Rules Modernisation Update with Stakeholder Commentary –March 2010

Insolvency Service Policy Unit has successfully delivered the second phase of modernisation of the Insolvency Rules.

 Following on from the new insolvency advertising regime delivered in April 2009, the following instruments have been made and laid in Parliament, and will come into force from 6th April 2010: 

·        The Legislative Reform (Insolvency)(Miscellaneous Provisions) Order 2010 (2010 No.18)

·        The Insolvency (Amendment) Rules 2010 (2010 No.686);

·        The Insolvency (Amendment)(No 2) Rules 2010 (2010 No.734);

·        The Insolvency (Scotland) Amendment Rules 2010 (2010 No. 688); 

The Legislative Reform (Insolvency) (Miscellaneous Provisions) Order 2010 was required to make changes within the Insolvency Act to permit the extensive modernisation changes planned for the Insolvency Rules. 

Each of these instruments can now be viewed on the OPSI and Insolvency Service websites.  

The changes implemented by the project to modernise the Insolvency Rules will provide estimated annual savings of £48 million in the cost of administering insolvencies, including the advertising changes in April 2009. These savings are expected to be passed on to creditors in the form of improved returns and the new e-delivery provisions will also provide for a significant reduction in  the insolvency carbon footprint. The amendment Rules, by their nature, amend the Insolvency Rules 1986.  

The changes will deliver benefits for stakeholders, including: 

Insolvency Practitioners/Lawyers

  • Insolvency practitioners will be able to send insolvency notices and reports electronically (with the consent of the recipient) and by website. This will result in significant cost savings.
  • Insolvency practitioners will be able to offer remote attendance at creditors and company meetings, removing the need and cost of securing a physical venue for the meeting in many cases.  
  • Pre-appointment administration costs will be recoverable as an expense with the express agreement of the creditors.
  • A streamlined process for “disclaiming” will enable liquidators and trustees in bankruptcy to deal with onerous property more quickly and efficiently.  
  • Annual meetings in voluntary liquidations have been abolished and replaced with annual reports, to match those which are already produced in administrations. This will stop costs being wasted on arranging meetings that were rarely attended and ensure that all creditors receive regular information.

Creditors

  • There will be better returns from insolvency procedures as insolvency practitioners are able to save money by taking advantage of electronic means of communication and simplified administrative processes. These savings are estimated to amount to around £30m a year.  
  • Creditors will be able to receive information from insolvency office-holders in a modern, more convenient, way and have the opportunity of attending meetings of creditors remotely. This will make it easier for creditors to get involved with insolvency processes.
  • Creditors will benefit from greater transparency in respect of insolvency practitioners’ fees, information on which will be provided to them in regular reports.
  • Creditors will have new rights to request fuller information and explanations of anything contained in the office-holder’s report, plus clearer rights to challenge any excessive fees and expenses.
  • Documents in corporate insolvencies will be more accessible as they will be filed at Companies House instead of the court.

Debtors and Others

  • Individual debtors facing bankruptcy who are at risk of violence may apply to court for an order to limit disclosure of their home address.
  • Debtors wanting to declare themselves bankrupt will not have to go to the trouble of finding someone to swear the documents in front of, as all requirements for affidavits have been abolished and replaced with statements of truth.
  • A bankrupt who can repay all the debts and expenses of their bankruptcy will have a new right to challenge their trustee’s remuneration and expenses at court if they consider the amounts charged to be excessive.
  • To make it easier for a bankrupt to obtain an “annulment” of the bankruptcy order in circumstances where they propose to pay the bankruptcy debts and expenses using third party monies or by means of a subsequent remortgage of property.
  • Public notices of insolvency events in the London Gazette and other media will follow a standardised format to ensure that users such as credit reference agencies will have access to the information they need in a more consistent way.   “

The next phase of the Rules Modernisation is the work on simplifying the drafting of the Insolvency Rules by rewriting and reordering them for easier use, incorporating a review and probable removal of most of the prescribed forms within the Rules. We also want to pick up any issues flowing from the practical implementation of the April 2010 Modernisation changes. This final phase to the project involves the preparation of a new set of Insolvency Rules, a draft of which will be published for comment in due course.

Commentary on April 2010 changes to the Insolvency Rules 1986 

1.1       The  2010 Rules amendments adopt the now standard gender neutral drafting style (except we have continued to use the word “chairman”, because that word is also to be found in unamended Rules: its continued use will be reconsidered when we deliver the complete Insolvency Rules in a new restructured and reordered instrument. Wherever sensible the amended Rules also apply the Civil Procedure Rules (“CPR”) and adopt CPR language. 

1.2       We have taken the opportunity presented by the significant amendment of much of what currently is in Part 12 of the Rules to create a new Part 12A. This includes much new material and some of the old which ought logically to be associated with it. Some of the old Part 12 however remains.  We hope the creation of the new Part 12A will be seen as “user friendly”.  

2.         Stakeholder engagement and Modernisation themes

2.1       Since the start of the Modernisation project, The Insolvency Service Policy Unit has received a very high level of feedback from stakeholders on changes that they would wish to see applied in the modernised Rules. We have welcomed this engagement which has contributed greatly to the legislative changes that are being delivered. Whilst many of the changes suggested have resulted in small revisions which can improve the practical application of the Rules, there are also many overarching modernisation “themes” which have driven changes throughout the Rules. The commentary below provides a summary of the main themes where changes will be seen from 6th April 2010. Under each theme reference to particular Rules may be given as examples of the changes being made. 

2.2       The themes are –  

·        The Legislative Reform (Insolvency) (Miscellaneous Provisions) Order 2010 (paragraph 3)

·        Advertising Rule changes (paragraph 4)

·        Standard contents for “gazetting”  (paragraph 5)

·        Standard contents for advertising otherwise than in the Gazette (paragraph 6)

·        Meetings and resolutions (paragraph 7)

·        Official receiver (paragraph 8)

·        Creditors’ and liquidation committees (paragraph 9)

·        Disclaimer procedure (paragraph 10)

·        Court procedure and practice (paragraph 11)

·        Applications for private examination under sections 236, 251N and 366 (paragraph 12)

·        Public examination under sections 133(1) and 290(1) (paragraph 13)

·        Filing in court: rationalisation and removal of unnecessary filings (paragraph 14)

·        Affidavits (paragraph 15)

·        Ex parte (paragraph 16)

·        Leave of the court (paragraph 17)

·        Deponents (paragraph 18)

·        Parts 1 and 5 (CVAs and IVAs): miscellaneous modernisation and harmonisation (paragraph 19)

·        Removal of the requirement to report to court in certain voluntary arrangements (paragraph 20)

·        Remuneration, expenses and reporting (paragraph 21)

·        Provision of “receipts and payments” account on resignation of office holder (paragraph 22)

·        Creditor and debtor bankruptcy petitions (paragraph 23)

·        Block transfer orders (paragraph 24)

·        Verification of a statement of affairs (paragraph 25)

·        Claims and distributions (paragraph 26)

·        Limited disclosure (paragraph 27)

·        Amendments to Part 4 Chapter 22 (leave to act as director etc. of company with prohibited name) (paragraph 28)

·        Part 3 (Administrative Receivership): miscellaneous amendments (paragraph 29)

·        Amendments relating to the EC Regulation on Insolvency Proceedings (paragraph 30)

·        Electronic delivery (paragraph 31)

·        Service of court documents (paragraph 32)

·        Forms (paragraph 33)

·        Authentication (paragraph 34)

·        Annulment Changes (paragraph 35)

·        Insolvency Registers (paragraph 36)

·        Victims of Violence (paragraph 37)

·        Inland Revenue (paragraph 38)

·        Deceased office-holders (paragraph 39)

·        Definitions (paragraph 40)

·        Schedule 2 (paragraph 41)

·        Schedule 5 (paragraph (42)

 

3.         Legislative Reform (Insolvency) (Miscellaneous Provisions) Order 2010 

3.1       The Legislative Reform (Insolvency) (Miscellaneous Provisions) Order 2010 (the LRO) was made on 6 January 2010 and will come into force on 6 April 2010. 

3.2       The LRO amends the Insolvency Act 1986 so as to reduce administrative burdens and thereby permit financial savings to be passed on to creditors.   

3.3       Specifically, it (a) permits certain new procedures, (b) removes certain burdensome requirements and (c) removes inconsistencies between the Act and the Rules.   

3.4       The new procedures under (a) are-

  1. permitting remote attendance at meetings ;
  2. permitting the use of websites to communicate information.

 

3.5       The burdensome requirements removed in (b) are-

  1. removal of the requirement to hold annual meetings in creditors’ and members’ voluntary winding up in England and Wales;
  2. removal of the requirement to report to court in certain voluntary arrangements;
  3. removal of the requirement for sanction for certain acts by the liquidator or trustee in bankruptcy.

 

3.6       The inconsistencies removed in (c) are-

  1. permitting things required by the Act to be in writing to be in electronic form;
  2. removing the requirement for certain documents in the Act to be sworn by affidavit.

 

3.7       The items in (a) and (b) (i) and (ii) require either new rules or amendments to existing rules.  Item (b) (iii) has no effect on the Rules. 

3.8       The items in (c) allow the Rules to make uniform provision in certain areas without the need to make separate provision for matters where requirements under the Act are different. 

4          Advertising Rule changes

4.1       The amending Rules contain a small number of amendments to the new advertising regime introduced in April 2009.  These are mainly minor or technical changes but they do include some new advertising requirements. An example of a technical amendment can be found in respect of provisional liquidators in the amendments to Rule 4.31 removing the requirement to give notice of removal from office when a winding up order is made. An example of a new requirement to advertise can be found in the amendments to Rule 4.106. 

5          Standard contents for “gazetting”

5.1       The amending Rules introduce “standard contents” provisions. These requirements are intended to ensure that all gazetted notices include the necessary information that readers of the gazetted notice may need in respect of the insolvency concerned. They are introduced in response to stakeholder representation. They are not expected to give rise to any increase in the cost of gazetting.    

5.2       The expression “standard contents” is to be defined in Rule 13.13 and the “standard contents” provision is contained in the new Rules 12A.33 to 12A.35. It works by applying in all cases where notices are gazetted, but it does not displace additional requirements as to contents contained in the Insolvency Act 1986 or the Rules. In order to assist users of the Rules we have adopted a drafting style in the main body of the Rules that reminds the reader, where additional contents are to be included, that these are additional to the standard contents.  Good examples of this can be found in the amendments to Rules 1.40, 1.42 and 3.9. 

6          Standard contents for advertising otherwise than in the Gazette

6.1       The amending Rules introduce a new requirement as to standard contents for notices advertised otherwise than in the Gazette. These notices are discretionary on the part of the insolvency office-holder. The provisions are contained in new Rules 12A.38 to 12A.41. These requirements are a “cut down” version of the required minimum “standard contents” for gazetted notices reflecting the required minimum for these adverts and increasing the discretion available to an insolvency office-holder as to contents. These requirements apply in the same way as those for gazetted notices.  The definition “standard contents” includes the standard contents for advertising otherwise than in the Gazette. 

6.2. The new advertising provisions introduce the possibility that advertisements might be contained in media other than newspapers.  It therefore becomes important to ensure that where information must be provided it must be provided in a way that is likely to lead a person needing to hear, see or read the information to be able to do so.  For that reason Rule 12A.41 (1) is introduced.   

7          Meetings and resolutions

7.1       Inconsistencies are eliminated between various provisions relating to meetings, in particular of creditors, in different types of insolvency procedure, particularly in respect of the lodging of proofs and proxies and the adjournment of meetings; and the minimum period of notice for meetings is reduced from 21 to 14 days (other than final meetings in a liquidation or bankruptcy, where the minimum notice will be 28 days). 

7.3       Resolutions may be adopted by correspondence in winding up and bankruptcy as is already the case in administration. 

7.4       Provision is also made facilitating remote attendance at meetings (see new Rules 12A.22-12A.27). 

7.5 The power of the court to order that notice of a meeting be given by advertisement only, already present in liquidation and bankruptcy, is being extended to administration. 

8          Official receiver

8.1       It is expressly provided that the official receiver may not be appointed liquidator or trustee in bankruptcy by a meeting of creditors, contributories or company members. 

9          Creditors’ and liquidation committees

9.1       Paragraph 57 of Schedule B1 to the Act (administration) provides for the establishment of a creditors’ committee by a meeting of creditors.  In Chapter 7 of Part 2 (administration procedure – the creditors’ committee) the amendments include the following.  Rule 2.50 provides that any creditor of the company is eligible to be a member of the creditors’ committee so long as that person’s claim has neither been wholly disallowed for voting purposes, nor wholly rejected for the purpose of distribution or dividend; and is not fully secured. 

9.2       Rule 2.52 provides that after the calling of the first meeting of the committee, the administrator must call a meeting if requested by a member of the committee.  This Rule has been amended to provide that such a meeting must be held within 21 days of the request being received by the administrator.  The current position is that the meeting must be held within 14 days of the receipt of the request. 

9.3       Also in Rule 2.52, a new paragraph (5) provides that, in a case where the administrator has determined that a meeting should be held and conducted by remote means under new Rule 12A.26(2), the notice period of the meeting which must be given by the administrator to committee members is  7 business days. 

9.4       In Rule 2.57, paragraph (1)(c) has been amended to the effect that a person’s membership of the creditors’ committee is automatically terminated if that person ceases to be a creditor provided that a period of 3 months has elapsed from the date that he ceased to be a creditor. 

9.5       In Rule 2.59, new paragraph (4) provides that a meeting of creditors may agree a resolution to appoint a new creditor to fill a vacancy in the membership of the creditors’ committee.   

9.6       Rule 2.61 provides for the agreement of resolutions by the committee.  

9.8       Equivalent amendments have been made to those mentioned above in relation to Chapter 7 of Part 2 to:  Chapter 4 of Part 3 (administrative receivership – the creditors’ committee); Chapter 12 of Part 4 (companies winding up – the liquidation committee); Chapter 13 of Part 4 (companies winding up – the liquidation committee where winding up follows immediately on administration) and Chapter 11 of part 6 (bankruptcy – the creditors’ committee).  

9.9       In addition, Rule 4.174 has been substituted with new Rule 4.174A which sets out the circumstances in which a creditors’ committee established for the purposes of an administration continues in being as a liquidation committee. 

9.10    Finally, provisions have been inserted into new Part 12A to allow creditors’ and liquidation committee meetings to be attended by remote means.   

10.       Disclaimer procedure

10.1    Section 178 (power to disclaim onerous property) allows the liquidator of a company to disclaim any onerous property by giving a prescribed notice.  The disclaimer operates so as to determine, as from the date of the disclaimer, the rights, interests and liabilities of the company in or in respect of the property.   

10.2    In Chapter 15 of Part 4 (companies winding up) the following amendments have been made.  In relation to filing a notice of disclaimer, a copy of the notice is no longer filed with the court.  Instead, Rule 4.187 has been amended to provide that a copy of the notice must be sent to the registrar of companies and, in any case where the disclaimer is of registered land, a copy must also be sent to the Chief Land Registrar.  In Rule 4.187(4), for the purposes of section 178, the date of the prescribed notice has been changed to the date the notice is authenticated by the liquidator.  This means that the liquidator no longer has to wait for the notice to be endorsed by the court.  Rule 4.190 has been substituted by new Rule 4.190A which replaces the duty to keep the court informed with a new requirement for the liquidator to keep certain records.  Other minor amendments have been made which are largely consequential on other changes that have been made to the Rules. 

10.3    Section 315 (disclaimer (general power)) is in similar terms to section 178 and allows the trustee in bankruptcy to disclaim any onerous property by giving a prescribed notice.  In Chapter 14 of Part 6 (bankruptcy – disclaimer) equivalent amendments have been made to those mentioned above in relation to Chapter 15 of Part 4.  The only difference being that in Part 6 the notice of disclaimer will continue to be filed with the court because there is no alternative repository in bankruptcy cases. 

11        Court procedure and practice

11.1    In Part 7 (court procedure and practice), the following amendments have been made.  References to county court registrars have been revised to refer instead to district judges.  In relation to applications to court, the distinction in the Rules between an ordinary application and an originating application has been removed.  However, the distinction between the two types of applications is being maintained for court administrative purposes in the new Application Notice (Form 7.1A). Rule 7.6 has been replaced by new Rule 7.6A which provides that most hearings should be in open court. 

11.2    In relation to enforcement procedures, certain amendments have been made to deal with problems relating to the delivery of bankrupts etc. to prison and the discharge of warrants.  In particular, Rule 7.19 now makes provision to allow county courts to discharge High Court warrants.  Rule 7.22 now provides that in the case of arrests under section 134 (officer of company failing to attend for public examination) or section 364 (arrest of debtor or bankrupt) the arrested person can be delivered to the court or, where the court is not ready to deal with that person, to the prison named in the warrant (or another prison if that prison cannot take the arrested person).  In the case of arrests under section 236 (inquiry into insolvent company’s dealings) or section 366 (the equivalent in bankruptcy), Rule 7.23 now permits a prisoner to be delivered either to the prison named in the warrant or, where that prison cannot accommodate the arrested person, such other prison which has appropriate facilities. 

11.3    In relation to court records and returns, a new Rule 7.31A has been substituted for Rules 7.26 to 7.31.  Rules 7.26, 7.29, 7.53 and 7.54 have been omitted as they were considered to serve no useful purpose.  Rule 7.58 has been omitted as security in court is covered by the CPR. 

12        Applications for private examination under sections 236, 251N and 366

12.1    Section 236 (inquiry into company’s dealings, etc,) provides the court with a power to conduct an inquiry into a company’s dealings.  In particular, the court has the power, on the application by an office-holder (e.g. liquidator or official receiver), to summon to appear before it (a) any officer of the company; (b) any person known or suspected to have in his possession any property of the company or supposed to be indebted to the company; or (c) any person whom the court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company.  The court has similar powers to conduct private examinations of specified persons under Section 251N (debt relief orders – inquiry into dealings and property of debtor) and 366 (inquiry into bankrupt’s dealings and property). 

12.2    Part 9 (applications for private examination – sections 236, 251N and 366) has been amended as follows.  In particular, Rule 9.5 has been amended to expressly provide that copies of any questions put to the respondent or proposed to be put to the respondent are not open to inspection without an order of the court by specified persons. Other minor amendments have been made which are largely consequential on other changes that have been made to the Rules. 

13        Public examination under sections 133(1) and 290(1)

13.1    Section 133(1) (public examination of officers) provides that where a company is being wound up by the court, the official receiver may apply to court for the public examination of any person who (a) is or has been an officer of the company; (b) has acted as liquidator or administrator of the company or as receiver of manager; or (c) not being or having been any such person, is or has been concerned or has taken part, in the promotion, formation or management of the company. 

13.2    Chapter 19 of Part 4 (companies winding up – public examination of company officers and others) is amended as follows.  Rule 4.211 has been amended to provide that effective service of an order for public examination made by the court will be to a known address in accordance with any means permitted by new Part 12A.  Service is no longer restricted to postal service in all cases. 

13.3    In Rule 4.212(2) the requirement for the official receiver to give notice of the hearing of a public examination to every creditor and contributory of the company who is identified in the company’s statement of affairs has been removed because it is unnecessary.  All such creditors and contributories will be known to the official receiver who must serve them with a notice of the hearing by virtue of that knowledge pursuant to Rule 4.212(2) (c). 

13.4    Rule 4.212(4) provides that, unless the court otherwise directs, at least 5 business days must have elapsed since the examinee was served with the order for a public examination before the official receiver may exercise his discretion under this Rule to advertise notice of the order.  Paragraph (4) has been amended to limit the 5 business day protection period so that it applies only to orders which relate to persons falling within section 133(1)(c) (public examination of officers). Other minor amendments have been made which are largely consequential on other changes that have been made to the Rules. 

13.5    Section 290(1) (public examination of bankrupt) provides that where a bankruptcy order has been made, the official receiver may at any time before the discharge of the bankrupt apply to the court for public examination of the bankrupt.  

13.6    Chapter 13 of Part 6 (bankruptcy – public examination of bankrupt) has been amended as follows.  In Rule 6.172(3) an equivalent amendment has been made to that mentioned above in relation to Rule 4.212(2). Other minor amendments have been made which are largely consequential on other changes that have been made to the Rules. 

14.       Filing in court: rationalisation and removal of unnecessary filings

14.1    The aim of this theme is to reduce the burdens on the courts and their users by reducing the number of occasions when documents are filed in court; reducing the number of documents so filed; and, in corporate insolvency, substituting filing with the registrar of companies for filing in court where appropriate. 

14.2    Most of the amendments are in Parts 4 and 6.  However, there are also amendments to Parts 1, 2 and 5.

14.3    Where a filing is considered to serve no valuable purpose and is not required by the primary legislation, the requirement to file has been removed (e.g. Rules 1.26, 2.29, 2.47, 4.33, 4.42, 5.31 and 6.65). 

14.4    Filings solely with the registrar of companies occur in cases where removal of the concomitant requirement to file in court has left the registrar of companies as the sole depository (e.g. Rule 4.45). 

14.5    In Rule 4.116 (procedure on removal of liquidator) there is a new requirement for the documents in question to be filed with the registrar of companies as well as with the court.  This is on account of the importance of the documents. 

14.6    Where a petition is to be verified or a certificate of service is to be filed in court, the document served is to be described in sufficient detail for the served document to be identified (e.g. Rules 4.9A, 4.12, 6.12).  The effect is to avoid attaching a copy of the document served, of which the court already has a copy.  

15 Affidavits

15.1    Throughout the Rules, references to affidavits have been removed. They have been replaced with a requirement for a statement of truth.  In some cases this statement will be incorporated into the document to be verified and in others the reference to an affidavit is replaced by a reference to a witness statement supported by a statement of truth.  There is a new definition in Rule 13.13 (expressions used generally) explaining that “statement of truth” has the same meaning as in the CPR.   

15.2    Consequential changes have been made to references to “swear”, “sworn”, “oath” and “exhibited”. In Parts 2 (administration procedure) and 4 (companies winding up) the discretionary requirement that a claim of debt must be verified by affidavit has been removed.  In Part 6, the provision requiring a petition in respect of a moneylending transaction to be supported by an affidavit has been removed. 

15.3 The position for statutory declarations (eg Declaration of Solvency under section 89 of the Act) has not been changed. 

16        Ex parte

16.1    Throughout the Rules, references to ex parte have been removed.  They have been replaced with the phrase “without notice to any other party”. 

17        Leave of the court

17.1    Throughout the Rules, references to obtaining “leave” of the court have been replaced with references to obtaining “permission” of the court. 

18        Deponents

18.1    Throughout the Rules, references to deponents have been removed.  Other than in Part 3 (administrative receivership), they have been replaced with the phrase “person making the statement”.  In Part 3, they have been replaced with the term “nominated person” which is defined in that Part. 

19        Parts 1 and 5 (CVAs and IVAs): miscellaneous modernisation and harmonisation

19.1    Parts 1 and 5 mirror each other to a large extent.  Where a rule in one part has a corresponding rule in the other part which differs, they have been amended in order to affect harmony, so far as possible. Where corresponding rules have been amended, they have been amended so far as possible to achieve harmony. 

19.2    Miscellaneous amendments to Parts 1 and 5 have been incorporated.  Examples are set out below: 

  • In Part 1, the proposal is to include details of other useful information (Rule 1.3(2) (r)).
  • In Part 5, the proposal is to include details of any proposals in the preceding 2 years and their results (Rule 5.3(2) (s)).  It is not considered appropriate to make corresponding provision in Part 1.
  • In both Parts the, the statement of affairs is to accompany the proposal (Rules 1.5 & 5.5).
  • In Part 1, the “nominee” has been substituted for references to the “convener” or convenor” of a meeting (e.g. Rules 1.13 and 1.14).
  • Rules 1.55 and 5.66 are new.  The new rules give effect to regulation 36A of the Insolvency Regulations 1994 (S.I. 1994/2507) as regards voluntary arrangements.
  • Majorities for creditors’ meetings have been amended to “three quarters or more” (Rules 1.19, 5.23 and 5.43).
  • The office-holder is to notify creditors of whose address the office-holder is aware rather than of whom he is otherwise aware. (e.g. Rules 1.9 and 5.17).
  • Defective drafting has been remedied (Rule 5.50(1)).

 

20        Removal of the requirement to report to court in certain voluntary arrangements

20.1    Two of the provisions of the LRO, (b) (ii) above relate to voluntary arrangements: one provision substitutes a requirement for the nominee to report to the creditors for the requirement to report to the court in a non-interim order individual voluntary arrangement; the other substitutes a requirement to give notice to the Secretary of State of the result of the creditors’ consideration of the debtor’s proposal in a fast-track voluntary arrangement for reporting it to the court.   

20.2    New Rules 5.14A, 5.14B and the omission of Rules 5.15 and 5.16 give effect to the first provision. 

20.3    As a consequence of the first provision, there is a distinction between individual voluntary arrangements where there has been an interim-order where the nominee continues to report to the court and non-interim order individual voluntary arrangements where there is no report to the court.  There are numerous amendments giving effect to this.  The form of words used to describe a non-interim order individual voluntary arrangement mirrors that in the LRO (e.g. Rules 5.34 and 5.55).   

20.4    There are a number of amendments to give effect to the second provision (e.g. Rules 5.39 and 5.42). 

21        Remuneration, expenses and reports

21.1    The remuneration of office-holders may be set as a fixed amount instead of, or in addition to, a percentage of the value of property dealt with or a time charge. Remuneration may consist of a combination of any two, or all three, of these bases. 

21.2    Scrutiny of office-holders’ remuneration and expenses is made easier by enabling creditors to obtain further information. Expenses may be challenged as excessive as well as remuneration. Remuneration already received and expenses already incurred may be challenged within eight weeks of the report recording them. 

21.3    Office-holders may seek a review of their remuneration if there is a change of circumstances. 

21.4    Provision is made for an administrator or other qualified insolvency practitioner to be able to recover remuneration charged and expenses incurred before the formal start of the administration. 

21.5    Progress reports, already used in administration, are introduced into winding up and bankruptcy (but annually, not every six months as in administration). The report to be laid before the final meeting of creditors is brought into line with progress reports: and a draft of the final report must be sent to creditors eight weeks beforehand. 

21.6  Final progress reports are no longer to be attached to the conversion notice for paragraph 83 creditors’ voluntary liquidations but rather are to be submitted as soon as reasonably practicable after resignation. 

22.       Provision of “receipts and payments” account on resignation of office-holder

22.1    This theme is associated with the remuneration theme and the meetings theme.  It affects winding up and bankruptcy. 

22.2    A report with receipts and payments is to be submitted to the creditors’ meeting to receive the liquidator’s or trustee’s resignation (Rules 4.108 and 6.126).  Provision is made for the procedure to be followed where there is an ongoing challenge to the outgoing office-holder’s remuneration. The resignation will be effective from the acceptance of the resignation (Rules 4.108, 4.108A, 6.126 and 6.126A).  However, release can only be considered and effected once any challenge to remuneration has been resolved (Rules 4.108A and 6.126A).  There are consequential amendments to Rules 4.109, 121, 122, 6.127 and 135.  

23        Creditor and debtor bankruptcy petitions

23.1      Two new Rules (6.9A and 6.40A) have been inserted which make significant amendments.   They provide that where a business is carried on in a different district from that for the debtor’s residence, the appropriate court is the one for the district in which the business is carried on. 

23.2    The alternative county court for the presentation of a petition by a debtor who carries on a business is the alternative county court under Schedule 2 to the Rules for the district in which the business is carried on or the court for the district in which the debtor resides.  Where the debtor does not carry on a business, and resides in a county court district, the alternative court is the county court under Schedule 2 to the Rules.  

23.3    The Rules have also been amended to permit a creditor to present a petition against a debtor who is non-resident at the time of the presentation of the petition but has carried on a business or resided in the jurisdiction in the six months preceding the presentation in the court for the district where the debtor had carried on business or resided or the High Court. 

23.4    Where the debtor is non-resident and has not carried on a business or resided in the jurisdiction in the six months preceding the presentation of the petition, the creditor must present the petition in the High Court. 

24        Block transfer orders

24.1    A new Chapter 1A is inserted into Part 7 between Chapter 1 (applications) and Chapter 2 (transfer of proceedings between courts).  It is so placed because a block transfer order is a special type of application.  Rule 7.11 is amended consequentially.   

24.2    The Chapter builds on the provisions in paragraph 1.6 of the Practice Direction: Insolvency Proceedings as reflected in the 2007 draft Consolidation Rules and the subsequent decision in Donaldson -v- O’Sullivan [2008] EWCA Civ 879.  It varies from the Practice Direction in the following respects: it allows the application to be made to the registrar in the first instance; an application may be made to a county court with insolvency jurisdiction where all the cases subject of the application are in the county court; separate provision is made in respect of administration to take account of the provisions of paragraphs 91 and 95 of Schedule B1 to the Act; the costs of the application in respect of an administration are to be expenses of the administration unless the court otherwise directs; not all the outgoing office-holder’s cases need be subject of the block transfer order; the outgoing office-holder’s cases may be transferred to more than one replacement office-holder; advertisement of the incoming office-holder’s appointment is to be as the court directs rather than in accordance with the provisions in the Rules in respect of each type of insolvency proceeding. 

24.3    Donaldson settled the law concerning block transfers as it relates to bankruptcy and winding up by the court.  The powers under which the registrar may make the order reflect the decision in Donaldson.  

25        Verification of a statement of affairs

25.1    In Part 1 (company voluntary arrangements), the provisions dealing with the verification of a statement of affairs have been amended to require that such statements are verified by a statement of truth made by at least one director. 

26        Claims and Distributions

26.1    The changes relating to claims and distributions are miscellaneous, with no overarching principle. Some inconsistencies between administration, administrative receivership, winding up and bankruptcy are eliminated (but not the differences in respect of the form of proof of debt, where there remains no prescribed form in administration, receivership or voluntary liquidation). Distribution of assets in kind is made more transparent. 

27        Limited disclosure

27.1    Discrepancies between the existing provisions on limiting the public disclosure of information about creditors are eliminated, and the same principles on limited disclosure are applied uniformly to all types of insolvency procedure. Essentially, the court may order that information about creditors in statements of affairs and proposals for voluntary arrangements and administration may be omitted from what is filed at Companies House, sent to creditors generally or otherwise given wide publicity or circulation; and the grounds for omission are prejudicial to the insolvency proceedings or might reasonably be expected to lead to violence against any person. 

28        Amendments to Part 4 Chapter 22 (leave to act as director etc. of company with prohibited name)

28.1    Rule 4.227 is amended to provide for the service of an application for leave to use a prohibited name to be served on the Secretary of State who may make representations at the hearing of the application either in person or in writing. 

28.2    Rule 4.228 is amended to remedy defective drafting. 

29        Part 3 (Administrative Receivership): miscellaneous amendments

29.1    Rule 3.31 has been amended to mirror Rule 2.66 in order to achieve consistency. 

29.2    In Rule 3.33, paragraph (3) was omitted on the basis that the Rule relates to resignation as distinct from vacation.  Since an administrative receiver “vacates” office upon the making of the administration order, the paragraph is of no effect.  Rule 3.35 applies for vacation of office on completion of the administrative receivership.  It therefore does not apply where the company subsequently goes into administration.  Therefore there is no requirement for an administrative receiver to give notice where the company subsequently goes into administration.  Therefore Rule 3.33(3) is otiose. 

30        The EC Regulation

30.1.  The amending Rules include two classes of amendment relating to the EC Regulation on Insolvency Proceedings 2000 (“the EC Regulation”).  Those in the first class relate to an application under Article 37 of the EC Regulation to convert insolvency proceedings opened as “primary proceedings” into “secondary proceedings”.  The amendments deal specifically with the requirement for there to be a witness statement accompanying the application to the court which should include the maker’s opinion as to which winding up procedure the proceedings should be converted.  In the first instance (which can be found in the amendment to Rules 1.31 to 1.33) the proceedings into which primary proceedings can be converted are listed as administration proceedings “limited to winding up”, creditors’ voluntary winding up and winding up by the court.  In a second set (to be found in the amendments to Rules 2.130 to 2.132) proceedings into which the administration may be converted are listed out as creditors’ voluntary winding up and winding up by the court.  Provision is also now made to deal with the circumstance where the order limits the purposes of an administration to a “winding up through the administration”.  This reflects the fact that the wide purpose of administration generally must be restricted before it can fall within the more limited definition of administration now found in Annex B of the EC Regulation.   

30.2.  The second class of amendments also relates to the inclusion of certain administration proceedings within the definition of “secondary proceedings” within the EC Regulation.  An example of this can be found in the amendments to Rule 2.4 where “secondary proceedings” are inserted between “main proceedings” and “territorial proceedings”. 

31        Electronic delivery

31.1.  One of the key facets of the modernisation reforms is to facilitate the delivery of documents electronically.  With this in mind the amending Rules make a number of provisions facilitating the sending of documents by electronic means.  The general principle found in Rules 12A.7 and 12A.10 is that documents may be delivered by electronic means provided that the recipient has consented and provides an electronic address.  The provisions do not apply to petitions or applications to court, evidence in support of such applications or petitions or orders of the court; nor do certain other provisions apply to the filing of notices or other documents with the court, the submission of documents to the registrar of companies or to the service of a statutory demand. Uniformity is facilitated by the provision of the LRO. 

31.2.  A new provision for the use of websites by office-holders occasioned by the LRO  is now found in Rule 12A.12.  However, a new provision is made in 12A.13 which allows the court, where it is satisfied the expense of sending notices under 12A.12 in specified circumstances is too onerous, to dispense with the requirement for notices to be sent on each and every occasion and instead allow the requirements to be satisfied by the sending of one notice alone to cover all circumstances.  The justification for this is to reduce costs where because of the number of persons entitled to receive a notice on each occasion, the cost is disproportionate to the benefit of sending the notices every time.   

31.2A   Rule 12A.14 has been inserted in agreement with HM Courts Service and RCJ to allow electronic delivery of court documents in the limited circumstances where there is an electronic working scheme in place for that court which permits such delivery. It is introduced to facilitate an the RCJ electronic working pilot which, from April 2010, RCJ proposes to use to allow electronic case management of insolvency cases at the RCJ in London. If that court pilot is successful then the drafting of Rule 12A.14 would allow HM Courts Service to extend e-working to other insolvency courts in future.  

31.3.  New Rule 12A.15 simply repeats the requirement presently contained in the Rules that a document served on a single joint office-holder is to be treated as served on them all.  

31.4  We have adopted the use of “hard copy” rather than “paper copy” in the Rules generally when referring to “paper” documents.  

32        Service of court documents

32.1.  CPR Part 6 is to apply, except for the serving of a winding up petition, a bankruptcy petition and any document relating to such an application or petition or the serving of an administration, winding up, or bankruptcy order, But the provisions of CPR Part 6 relating to service outside the jurisdiction apply, with such modifications as the court may direct,  in every case (including bankruptcy petitions etc) so there is no bespoke Rule in the Insolvency Rules.  These Rules are now contained in Chapter 3 of the new Part 12A. 

33        Forms 

33.1.  The approach adopted in the modernisation Rules is to start the move away generally from the prescription of forms in the Insolvency Rules.  Instead the drafting approach adopted is to specify what information must be sent to a particular person (an information requirement) rather than to provide a form in which it is to be sent.  The reason for this is that with the advent of the electronic age the use of prescribed forms – a concept heavily based on paper delivery – can get in the way of electronic delivery.  It is ultimately the intention within our planned new Insolvency Rules to dispense with “prescribed forms” wherever we can.  This should facilitate the use of electronic communication, in particular in the light of the provisions we have made in respect of website delivery and delivery of other Insolvency documents.  This means that in these amending Rules –

  • no new forms have been prescribed (only replacements)
  • certain forms have been revoked where they no longer serve a useful purpose.

33.2    Old forms have however been retained or will be amended. 

33.3    In order for the electronic provisions to work properly, there still needs to be “a fix” to deal with the submission of information which would otherwise have been submitted on a hard copy prescribed form.  The solution to this is found in Rules 12A.31 and 12A.32, which in effect allows the information which must be contained in a prescribed form to be sent electronically provided that minimum requirements are met. 

33.4  Since the advent of the Companies Act 2006 any prescription as to the form and manner of delivery of information to the registrar of companies now falls properly to the registrar.   

33.5         It has been agreed with Companies House that from April 2010 the rules which will apply to form and delivery of information to the registrar will be governed by registrar’s rules. The Registrar Rules 2010  prescribe any necessary forms and set out all the rules relating to the manner of delivery for this information. The Insolvency Rules will still determine the information requirements themselves but prescribed forms relating to this information have been removed from the Insolvency Rules. Any substantive provision to supply information to the registrar contained in the required content of a prescribed form, but not fully reflected in the Insolvency Rule to which it relates, has been placed in generic information requirements set out in Rules 12A.42 to 12A.50.  

33.6         Insofar as information which is required to be sent to the registrar is concerned, The Registrar Rules 2010 provide for the format of paper forms setting out, for example, what the forms must look like, how to complete them (e.g. in black ink) and where to send them.  The registrar’s rules also cover other documents such as court orders which companies and Limited Liability Partnerships have to deliver to the registrar. In all cases the rules require the use of black ink on white paper. 

33.7         On the whole, the insolvency forms which are required to be sent to the Registrar under the registrar’s rules will be largely unchanged to those which have hitherto been prescribed within the Insolvency Rules.  However, there will be a small number of new forms created and other forms which are amended.  It should also be noted that the Registrar will require his new forms to be used in all cases, except where the event which creates the obligation to send or file occurred before 6 April 2010 (see para 6 of Sch 4 SI 2010 No.686). 

33.8         For more details on which forms are affected or copies of the draft Registrar forms please contact formsdesign@companieshouse.gov.uk  These new forms can also be accessed via the following link on the Companies House website (but must not be used for notifications to the Registrar until 6 April 2010): 

http://www.companieshouse.gov.uk/forms/insolvencyForms.shtml   

34        Authentication

34.1 The Rules generally now adopt the concept of “authentication of a document” rather than requiring a “signature”, again in order to facilitate electronic delivery.  This provision can be found in Rule 12A.9 (and equivalents in Rules 12A.31 and 12A.32 for forms).  In effect the provision follows that provided for by the Companies Act 2006. For paper documents a signature is sufficient authentication.  For non-paper documents a document is sufficiently authenticated if the identity of the sender is confirmed in a manner specified by the recipient or where there is no such manner specified, if a communication contains or is accompanied by a statement of identity of the sender and the recipient has no reason to doubt the truth of that statement.   

35        Annulment Changes

35.1    Rule 5.55 has been amended so as to render more transparent the duration of the prescribed period referred to in section 261(2) of the Insolvency Act 1986 (annulment of bankruptcy in the course of a voluntary arrangement).  

35.2    Section 261(2)(b) permits the official receiver to make an application for annulment of a bankruptcy order “where the bankrupt has not made an application within the prescribed period”. “Prescribed” in the 1986 Act means prescribed by rules. Whilst Rule 5.55(2) currently prohibits the official receiver from making an application before the expiry of 14 days from the date that the time period in section 262(3) for application under section 262(1) has expired, it does not itself prescribe any period within which the bankrupt might make an application, nor does it prescribe any period beyond the expiry of which the official receiver may make an application.  

35.3    The duration of the period referred to in the current paragraph (2) may be deduced from the provisions of the 1986 Act referred to as consisting of the 28 days during which the decision of a creditors’ meeting may be challenged beginning with the day that the report of the creditors’ meeting is made to the court under section 259. To this is to be added the 14 days from the date upon which that period expires.  

35.4    This amounts in total to 42 days which is reflected in these modernisation amendments. 

35.5    In addition, Rule 6.211 has been amended to allow annulment where debts are secured for, to the satisfaction of the court, and to allow the court to take into account whether amounts in respect of post-commencement interest on the bankruptcy debts have been paid, which is of particular relevance where the payment is made by a third party.  This latter amendment reflects case law on the subject (see Harper v Buchler [2004] BPIR, Harper v Buchler (No.2) [2005] BPIR, Wilcox v Duckworth [2005] BPIR). 

36        Insolvency registers

36.1    Part 6A of the Rules has been amended to reflect desired policy on the operation and maintenance of the insolvency registers. Rule 6A.2A seeks to make uniform provision for information to be displayed in respect of voluntary arrangements of all types.  Rule 6A.3 extends the period of time for which information added to the register pursuant to Rule 6A.2A must remain on the register, prior to deletion by the Secretary of State following receipt of notice of either the making of a revocation order, or full implementation or termination of the voluntary arrangement. Rule 6A.4 requires additional information to be placed on the individual insolvency register by the official receiver in circumstances where a bankruptcy order has been rescinded by the court. Under Rule 6A.5, information on annulled bankruptcies will remain on the individual insolvency register for a period of between 28 days and three months. The insolvency registers have also been made subject to the court’s discretion that information should either not be entered onto the register or should be deleted where there is a risk of harm to the subject of the information (see Victims of Violence below). 

37        Victims of Violence

37.1    New Rules 5.67 and 6.235B have been added to the Rules to provide for an appropriate procedure to permit the court, on the application of the debtor, the supervisor, the official receiver (whether acting as a supervisor or otherwise) or the Secretary of State, to order that the details in respect of a debtor to be entered onto the individual insolvency register under Rule 6A are not to include details of the debtor’s current address. The court is also permitted to order that details of the debtor’s current address be removed from any part of the court file of the proceedings relating to the debtor, which is open to inspection, and be kept on a separate file not open to inspection. The provisions are to apply in any case where disclosure to other persons (whether to the public generally or to specific persons) of the current address or whereabouts of a debtor might reasonably be expected to lead to violence against the debtor or against a person who normally resides with the debtor  as a member of the debtor’s family. 

38        Inland Revenue

38.1    References in the Rules to “Inland Revenue” have been amended to reflect the replacement of the Inland Revenue by HM Revenue and Customs.  

39        Deceased office-holders

39.1    Rules 2.124, 4.132, 4.133, 4.145 and 6.143 have been amended to reflect the fact that persons other than partners may be appointed as office-holders. 

40        Definitions

40.1    The interpretation provisions contained in Part 0 and Part 13 of the Rules have been updated.  Additionally, where in the Rules references are made to periods of less than 14 days, these have been amended to periods of business days in order to afford the relevant party a more appropriate period of time.  

41        Schedule 2

41.1    Schedule 2 has been amended to take account of changes in the alternative courts that may be utilised.  

42        Schedule 5

42.1    Schedule 5 has been amended to reflect the correct terminology.  

Transitional provisions for amendments to the Rules

The amendments to the Insolvency Rules 1986 will apply to all new insolvency proceedings commencing on or after 6th April 2010 , but in cases where the proceedings commenced before 6th April 2010 some old provisions will necessarily continue to apply throughout the life of the case. This part of the commentary should be read in conjunction with the transitional provisions in Schedule 4 of The Insolvency (Amendment) Rules 2010 and with Rule 13 of the Insolvency (Amendment)(No 2) Rules 2010.

To maximise the benefits that can be drawn from the Rules modernisation changes, certain provisions have been identified within the amendment Rules, such as those for e-delivery, authentication and the replacement of requirements for the provision of affidavits, which will be made effective for all cases, regardless of whether they commence before, on or after 6th April 2010.

The transitional provisions for the Insolvency (Amendment) Rules 2010 are set out in Schedule 4 to those Rules and give effect to three principles:

  amendments of a purely procedural nature which simplify the way in which cases are handled but do not affect the substance of anyone’s rights and obligations apply in all cases from 6 April 2010;  

  but amendments which do affect rights and obligations apply only to new cases started on or after 6 April 2010, because it would often be unfair and/or impractical to make changes of that type part way through a case;  

  in addition, changes which follow the amendments to the Insolvency Act 1986 made by the Legislative Reform (Insolvency) (Miscellaneous Provisions) Order 2010 have to come into force at the same time and in the same way as the provisions of that Order do.  

The second of those principles is given effect by paragraph 1 of Schedule 4. That paragraph specifies the events in different types of insolvency procedure which determine whether a case is a new case to which the changes affecting rights and obligations apply.

The first and third of those principles are given effect by paragraph 2 of Schedule 4. Changes relating to new provisions in the Act, otiose provisions in the Rules, leave of the court, signature on documents, affidavits (which are replaced in insolvency cases by statements of truth and witness statements), electronic notices and court procedure all come into force on 6 April 2010. Sub-paragraphs (2) to (4) of paragraph 2 ensure that when a case has begun before 6 April 2010 and continues on or after that date, pre-6 April references to affidavits are treated from 6 April as including witness statements, and post-5 April references to witness statements are treated as including pre-6 April affidavits, so that there is a seamless change from one to the other.

Paragraphs 3 to 5 of Schedule 4 deal with a handful of special cases where paragraphs 1 and 2 do not deliver the right result.

Paragraph 6 provides that for forms to be filed at Companies House in cases commenced before 6 April 2010, the old version of a revoked, replaced or amended form should be used only when the event which causes the form to be filed itself happens before 6 April (see Schedule 4, paragraph 6(2)); if that event occurs on or after 6 April, the amended or new form should be used with such variations as circumstances require (see Schedule 4, paragraph 6(3)).

For forms which are not filed at Companies House in cases commenced before 6 April 2010, the old version of a revoked, replaced or amended form should continue to be used throughout the life of the case unless the amendment is contained in paragraph 502(3) to (6), 503, 504, 505(3) or (4), 513 to 516, 518(2) or (3), 519 to 523, 525, 526, 529, 531 to 537, 540 to 545, 547, 549, 552, 555 or 556 of Schedule 1 or the form is 6.13, 6.17, 6.18, 7.1 or 7.2 (which are replaced by Forms 6.13A, 6.17A, 6.18A and 7.1A), where the amended or replacement form should be used in all cases from 6 April.

For clarificatory purposes, a further transitional provision was introduced at Rule 13 in the Insolvency (Amendment) (No 2) Rules 2010. This makes it clear that where a company enters administration before 6 April 2010 and is converted (under paragraph 83 of Schedule B1 of the Insolvency Act 1986) into a creditors’ voluntary liquidation on or after that date, the amendments to the Insolvency Rules 1986 providing for progress reports in creditors’ voluntary liquidations and removing the requirement to hold annual meetings in those liquidations will apply so as to give effect to the provisions in the Legislative Reform (Insolvency) (Miscellaneous Provisions) Order 2010 for progress reports and the abolition of annual meetings.

At Annex A to this issue there is a paper providing more detailed guidance on the transitional application of the changes made to the  Insolvency Act 1986 and the Insolvency Rules 1986 in cases in which , under paragraph 83 of Schedule B1 of the Act, companies move, on or after 6th April 2010, to creditors’ voluntary liquidation from administration entered before 6th April 2010.  

Any enquiries regarding the above should be directed towards Neil Ogilvie, Zone B, 3rd Floor, 21 Bloomsbury St, London WC1B 3QW, telephone: 020 7637 6307 email:    Neil.Ogilvie@insolvency.gsi.gov.uk    

 Insolvency (Scotland) Amendment Rules 2010 

The Insolvency (Scotland) Amendment Rules 2010 amend the company voluntary arrangement and administration  (procedures reserved to the UK Parliament under the Scotland Act 1998) provisions in the  Insolvency (Scotland) Rules 1986, reflecting changes being made in England & Wales for those procedures in the Insolvency (Amendment) Rules 2010.   

The changes will enable (in those procedures only) office-holders to communicate electronically with creditors and other parties (with those parties’ consent); to enable the holding of meetings of creditors in both procedures and of the creditors’ committee in an administration, via non-physical means and to disseminate information via a website.  To facilitate electronic transmission of documents, such documents need not be physically signed; rather they must be authenticated to the satisfaction of the recipient to confirm the identity of the sender.  

These new ‘e-commerce’ provisions are aligned with their English & Welsh counterparts and, like those rules, will be available for use in all cases (pre and post commencement) after the commencement of the rules on 6 April 2010.  The only exception to this (a departure from what will be the case for England & Wales) is the holding of non-physical meetings of the creditors’ committee, which will only apply to new administrations on or after the commencement date.  This exception is required as the creditors’ committee rules will be written out in full by these rules, replacing the current practice of applying rules in Part 4 via Part 3.  As the written-out rules, which will mirror the English & Welsh rules on administration creditors’ committees, differ from those currently applied, the ability to hold non-physical is being limited to new cases going forward, to avoid unforeseen problems. 

Pre administration expenses will be subject to the same procedure for approval as will be the case south of the border.  Rules on the standard content of notices placed in the Edinburgh Gazette (or advertised by other means) for CVAs and administrations will also come into force.  These provisions will apply to new cases going forward only.  

There are also a number of technical amendments being made by the instrument.  Practitioners will note that, as stated above,  rules on meetings of the creditors’ committee in an administration, applied, prior to 6 April 2010 (with necessary modifications), from Part 4 (liquidation) via Part 3 (receivership), have been written out in full in Part 2.  CVA meetings are similarly written out in Part 1, where they, prior to 6 April 2010, were part written out and part applied from Part 7. 

A separate commentary on the Scottish rules is also available on The Insolvency Service website . 

Any enquiries regarding the Scottish amendments should be directed towards Steven Chown, Zone B, 3rd Floor, 21 Bloomsbury St, London WC1B 3QW, telephone: 020 7637 6501 email:

steven.chown@insolvency.gsi.gov.uk

General enquiries may be directed to email    policy.unit @insolvency.gsi.gov.uk

ANNEX A 

Insolvency (Amendment) Rules 2010 – application to transitional paragraph 83 cases 

1.      This paper considers how the amendments to the Insolvency Rules 1986 (“the 1986 Rules”) made by the Insolvency (Amendment) Rules 2010 (“the Amendment Rules”) apply in cases in which, under paragraph 83 of Schedule B1 (“paragraph 83”) to the Insolvency Act 1986 (“the 1986 Act”), companies move, on or after 6 April 2010, to creditors’ voluntary liquidation (“CVL”) from administration entered before 6 April 2010. In this paper, those cases are referred to as “transitional paragraph 83 cases” (and except for references to “transitional Rule 13” – see paragraph 6 below – references to Rules are to Rules (new, amended or unamended as the case may be) of the 1986 Rules). 

2.      Article 6(3) and (4) of the Legislative Reform (Insolvency) (Miscellaneous Provisions) Order 2010 (“the LRO”) inserts a new section 104A into, and amends section 105 of, the 1986 Act. The effect is to replace annual creditors’ meetings in CVL with a requirement for the liquidator to send periodic progress reports to the creditors. 

3.      Article 12(1) and (2) of the LRO provides that those amendments do not apply where the resolution to wind up is passed before 6 April 2010. By virtue of section 247(3) (b) of the 1986 Act and paragraph 83(6) (b), that also means that those amendments do not apply where the notice under paragraph 83 of moving from administration to CVL is registered before that date. Thus they do apply where the noticed is registered on or after that date, including in transitional paragraph 83 cases. 

4.      The Amendment Rules contain several amendments giving effect to article 6(3) and (4) of the LRO. Paragraph 1(6) of Schedule 4 to the Amendment Rules provides that those amendments do not apply in transitional paragraph 83 cases. 

5.      That, however, is inconsistent with article 12(1) and (2) of the LRO, because that article applies the LRO amendments where the paragraph 83 notice is registered on or after that date irrespective of the date of entry into administration or of application therefor. 

6.      Accordingly, Rule 13 of the Insolvency (Amendment) (No. 2) Rules 2010 (“transitional Rule 13”) provides: 

“Where a company goes into voluntary liquidation under paragraph 83 of Schedule B1 to the Act in a case in which article 12(1) and (2) of the Legislative Reform (Insolvency) (Miscellaneous Provisions) Order 2010 causes section 104A of the Act and the amendments to section 105 of the Act to apply, the amendments to the Insolvency Rules 1986 made by the Insolvency (Amendment) Rules 2010 apply to the extent necessary to give effect to section 104A and the amendments to section 105 notwithstanding that by virtue of paragraph 1(6)(a) or (b) of Schedule 4 to the Insolvency (Amendment) Rules 2010 those amendments to the Insolvency Rules 1986 would otherwise not apply.” 

This means that the amendments, revocations and new Rules in the Amendment Rules providing for progress reports and removing the requirement to hold annual meetings will apply in transitional paragraph 83 cases even though other amendments, revocations and new Rules in the Amendment Rules will not apply in those cases. 

7.      The problem with applying transitional Rule 13 is that there is no simple division of amendments, revocations and new Rules in the Amendment Rules into those which provide for progress reports and remove the requirement to hold annual meetings and those which do other things. The Amendment Rules are drafted so as to be applied as a whole or not at all. They are not drafted in so that in transitional paragraph 83 cases, some of the amendments, revocations and new Rules will apply and some not. That means that textual analysis is required to determine how provisions for progress reports in the Amendment Rules are to apply in transitional paragraph 83 cases when those provisions also refer to other things provided for in the Amendment Rules but not in the unamended 1986 Rules, and also how provisions in the unamended 1986 Rules are to apply in transitional paragraph 83 cases when they refer to annual meetings as well as other things. 

8.      The following paragraphs suggest how transitional Rule 13 is to be applied in respect of particular amendments, revocations and new Rules in the Amendment Rules. 

9.      New Rule 4.49B sets out the basic provision for progress reports in windings up by the court. Since new section 104A and section 105 of the 1986 Act do not apply to windings up by the court, that new Rule does not in itself apply in transitional paragraph 83 cases. It is, however, relevant because of references to it in new Rules 4.49C and 4.49E, which apply to CVLs. 

10. In new Rule 4.49C, which is the basic provision for progress reports in CVLs: 

a.      paragraphs (1) to (3), (6) and (7) will apply without difficulty in transitional paragraph 83 cases; 

b.      paragraph (4) provides that a progress report in a CVL is not required for any period which ends after the liquidator has sent a draft final report to creditors under new Rule 4.49D: since new Rule 4.49D does not itself apply in transitional paragraph 83 cases, there will be no such period in transitional paragraph 83 cases and therefore, in effect, paragraph (4) does not apply in transitional paragraph 83 cases; 

c.      paragraph (5) provides for the content of progress reports in CVLs by reference to new Rule 4.49B, which in turn refers to new Rule 4.49E and amended Rules 4.127 and 4.131: 

                                                  i.      although Rules 127 and 131 are amended by the Amendment Rules, the references to them in new Rule 4.49B(1)(d) and (j) are equally capable of being to the unamended Rules 127 and 131, and therefore pose no problem in transitional paragraph 83 cases; 

                                                ii.      since new Rule 4.49E does not itself apply in transitional paragraph 83 cases, the reference to it in new Rule 4.49B (1) (j) is meaningless and therefore it can be treated as not being there, with the practical consequence that new Rule 4.49B (1) (j) should be read as if the words “right to request information under Rule 4.49E and their” were not there. 

11. New Rules 4.49E (as mentioned above), 4.108A, 4.126(5) and (6) and 4.131(1B) and substituted 4.108(3) do not apply in transitional paragraph 83 cases (nor, obviously, do the amendments to Rule 4.125, which has no CVL application), because they do not fall within transitional Rule 13. The references therein to progress reports are therefore irrelevant in transitional paragraph 83 cases. 

12. Rule 4.223 must be complied with in transitional paragraph 83 cases even though it is being revoked as duplicating progress reports, because it does not fall within transitional Rule 13, and therefore paragraph 1(6) of Schedule 4 to the Amendment Rules applies.