New insolvency rules introduced in April, will overhaul and modernize a system that has been in place for 31 years. A total of 28 amendments have been made since the Insolvency Act came into force in 1986, and the new rules will consolidate and generally streamline procedures.
Methods of communication between an office-holder and a company’s creditors during an insolvency procedure is just one of the areas targeted for change, the intention being to make the entire process more cost-effective and increase the amounts available for distribution to creditors.
So what are the major changes being introduced?
Insolvency terminology can be difficult to interpret, leading to misunderstandings by creditors and other parties. The new legislation aims to improve the type of wording used in forms and notices.
Unambiguous wording and less repetition of insolvency terms within the legislation, presented in a way that’s easier to understand, will help to avoid misinterpretation by all parties during an insolvency process.
Notices and documents have also been ‘standardized,’ with common parts applying to a number of different insolvency procedures. This should reduce red tape, and facilitate a smoother process overall.
The requirement to hold an initial meeting of creditors, also known as a Section 98 meeting, has been removed under the new legislation. Additionally, office-holders no longer need to organize a final meeting of creditors to present the accounts in liquidation.
Holding meetings was a costly process requiring either the use of an IP’s meeting rooms, or the hire of an external venue. They were rarely well-attended, however, and often represented a waste of time and money that could be better used for the benefit of creditors.
If 10% of creditors, by value or in total number, or 10 individual creditors, request an in-person meeting, the office-holder is obliged to make such arrangements. Information can now also be downloaded from a website, saving time delays and postage costs.
The new rules allow insolvency practitioners to present their proposals to creditors via letter, and proposals will be deemed accepted unless more than 10% (by value) of creditors object. Exceptions to this include when setting the IP’s remuneration, and approving a voluntary arrangement.
Other methods of providing consent to an insolvency practitioner’s proposals are available, including electronic voting systems and virtual meetings. The main goal under the new legislation is to facilitate a fair system that allows equal participation from all eligible creditors.
Creditors can now opt-out of receiving correspondence relating to the insolvency if they so wish, but also have the right to opt-in again at any stage. Not having to post out notices and other documents considerably reduces the time and cost of administration, with a modernized approach allowing easy access to information using technology.
Certain documents and notices can be downloaded from a website specified by the office-holder, again saving costs and encouraging a more streamlined approach by all parties. Exceptions include dividend declaration notices, and documents or notices that must be personally delivered.
Additionally, there is no need for an IP to seek a creditor’s consent to receive correspondence by email in some instances. If the debtor company has already been communicating with a creditor by email prior to their insolvency, it is assumed that consent has also been given for the IP to correspond in this way.
No formal application for claims under £1,000
Creditors’ claims of less than £1,000 can now be viewed as ‘small debts’ by the insolvency practitioner, and no longer require a formal application to the office-holder for repayment. Previously, the insolvency practitioner would have to determine the legitimacy of these claims, but they can now treat them as legitimate without the need for investigation. This reduces the associated time and administrative costs, and speeds up the entire process.
Source: Real Business Rescue