Changes in Insolvency Law, effective from 26 May 2015
Following the coming into effect of the Small Business Enterprise and Employment Act 2015, a number of changes in Insolvency Law take effect from 26 May 2015 (”the effective date”):
Removal of the need for sanction for the exercise of powers by Liquidators and Trustees in Bankruptcy
From the effective date, there is no longer a necessity for a Liquidator or Trustee in Bankruptcy to seek sanction to exercise powers that previously required such sanction from the court or a creditors’ committee, or if there is none, from the Secretary of State or a meeting of creditors. The only exception is the operation of a local bank in cases where funds are otherwise required to be held at the Insolvency Services Account, where the requirement for sanction continues.
An Administration automatically comes to an end on its anniversary. Previously, it was possible for an Administrator, with creditors’ consent, to apply for a six-month extension in cases where it was necessary for the Administration to continue for longer than one year. From the effective date, that extension period has been increased to a specified period not exceeding one year.
Distributions to unsecured creditors out of the Prescribed Part, can from the effective date be paid by an Administrator, without the need for court permission or for the company to be placed into Creditors’ Voluntary Liquidation (“CVL”). The move to CVL can now only be made in order to make a distribution that is not part of the Prescribed Part, to unsecured creditors.
A new provision has been made to the effect that the Administrator’s power to sell property will be subject to any regulations, which may be made in relation to sales or disposals to connected parties in certain circumstances. No such regulations have however been made to date. (This provision enables government to create regulations governing the sales to connected parties in so-called pre-pack deals, in the event that other provisions soon to be introduced by the insolvency profession voluntarily, prove to be insufficiently effective. )
Scotland – attachment of floating charges
In Scotland, a floating charge will crystallise when the court gives permission to the Administrator to make a distribution to unsecured creditors.
Removal of the requirement for small creditors to prove their debts in company insolvency and Bankruptcy
This provision provides for rules to be introduced (which have so far, not been made) to enable a Liquidator or Trustee in Bankruptcy to pay a dividend to a creditor without the need for the creditor to submit a proof of debt, where the amount of debt falls below a prescribed minimum, currently thought to be likely to be £1,000. The office holder may do so based on the figure that appears in the statement of affairs or the insolvent’s accounting records.
Time-limit for challenge
From the effective date, the 28 day time limit in cases where there is no interim order runs from the date the creditors decided whether to approve the IVA. Previously there was no time-limit in these cases.
Abolition of fast-track IVAs
The provisions for fast-track IVAs have been removed from the legislation.
Voluntary winding up – Progress reports
The legislation has been clarified to confirm that a progress report must be issued if the liquidator changes within the first year of the liquidation.