a statement of affairs is not required in a case where a creditor presented the petition unless requested by the Official Receiver. This mirrors the position where a company has been wound up by the court.
When in force?
There is no set deadline for the amendments to come into force, most are stated to do so on a date to be appointed. A committee of MPs and Peers will soon be appointed to begin scrutinising the draft Bill which it is proposed will come in to effect during 2014.
On the whole these are sensible amendments, largely clearing up points of practice. In addition the Bill proposes to introduce a system whereby insolvency practitioners can chose to qualify in either or both personal or corporate insolvency alone. Those partially qualified will only be able to practice in their chosen specialist area.
The requirement to give notice to these prescribed persons can lead to unnecessary delays in the administrator's appointment where there is no one else to whom notice of intention to appoint must be given and so the requirement is being removed. The prescribed persons will in any event receive notice of the appointment when it is made.
There are also some proposed amendments to the Directors Disqualification regime, including the ability of the Secretary of State to require people to provide information to him to enable a decision to be made as to whether proceedings should be commenced. More amendments have been proposed in the recent Transparency and Trust consultation paper recently published by BIS.
The removal of Deeds of Arrangement is really catching up with proposals that were made in 1984 and long overdue.
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