How will new insolvency rules affect creditors?
By Debbie Cockerton of DCA Business Recovery
Out with the old Insolvency Rules 1986 and in with the new Insolvency Rules 2016. The new rules have now been in effect since 6 April 2017 and although it has only been a few weeks since the change in the rules, have you or your clients noticed any difference? Have you noticed a change in the documentation, have you attended a ‘virtual meeting’ yet and if not, will you or your clients know what to do when the paperwork comes through the post?
I have previously advised members on the changes to the new rules, so I do not propose to go over the changes again, but thought that as an insolvency practitioner (IP) I would let you know how these changes are actually being implemented and how they will affect you and your clients.
I have read the new rules several times, attended numerous seminars and webinars and received loads of different emails and advice on the subject. All insolvency practitioners cannot now automatically call a physical creditors meeting and can use either a deemed consent procedure, or call a virtual meeting of the creditors.
We have opted to hold all of our virtual meetings via a webinar and creditors can attend using their computer or the telephone, and can also ask questions and see the statement of affairs and report to creditors. These documents would have already been posted to the creditors with the notice of the virtual meeting, but you can also see them on the screen.
A virtual meeting was unheard of previously and all insolvency practitioners knew how to hold the old Section 98 creditors meetings, although the number of creditors actually attending these meetings has dwindled over the years.
It is now vitally important that as soon as the first meeting is held between the IP and the director of a company all of the information is gathered, as under the new rules the statement of affairs and report presented to creditors is now posted to creditors prior to the virtual meeting being held. This gives creditors have the opportunity to ‘read up’ on what assets and liabilities the company has and why the company is in financial difficulties.
The notice of the virtual meeting is posted to the creditors, along with the Statement of Affairs, report to creditors, proof of debt, proxy form and the fee resolution report to creditors. The amount of paperwork that the creditors receive pre-meeting is a lot more substantial than under the old rules and can take quite some time to read through it all and to also understand it.
Creditors will still have to submit a proof of debt to enable them to vote and this has to be submitted by 4pm on the business day before the virtual meeting. A proxy will also have to be lodged by the time of the virtual meeting, if the creditor is not attending in person, or it is a limited company, who wishes to vote at the virtual meeting.
At every virtual meeting, there will also have to be a request put to creditors, to see if they require a Liquidation Committee. This is not just at the first virtual meeting, but at any future decision procedure. A committee must have at least three and no more than five members to be valid.
There will be a link or phone number on how creditors can join the virtual meeting and as there is no specific rule advising insolvency practitioners on how to actually conduct these virtual meetings, there are various options available to creditors and this can be quite confusing.
If creditors would prefer to have a physical rather than a virtual meeting, then they can make a request, but a physical meeting will only be held if the required majority is reached, which is the new ‘10/10/10 rule’. This means that 10% in value of creditors, 10% of the creditors, or 10 individual creditors must request the meeting and if none of these majorities are met, then the physical meeting will not be convened and the virtual meeting will go ahead.
If any creditor has a problem with joining in on the virtual meeting, and is therefore ‘excluded’ from the virtual meeting, then the virtual meeting can be adjourned for a short while in order to try to sort out any technical problems being faced. But if the creditor cannot join in, then they can make an appeal application, which will be especially important if that particular creditor could not vote at the meeting and their vote would have made a difference to the voting. This could mean that the meeting will have to be held again, and could delay the actual date that the company goes into any insolvency procedure.
All of these changes are quite daunting and can be very frustrating to creditors, who have already lost time and money in chasing the outstanding debt. They are already busy running their own company with all of the usual pressures that this entails.