It was far from a secret that a veritable smorgasbord of phased changes to insolvency law were coming in on 1 October. The legal and insolvency press has been riddled with it, and frankly the flavours were all a bit predictable. The commentators falling over themselves to ask mundane questions such as “are you ready for…?” and “what will happen now…?” are really just asking “we are really up to date on the new law, aren’t we brilliant?”; of course you are, but you’re not getting any marks for originality.
I didn’t think it would be worth my adding yet another similar ingredient to the already overworked mix. But then it came to my attention today that the majority of commentators had missed something, that the government had slipped in a few last minute changes, (the Deregulation Act 2015 (Commencement No 3 and Transitional and Saving Provisions) Order 2015 (SI 2015/1732), 29 September). These were things which weren’t supposed to be in the recipe at all, or at least not bubbling to the surface just yet. Some of these are really quite helpful.
A quick recipe round up therefore seems in order. See if you can earn the Star Baker award by working out which steps are the unexpected ones.
Recipe for new insolvency regime mash-up
1. Entry to kitchen: Specialists welcome!
Don’t know how to cook with bankruptcy? It’s alright, you are now welcome even if you are qualified in corporate insolvency only. And vice-versa. Old style Voluntary Arrangement specialists, however, will be turned away at the door. Keep an eye on the entry rules, though, because we’re also tinkering with who can licence you to cook in the first place; it might eventually be a monopoly.
2. Place ingredients on high shelf: New Bankruptcy level up to £5,000
At least we now know the thinking behind the height of this new threshold (see my September insolvency blog here) but will placing the jar marked ‘creditor bankruptcy petitions’ beyond the reach of some cooks and taking the jar marked ‘debt relief orders’ out of the low cupboard really improve productivity in the kitchen, and through this returns for creditors?
3. Secure your Essential Supplies: Utilities and IT
You can’t bake very well if someone turns off the power, gas, water and (nowadays) internet. Fortunately cooks are now to benefit from the Insolvency (Protection of Essential Supplies) Order 2015, at least for the next year until the government assesses its impact. The quid pro quo is that you will have to agree to pay for those supplies yourself, even if your dough later doesn’t rise for some reason.
4. Make your base: New Insolvency Practitioner Fee Estimates
Bakers are to obey the Insolvency (Amendment) Rules by seeking approval of fee estimates before they start to bake. However we are not going to elaborate on this part of the recipe at all, leaving bakers guessing and grabbing for copies of the less than helpful Dear IP #68 and eagerly awaiting the publication of revised SIP 9 (due on 1 November, to take effect from 1 December). If you underbake or overcook your estimates you will very likely be left with a runny or crumbly base which won’t stand up to detailed scrutiny. Others may try to avoid the need for a base altogether by trying to take all their fees up front.
5. Don’t slip up on the spillage: Invalid Administration appointments where no QFCH
Your bake will be no good if you fall on your backside in front of the oven. Fortunately, failure to give notice to “prescribed persons” in out-of-court administration appointments where there is no qualifying floating charge holder will no longer leave a bad taste in your mouth. Para 26 Schedule B1 is amended to make clear that sub-paragraph (2) only applies if sub-paragraph (1) also applies.
6. Attention to timing and detail: After-acquired bankruptcy property and bankers
Only the very sharp eyed cook will note that something as apparently innocuous as s.16 Schedule 6 Deregulation Act 2015 actually affects their right to hold a bank responsible for after-acquired money passing through their accounts. The amendments to s.307 Insolvency Act 1986 now in force mean in effect that even where the bank is well aware of an accountholder’s bankruptcy, the trustee will need to serve a separate notice on the banker in order to have any remedy against the bank if it pays out after-acquired property which has been properly claimed by due notice to the bankrupt. Given that a trustee already has to act fast to claim such funds, and given that funds can now be wired electronically at the drop of a chef’s hat, and add to that the difficulty of identifying exactly who at a bank should be served, and the final bake looks bad for the trustee. It does, however, deprive banks of one excuse for not offering post-bankruptcy accounts to undischarged bankrupts, so that at least is to be applauded.
7. Show your skills, or sell up your slot
Administrator bakers can now for the first time bring claims for (fraudulent or) wrongful trading, considered by some to be the signature bake of insolvency practitioners. If you find that all a bit too difficult, though, it’s a comfort to know you can also now assign pretty much any cause of action which only an office holder used to be able to pursue. And this without fear that the QFCH in the corner will have first dibs on the fruits of your labours. This is really untested territory and it will be interesting to see how litigation funder and insurer specialist chefs see their role in the kitchen now that, in theory, even the novice cook director or aggrieved creditor could pay for the opportunity to try their hand at some of the more difficult bakes. All thanks to ss.117 to 119 Small Business, Enterprise and Employment Act 2015.
8. Exit gracefully: Administrators discharge where no distribution to unsecured creditors
When your time in the tent is up, there is no need to make a big noise about it. Administrators who have made a paragraph 52(1)(b) statement will now be able to secure their release by agreement on a release date with the relevant creditors. If those include preferential creditors holding more than 50% of preferential debts and they do not respond to the administrator’s invitation to set that date, the agreement of the secured creditor alone suffices.
9. Out with the old: Deeds of Arrangement
Old recipes do not always lead to a classic bake. Even the great Mary Berry updates hers to take account of new methods. The 1914 Deeds of Arrangement Act has finally been consigned to the kitchen bin. Gentle applause.
10. Hang on to your bake: New powers within Director Disqualification regime
It used to be the case that only an insolvency practitioner appointed in respect of a company could be compelled by the Secretary of State or Official Receiver to furnish information about former directors’ conduct and to produce and permit inspection of books, papers and other records appearing to be relevant. Now that power (under s.7(4) CDDA 1986) extends to “any person” (who can thus be summoned to attend upon them) it is to be expected that the Insolvency Service will not necessarily need to routinely round up all of the company’s books and records for their investigation, which currently leaves office holders in occasional difficulties trying to progress directors’ loans and other claims where the prospective Defendant may demand access to the records in order to meet the case against them.
At the end of your bake, you should have a curiously underdone but nevertheless quite appetising mess of revised insolvency law. Much of it will look ghastly (who wants to see the introduction of sections 246ZA to ZC in the Insolvency Act 1986 for example), some of it will taste rather bitter until you get used to it (such as the new fee estimates regime) whilst still other parts, not featured above, will be seen as rather unnecessary decoration which add nothing at all to the final result. The Star Bakers amongst you will have noted that it was steps 5, 6 and 8 above which were not in the expected changes so widely written about in advance of 1 October. Of course, if these changes were being introduced in a coherent fashion, it would not be necessary for us to engage in these “spot the difference” type exercises, and we would all know where we stood before new legislation came into force, but that is a counsel of perfection which no government yet has managed to achieve in the insolvency sphere.
Clearly there is much more yet to come into the mix, including rather more flavoursome changes to the Directors’ Disqualification regime which (like the fees regime changes) will give rise to many a training opportunity, and the cherry will not even nearly be put on the top until the revised Insolvency Rules have come into force next year. What we have seen to date, however, displays to my mind some level of progress and just enough tinkering with the accepted way of doing things that it has the capacity to trip up one or two practitioners who are loth to update their habits. This is certainly a time to keep a close eye on developments, and in particular to guidance coming out from R3 and others.
(Warning: this blog may contain poor Bake Off inspired metaphors)