On 1 October 2015, several changes to UK insolvency legislation are coming into force. Insolvency practitioners and stakeholders should take note of the following key amendments to make sure they are up to date with these changes.
The amendments are the next raft of changes to insolvency law under the Small Business Enterprise and Employment Act 2015 and the Deregulation Act 2015. The previous changes, brought into force on 26 May 2015, are detailed here.
IPs seeking to charge on a time costs basis in an administration, CVL, compulsory liquidation or bankruptcy must provide creditors with an upfront estimate of their fees. The estimate has to be approved by creditors (including any subsequent increase in that estimate) prior to the IP being entitled to draw any funds from the insolvency. Further detail can be found here.
Liquidators and administrators will have the option of assigning any claim they may have against former directors or parties who have improperly received funds prior to the onset of insolvency. This will include TUVs, preferences, extortionate credit transactions and fraudulent or wrongful trading actions.
- Serving of notices– notices of intention to appoint an administrator will no longer be required to be served on the company itself or on other prescribed persons where there is no qualified floating charge holder.
- Essential Supplies– The scope of what constitutes an “essential supply” for the purposes of trading a business in administration will be widened to include IT services such as chip and pin, broadband and wifi. Read more here.
- Wrongful/Fraudulent Trading– Administrators will have the power to bring wrongful or fraudulent trading actions against former directors. Such claims were previously only open for liquidators to pursue.
- Overseas convictions– the Secretary of State will now have the power to disqualify any person who has been convicted of a company-related offence abroad, providing that such a conviction occurred on or after 1 October 2015.
- Extension of Period– the period within which the Secretary of State can apply to Court for a disqualification order has increased from 2 years to 3 years.
- Information Provisions– the Secretary of State will be able to rely on information received from other regulators relating to the conduct of the director in question.
- Compensation Orders– disqualified directors may be required to compensate creditors for losses suffered as a result of their misconduct. However, this will only apply to conduct that has taken place on or after 1 October 2015.
- Matters Considered– further clarification has been given as to what the Secretary of State or a Court must take into account when making a disqualification order. This will include whether the director has breached any laws or regulations, the frequency of such conduct and any harm that such conduct has caused.
The above amendments can generally be seen as empowering IPs, creditors and government bodies by providing them with additional tools that they can use to (i) recover assets on behalf of insolvent estates; and (ii) punish those whose conduct was culpable in the insolvency.
It remains to be seen how IPs and creditors will utilise the power to assign officeholder claims, given that IPs are still entitled to pursue such claims on a CFA/ATE basis providing that litigation funders are comfortable with the merits of the claim and the financial viability of the target. It may be that only those claims with a significant amount of risk are assigned, allowing the IP to make quick cash recoveries and passing on the speculative claims to those who have either the appetite or the resources to pursue it. There is of course also the additional danger that a cause of action could be assigned to a party who has no intention of pursuing the wrongdoer, either because they are connected or have another vested interest in the potential respondent to a claim.