In this update we examine Part 15 of the Insolvency (England and Wales) Rules 2016 which come into effect on 6 April 2017 and will apply to all insolvency proceedings. Part 15, being one of the “common parts”, concerns decision making – including the new prescribed decision procedures, non-physical meeting default and deemed consent procedures. These changes offer opportunities to insolvency practitioners (IPs) but also pose certain risks, as set out below.
Prescribed decision procedures
The change: The new rules prescribes five different ways in which an IP may seek a decision from creditors:
- by correspondence
- by electronic voting
- by virtual meetings
- by physical meeting
- any other decision making procedure enabling creditors to participate equally.
The use of physical meetings, correspondence and creditors’ portals will be familiar to IPs. However, how to conduct electronic voting and virtual meetings raises some questions and opportunities, which will no doubt be addressed and developed in new products being devised by various service providers. If an IP chooses to use electronic voting or a virtual meeting, notice must be delivered to creditors giving them information on how to participate.
The impact: Security of process will be the biggest concern to IPs trying out the more modern methods of decision procedure. For instance, how will you ensure that electronic votes are cast by the people entitled and that access details have not fallen into the wrong hands? How will you collect these votes and ensure that only those votes capable of being counted are in fact counted? And how do you ensure that any online broadcast of a virtual meeting is kept secure and confidential? These are just some of the issues IPs will need to consider in conducting prescribed decision procedures.
The change: From April 2017, physical meetings of creditors are all but abolished save for where requested by creditors in writing. The minimum number of creditors to request a physical meeting is (a) 10% in value of the creditors; (b) 10% in number of the creditors; or (c) simply 10 creditors. In order to be counted, a request must come no later than the date five business days after the date of delivery of the notice informing creditors of the decision procedure or deemed consent procedure to be used.
It falls on the IPs convening the meeting to check for physical meeting requests. Where the number of requesting creditors is sufficient, IPs will be duty bound to summon a physical meeting by notice within three days of a request threshold being passed. The result of a physical meeting is that any original decision or any deemed consent procedure is superseded by the decision of the physical meeting.
A creditor may also attend and participate in a meeting remotely where the IP so agrees.
The impact: IPs will need to regularly check the state of the creditors and requests received to keep on top of the threshold requirements so as to avoid any challenges on the decision making process. IPs will also need to consider whether they wish to allow creditors to attend remotely, whilst this might cause additional administrative burden, it could improve creditor engagement. IPs will also need to consider how to make sure that those attending remotely are in fact entitled to attend, and that confidential information is kept secured.
The change: Aside from prescribed decision procedures, the new rules also introduce a deemed consent procedure. Although this cannot be used for decisions in relation to remuneration or where otherwise prevented by the Insolvency Act 1986 (the Act) and the new rules, deemed consent can be used for any other decision.
Deemed consent is sought by delivery of a notice to creditors complying with the Act and the new rules. The notice must specify the matter concerned, the proposed decision to be made and information on how to object (amongst other information). Creditors have until the “decision date” to object to the proposed decision. The decision date being at the discretion of the convener but not less than 14 days from the delivery of the notice (but there are some exceptions to this in the rules).
The convener of the deemed consent process must monitor objections received very closely because if the 10% value, 10% number or 10 creditors threshold (as mentioned above) is passed then the deemed consent procedure terminates without a decision being made. If a decision is sought again, one of the prescribed decision procedures must again be used.
The impact: This should help speed up decision making – especially where a large body of creditors are likely to be in agreement with the proposed decision. It again will be important for IPs to ensure that they are up to speed on the status of the creditors, the numbers of objections received and from whom so as to be certain when the relevant objection threshold has passed. On the flip side, dissenting creditors could easily club together to frustrate use of this process.
The new rules introduce more flexibility for IPs in managing the decision making process. They open up new electronic methods of making decisions, prohibit physical meetings unless requested and provide for a process by which creditors can consent to decisions without actively needing to do anything. IPs will need to consider how the use of these new decision making processes will impact on their work and engagement with creditors. Key considerations will be security and confidentiality.