Next month sees the introduction of new insolvency rules (SI 2016/1024 “the New Rules”) which have the specific purpose of modernising and streamlining the existing rules (SI 1986/1925 “the 1986 Rules”), which have been amended 28 times since they came into force over 30 years ago.

The New Rules come into force on 6 April 2017 and have been drafted in such a way as to “future proof” the rules governing insolvency procedures against changes in technology and business practice.  The language used is more modern (for example, it is gender neutral) and the structure of the rules themselves has been simplified so as to make navigation easier. Rules common to several insolvency proceedings have been set out in one part rather than repeating them for each specific proceeding, as is currently the case. The New Rules also seek to give effect to policy changes introduced by the Small Business, Enterprise and Employment Act 2015 and the Deregulation Act 2015 which both amend the Insolvency Act 1986 (the main insolvency statute). The provisions from these Acts which affect the Insolvency Act 1986 also come into force on 6 April 2017.

The main changes to insolvency proceedings are as follows:

-        Statutory forms

There are no longer any statutory forms prescribed for insolvency proceedings. Specific provisions of the New Rules set out the required contents so as to avoid the necessity of the Insolvency Service updating forms. It does now mean that insolvency practitioners will have to update their own forms and certain statutory bodies may insist on their own standard forms – by way of example, it was announced on 20 January that the Insolvency Service would shortly start publishing its forms with prescribed content relating solely to Official Receiver cases.

-        Creditor meetings

Physical creditor meetings are now abolished as the main vehicle for decision making in an insolvency proceeding. The idea behind this is that physical meetings are costly to the insolvent estate; doing away with them should lead to a more efficient and enlarged returns to creditors.

-        Deemed consent

In the absence of a physical meeting, an insolvency practitioner (an “IP”) can now notify the creditors of a proposed decision and this is deemed approved unless more than 10% in value of creditors object to the decision.

-        Decision making

The New Rules also set out circumstances where decisions can be made, as an alternative to deemed consent, subject to certain restrictions.  These decisions can be made through correspondence, electronic voting, virtual meetings or still through physical meetings, if requested by either 10% in value of the creditors, 10% of the total number of creditors or 10 individual creditors (Part 15 of the New Rules).

-        Small debts

From 6 April 2017, IPs will be allowed to treat a debt of less that £1000 as proved (provided the debtor has a record of it) and therefore entitled to payment of a dividend.  This also represents a policy change, avoiding the costs incurred of investigating relatively small debts, which could often be more than the debt owed itself.

Conclusion

The policy decisions behind the implementation of the New Rules are commendable – the industry can only benefit from having a modernised framework within which to deliver faster and more efficient communication and returns to creditors, with less regulatory burdens and red tape. It remains to be seen, however, whether these changes will actually lead to increased dividends to creditors overall.