It will be important to keep making representations to the Insolvency Service and Parliament as to how these changes work (or don’t work) particularly in areas of great concern such as fee estimates, and compensation orders.
The Deregulation Act (which deals with a myriad of things from driving instructors to “sellers of knitting yarn”!) deals with companies and insolvency in three short sections at sections 17, 18 and 19 and schedule 6. Only section 17 is substantive. Section 18 deals with audit and section 19 merely refers to Schedule 6.
The main changes for 1st October are:
- It introduces partial licenses for insolvency for either personal or corporate practice. This applies to new entrants to the market not existing license holders. The profession lobbied against this change in vain, in particular regarding corporate practice. If an IP is dealing with a partnership or rather an individual partner with partnership debts, the IP will need both licenses.
- The Insolvency Service itself will no longer directly regulate office holders so those licensed by the Insolvency Service are given a year to make an application to a different RPB.
- It “simplifies” when to report to creditors about appointing and releasing administrators through provisions which negate, in certain circumstances, the need to hold physical meetings and gets rid of the need for a notice of intention to appoint where there is no QFCH or entity entitled to appoint an administrative receiver.
- Banks will no longer be liable if after acquired money is withdrawn by bankrupts unless the bank had notice the funds were specifically being claimed for the bankrupt estate. This change has meant that banks have at least said they will be more willing to give bank accounts to bankrupts.
The Small Business, Enterprise and Employment Act 2015 is also very wide-ranging. The main 1st October 2015 changes are:
- The Act strengthens the regulation of IPs and the role of the Secretary of State, through the Insolvency Service. The Insolvency Service will be able to apply to a court to sanction an IP directly, though it is generally to act as an oversight body for the RPBs and sanction them if they aren’t doing a good enough job. The power to apply to court to directly sanction an IP in the public interest applies to conduct on or after 1st October 2015, whatever the date of appointment.
- Changes to the disqualification regime allowing for the Secretary of State to apply for compensation orders to compensate victims. The Service says it will be consulting the profession about this change. Directors will also be able to be disqualified for offences committed abroad. The Service will now have three years rather than two to bring applications. Several of these changes came from the “Transparency & Trust” consultation conducted by BIS last year. The new reporting of directors’ conduct is not in force until next Spring, however.
- It simplifies when to report to creditors about appointing and releasing administrators through provisions which negate, in certain circumstances, the need to hold physical meetings. No notice of intention to appoint will be necessary where there is no person who can appoint an administrative receiver or under a QFC. The approval of unsecured creditors is not required before an administrator can obtain his or her release in cases where a paragraph 52(1)(b) statement has been made.
Insolvency (Amendment) Rules 2015 changes from 1st October include:
- The need for IPs to give fee estimates to creditors for time costs where they are used and for creditors to approve them and any increases. This may be problematic in investigation cases in particular.
- DROs - debt level goes up to £20,000 and assets to £1000 (plus car worth £1000)
- The bankruptcy creditor petition level is increased to £5,000 from £750. This is to remove the risk of bankruptcy and its costs from those individuals with small debts.
The Insolvency (Protection of Essential Supplies) Order 2015 also comes into effect on 1 October. The Order allows the Secretary of State to amend sections 233 and 372 of the Insolvency Act 1986 to:
- Add IT suppliers as well as ‘on-sellers’ and intermediary providers, to the list of suppliers prevented from seeking “ransom payments” from insolvent companies.
- Insert new provisions preventing suppliers from relying on their insolvency-related contractual terms to charge higher prices or terminate the contract just because a business enters into Administration or a voluntary arrangement
However such suppliers can then:
- Ask the IP for a personal guarantee as a condition of continuing the supply;
- Terminate supply where payment for post-insolvency supply remains outstanding 28 days after payment is due;
- Terminate supply with the permission of the court.
This is just the start of the changes so there will be a lot of settling in, but there are many more changes to come so it is all going to have a cost to the profession as well as creditors at least in the short term.
Frances Coulson (email@example.com)
This is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information contained here