The Small Business, Enterprise and Employment Act (the “Act”) became one of the last acts of the current Parliament when it received Royal Asset on 26 March 2015. The Act includes important changes for insolvency practitioners and other participants across the entire restructuring & insolvency market, tucked away amongst a hotchpotch of other subjects (pub code adjudication, childcare and schools and significant changes to company law, to name a few!).
Claims for sale
Perhaps the most interesting change in the Act will allow insolvency practitioners to assign causes of action, including the proceeds of any action, for wrongful and fraudulent trading, preferences, transactions at undervalue and extortionate credit transactions to third parties. Whether a side industry emerges to routinely purchase such claims remains to be seen, but the opportunity for officeholders to obtain and distribute cash more quickly by assigning claims will no doubt be welcomed by creditors. If assignment becomes the norm, we may also see more claims being pursued, and with it the number of successful claims against miscreant directors.
The assignability of claims also adds to the diverse range of assets which can be put up for sale in formal insolvency procedures. Another notable recent example is the sale of a section 75 debt by the pension trustees of Kaupthing, Singer & Friedlander in November 2014.
Continuing the movement towards functional parity between administrators and liquidators, administrators will be given the power under the Act to bring wrongful and fraudulent trading actions, a power currently enjoyed only by liquidators. Despite lobbying efforts led by R3, creditors’ meetings will be removed as a default requirement, and other measures will be introduced to simplify the work of IPs:
- abolishing liquidators’ need to obtain sanction for all of the actions listed in Schedule 4 of the Insolvency Act 1986 (which includes paying any class of creditors in full and making any compromise or arrangement with creditors);
- allowing administrators’ terms of office to be extended by 12 months by consent, rather than 6 months currently; and
- accelerating the timeline for striking-off companies (which will take place 2, rather than 3, months after publication in the Gazette).
In addition, the regime for directors’ disqualification is being expanded:
- misconduct abroad will now be capable of leading to disqualification in the UK;
- persons instructing unfit directors may themselves be subject to disqualification;
- there will be 3 years post-insolvency to bring disqualification proceedings (rather than 2 years currently); and
- directors will be required to compensate creditors, individually or as a class, who have suffered loss as a result of their misconduct.
Following recommendations by the Graham Review into Pre-pack Administration in June 2014, the Act gives the Secretary of State a reserve power to introduce regulations prohibiting or restricting sales by administrators to connected persons. As ever the devil is in the detail: the definition of “connected persons” in the Act is broader than that in the Insolvency Act 1986 and will capture companies with any shared directors, even when there has been a gap between the resignation from one company and the appointment to the board of another.
The Department for Business, Innovation & Skills has indicated that the Act will be implemented in phases, with the measures set out above beginning in May 2015, and full enactment by April 2016.