The following changes which came into effect on 1 October 2015 will be of interest to insolvency practitioners and other professionals who deal with insolvency law:
- Bankruptcy Limit - The Bankruptcy threshold is increased to £5,000 (for a detailed discussion on the likely impact of this on small businesses follow the link: https://www.linkedin.com/pulse/where-5000- bankruptcy-limit-leave-small-business-lee-donoghue)
- DROs - The debt threshold for debt relief orders will increase to £20,000 (up from £15,000). Debtors with assets up to £1,000 will be eligible (up from £300).
- Costs Estimates - Insolvency Practitioners will now be required to provide a written estimate of costs and expenses in all cases where they propose to charge their fees for acting as an administrator, liquidator or trustee in bankruptcy on a time cost basis (other than in MVLs). These must be provided to each creditor of whose claim and address they are aware, before the IP asks creditors (or the court) to fix the basis of their remuneration on a time cost basis:
The fees estimate must state:
- Details of the work the insolvency practitioner and his staff propose to undertake.
- The hourly rate or rates the insolvency practitioner and his staff propose to charge for each part of that work.
- The time the insolvency practitioner anticipates each part of that work will take.
- Whether the insolvency practitioner anticipates the fees estimate will be exceeded so that further approval of the excess will be necessary (and why).
If the IP proposes that he is paid by a fixed fee or as a proportion of asset realisations they must still provide to each creditor details of anticipated expenses.
In progress reports to creditors, the IP must include a statement setting out whether at the date of the report their fees or expenses have exceeded or are likely to exceed the estimates given before the basis of their remuneration was set, and if so why. If the IP predicts fees will exceed the estimate he must seek approval in the same way the fees estimate was originally approved.
- Simplification of record keeping requirements - instead of keeping prescribed information on file IPs will have a more general requirement to maintain records sufficient to show and explain:
- The work they and their staff undertake in the course of the "administration" of an insolvency appointment.
- The decisions that "materially affect" the appointment.
The obligation on IPs to notify their recognised professional body of the whereabouts of their records in each case is also removed.
- Power for administrator to bring claim for fraudulent or wrongful trading - This is a welcome change as it will avoid the need to convert to CVL in many cases.
- Power for Liquidators and Administrators to assign causes of action - in respect of transactions at undervalue, preferences, wrongful trading and fraudulent trading claims. The extent to which 3rd parties will be interested in taking assignments and the terms on which they will do so will only become clear as cases develop.
- Proceeds of Office Holder Claims - These are no longer available to pay secured creditors holding floating charges.
- Protection of essential supplies - Terms in contracts entered into after 1 October 2015 that purport to allow suppliers to terminate contracts or charge premiums upon insolvency will be void. Suppliers will only be entitled to terminate in the event an IP fails to guarantee payments or meet payments within 28 days after supply. Otherwise, permission to terminate will have to be sought from the Court. Protection of essential supplies is also extended to IT services providers.
- Other regulatory provisions related to RPBs and authorisation of individuals to act - These changes are outside the scope of this article. It is expected that IP’s RPBs will have already notified them of the relevant changes in this respect.