Last month saw the new Insolvency Rules come into effect as of 6 April 2017.
One of the key changes made relates to the holding of creditor meetings. These changes will impact on commercial contracts governed by English law. Many commercial contracts and leases contain an insolvency provision which defines “Insolvency” to include the holding of a creditors’ meeting in relation to one of the contracting parties. The fact that the party is deemed insolvent pursuant to this definition can, in turn, often give the other contracting party the right to terminate the contract. Any legal document with such a definition should be updated to take into account the changes in the insolvency rules.
No more creditors’ meetings
In the past a lot has been said about the lack of creditor involvement in insolvency procedures. To some the abolition of creditor meetings in corporate insolvencies will be welcome to others it may be seen as an erosion of creditor involvement.
From now on physical meetings in person will only be held if there is a request by creditors who in value or number amount to 10% of creditors or if requested by 10 individual creditors. In place of the old attendance at meetings creditors will have a prescribed range of decision making procedures.
The new rules allow for creditors consent to be deemed given. Where creditors’ decisions are needed it will be deemed to have been given and approved by them unless there is an objection by a minimum of 10% in value of creditors.
Certain key decisions cannot be made using the deemed consent procedure, however it can be used for the appointment of liquidators who in the Voluntary Liquidation process will initially be chosen directors of the company.
Insolvency Practitioners will be able to administer the insolvency using a prescribed range of decision making procedures. In addition to deem consent, the rules allow for decisions to be made by correspondence, electronic voting or virtual meetings.
Whilst this might seem to be a modern approach there is further modernisation. Creditors can be communicated by email as well as be secured websites where they can log in to access documents etc. Creditors may need to ensure that communications are not destined for their spam folder!
In the past creditors have complained about the amount of paperwork they receive where in fact there is no likely dividend. Such creditors can now opt out of receiving communications; however they will still receive key communications relating to matters such as notice of distribution and other prescribed notices. To reduce complaints and save costs the new rules provide for officeholders to advise creditors whose claims are under £1,000 that they are deemed to be agreed without any further process. If you are accreditor and receive such a notice in error as your claim exceeds £1,000 the office holder should be contacted without delay!
For creditors who want to take the self help approach they need to be aware that the new Insolvency Rules abolish the prescribed forms and that they will now need to ensure that and statutory demand or petition contains the prescribed information as set out in the new Rules. The Court Service, Companies House, HMRC and the Insolvency Service are producing their own forms which will be of use.
Creditors and practitioners will need to be aware of these changes and the others contained in the new rules, which may take some getting use to, given that the old rules were 30 years old!
Mayo Wynne Baxter have specialists who can give advice on all matters arising from insolvency of individuals or companies, should you wish to discuss any issues arising from the above please contact Darren Stone, Head of Insolvency at Mayo Wynne Baxter.