Dear insolvency
practitioner > Chapter 1 > Administration proceedings
(First published in Dear IP no. 10, April 1989) Article Withdrawn December 2006 2. Discharge of Administration Order: Administrator Becoming Liquidator (First published in Dear IP no. 20, January 1992) Article Withdrawn December 2006 3. Administrator’s Advertisement of Administration Order in Accordance with Rule 2.10(2) of the Insolvency Rules 1986 (First Published in Dear IP no. 50, June 2000) Article Withdrawn December 2007
NB Articles 1-3 continue to apply to those cases where a petition was presented prior to 15th September 2003. 4. Administration provisions of the Enterprise Act 2002 Article Withdrawn December 2006 5.
Administrator's
Statements of Proposals The Insolvency Service has become
aware that a number of proposals being issued by administrators under
paragraph 49 of Schedule B1 to the Insolvency Act 1986 are not complying
with the letter of the law, let alone its spirit. One of the aims behind the changes
introduced by the Enterprise Act 2002 was to promote collectivity and
transparency in corporate insolvency proceedings. Creditors should be given sufficient information to allow
them to participate in the proceedings in a meaningful way. Details of what must be included in
an administrator’s statement of proposals are set out in paragraph 49
of Schedule B1 and Rule 2.33 of the Insolvency Rules 1986, inserted by
the Insolvency (Amendment) Rules 2003. Rule 2.33(2)(m) provides that the
proposal should contain details on how it is envisaged that the purpose
of administration will be achieved.
Paragraph 111(1) of Schedule B1 provides that “the purpose of
administration” means an objective specified in paragraph 3. From this it is clear that administrators should not simply
include all three objectives in the proposals, with no attempt to
identify which is the relevant objective. This view is supported by the
provisions of paragraph 49(2)(b) which states that where applicable the
statement of proposals should explain why the administrator has formed
the view that the objective mentioned in paragraph 3(1)(a) or (b) cannot
be achieved. If it were
acceptable for a proposal simply to set out the three objectives, then
there would have been no reason to include the provisions in paragraph
49(2)(b). None of the above would prevent an
administrator setting out in the statement of proposals a comparison of
what would be the outcome for creditors if it were possible to rescue
the company as a going concern against what would be achieved from, say,
selling the constituent businesses to different buyers.
If the second objective gave a different result in timing or
quantum the creditors could choose the objective that they prefer.
General
enquiries may be directed to Policy.unit@insolvency.gov.uk; 6. Conclusion of administrator’s appointment In the recent case of Ballast Plc
and others [2004] EWHC 2356, the High Court held that, following the
making of an administration order, it was possible for the company
concerned to go straight into creditors’ voluntary liquidation using
the provisions of paragraph 83 of Schedule B1 to the
Insolvency Act 1986, or into dissolution using the provisions of
paragraph 84 of that Schedule.
There was no need for the administrator to apply to the court for
orders under paragraphs 79 or 85. The Judge considered that
paragraph 79 provides a separate exit route from administration to
that provided by paragraph 83.
The purpose of paragraph 79, where the circumstances set out in
paragraph 79(2) or 79(3) were met, was to enable the court to make
an order which would bring the administrators’ appointment to an end
on a different date from the one on which it would otherwise come to an
end. In a case where the administrator
uses the provisions of paragraph 83 the registration of the
relevant notice by the Registrar of Companies has the effect of bringing
the appointment of the administrator to an end and discharging the
administration order. The
Judge considered that an application for an order under
paragraph 79, in such a case, would be an unnecessary duplication.
The Judge also considered that the same interpretation should apply when
paragraph 84 is used as an exit route from administration. The
Judge made a parenthetical comment that he understood that
paragraph 84 could only apply in cases where there had been no
property at any time during the administration. The Insolvency Service
would confirm that the policy intention behind this provision was to
include it as an exit route in cases where assets had been realised and
the proceeds had been distributed to creditors as a consequence of which
the company no longer had any property. Generally speaking, it would be
inappropriate for a company to enter administration if it had no assets,
and if it had the administrator would be under a duty to make an
application to the court under paragraph 79(2).
One possible exception to this is where an individual company,
which was part of a group, entered administration with the other group
companies. It is the view of the Insolvency
Service that if paragraph 84 were not available as an exit route in
such cases it would be difficult to see what an administrator could do
in a case where the assets had been realised and distributed. Clearly a
paragraph 83 creditors’ voluntary liquidation would not be
available as there would not be a prospective distribution to unsecured
creditors, and a paragraph 79 application or paragraph 80
filing would end the administration but leave the company in
limbo. Taking all of this into account,
the view of the Insolvency Service is that the only sensible
interpretation of the legislation is that paragraph 84 provides an
exit route out of administration for companies whose assets have been
realised and distributed during the administration. General
enquiries may be directed to Policy.unit@insolvency.gov.uk; 7.
Pre-appointment time on administrations The Insolvency Service has been
made aware that some insolvency practitioners have questioned why they
are not allowed to claim pre-appointment time as expenses of the
administration. Costs
incurred prior to the administration are essentially a matter between
the relevant insolvency practitioner and the party instructing them. For
example if a company has concerns regarding its financial situation and
approaches an insolvency practitioner for advice, then payment of fees
incurred would be a matter between the company and the insolvency
practitioner. In such a case any fees outstanding, at the date the
company entered administration, would, in our view, rank as an unsecured
claim. However, time spent by a proposed administrator, prior to any appointment, in determining that it is reasonably likely that the purpose of the administration would be achieved and to enable them to complete Form 2.2B, are arguably costs and expenses of the appointer/applicant for the purposes of Rule 2.67 (1)(c) of the Insolvency Rules 1986 which provides that the following expenses are payable within the order of priority specified: ‘where an administration order was made, the costs of the applicant and any person appearing on the hearing of the application and where the administrator was appointed otherwise than by order of court, any costs and expenses of the appointer in connection with the making of the appointment and the costs and expenses incurred by any other person in giving notice of intention to appoint an administrator.’ General
enquiries may be directed to Policy.unit@insolvency.gov.uk; 8. Relevant CourtIn a recent decision in the Birmingham District of the High Court (Brownridge Plastics Limited) Mr Justice Hart held that for the purposes of the Insolvency Act 1986 (“the 1986 Act”), a company incorporated in Scotland can only enter administration by filing the requisite Notice of Appointment and the other prescribed documents with the relevant court in Scotland. Consequently, a company incorporated in England and Wales can only enter administration by filing the requisite Notice of Appointment and the other prescribed documents with the relevant court in England and Wales. Relevant Court – Legislative Definition The expression “the court” is not defined in section 251 of the 1986 Act and has, therefore, to be construed in accordance with section 744 of the Companies Act 1985, which provides: “In this Act, unless the contrary intention appears, the following definitions apply” and then “the court”, in relation to a company means the court having jurisdiction to wind up the company”. Sections 117 and 120 of the 1986 Act, respectively, define the courts that have jurisdiction to wind up a company registered in England and Wales and Scotland.
General
enquiries may be directed to Policy.unit@insolvency.gov.uk; 9.
Climate Change Agreements – hidden assets? Article was withdrawn in March 2015 10.
Substantial property transactions involving directors Sections 190-196 of the Companies
Act 2006 (‘the Act’) deal with substantial property transactions
involving directors. They
came into force on 1 October 2007 and replace sections 320-322A of the
Companies Act 1985. As before, the provisions require that any arrangement under
which a director, or a person associated with a director, acquires a
substantial asset must have shareholder approval, failing which the
transaction is voidable at the instance of the company. However, there is an exemption to
the above for transactions entered into by companies that are subject to
certain insolvency procedures. Previously,
this exemption applied only to insolvent liquidations, but by virtue of
section 193 of the Act this exemption has, with effect from 1 October
2007, been extended to companies in administration. Insolvency practitioners should note that the new
exemptions do not extend to administrative receivership, so the position
regarding disposals to directors, or companies controlled by directors
of the vendor company where the vendor company is in receivership,
remains the same. Any enquiries regarding the above should be directed
toward Toby Watkinson, IP Policy Section, Area 5.7, 21 Bloomsbury
Street, London, WC1B 3QW; telephone: 020 7637 6566; email: toby.watkinson@insolvency.gov.uk
General enquiries may be directed
to IPPolicy.Section@insolvency.gov.uk
Telephone: 0207 291 6772 11.
Progress reports in an administration, following an extension Rule 2.47 of the Insolvency Rules 1986 states that
the administrator’s progress reports must cover the six months
commencing on the date that the company entered administration and for
every subsequent period of six months.
Rule 2.112 states that a further progress report, from the date
of the most recent progress report (if any) or the date the company
entered administration, must be prepared in support of an application to
extend the administration. Insolvency practitioners are reminded that,
if any application for an extension has been made, the next progress
report should be prepared within the original six-monthly reporting
cycle from the date that the company entered administration, not six
months from the date of the further progress report in support of the
extension. Any enquiries regarding the above should be directed
towards Steven Chown, Policy Unit Area 5.7, 21 Bloomsbury Street,
London, WC1B 3QW; telephone: 020 7637 6501 email: steven.chown@insolvency.gov.uk General enquiries may be directed
to Policy.Unit@insolvency.gov.uk
Telephone: 0207 291 6740 12. Extension of administration period via blanket resolution in the proposals It has been brought to our attention that it has become a growing practice for administrations to be extended by the use of a ‘blanket resolution’ included as part of the administrator’s proposals. Such blanket resolutions run counter to the spirit of the legislation and should only be obtained in exceptional circumstances. Paragraph 76(2)(b) of Schedule B1 to the Insolvency Act 1986 states that “an administrator’s term of office may be extended for a specified period not exceeding six months by consent”. We have been made aware that this consent is often obtained at the first meeting of creditors with the administrator’s proposals including a conditional resolution regarding the extension of the administration, along the lines that if the administrator should think it desirable, then the administration would be extended by an additional six months. However, the intention behind this provision is that the power is given to the creditors to agree to extend the administrator’s term of office; they agree and they extend. The power is not to agree to delegate to the administrator a power to decide whether he (the administrator) should extend his term of office which has provisionally been agreed by the creditors. Therefore, in our view, this practice is questionable. We accept that there will be cases where such a resolution may be desirable, such as in cases where at the date of the initial meeting, the administrator formed the view that it was reasonably foreseeable that the administration may need to be run for more than twelve months, for example, where there are large book debt collections which cannot realistically be completed in under a year. A resolution of this type would clearly reduce costs as compared with seeking the consent of creditors at a later stage in the administration. The contents of the administrator’s proposal are set out in paragraph 49(2) of Schedule B1, and must, in particular, deal with prescribed matters, which are set out in Rule 2.33(2) of the Insolvency Rules 1986. Rule 2.33(2)(q) might assist where it is clear from the outset that a year will not be sufficient time in which to complete the administration. Rule 2.33(2)(q) states “such other information (if any) as the administrator thinks necessary to enable creditors to decide whether or not to vote for the adoption of the proposals”. It is our view that this provision envisages an extension to only be included where it is necessary. It should not be included as a matter of course, notwithstanding that it may save costs by obviating the need for a further creditors’ meeting. Saving costs, alone, though a laudable aim, is not likely to provide sufficient reason for inclusion, as under paragraph 78(3) of Schedule B1, consent can be given in writing as an alternative to being signified at a creditors’ meeting. Therefore, unless inclusion of a provision for extension is necessary to allow the creditors to decide whether to adopt the proposal, we do not think it is permissible to include such a provision, as to do so in other circumstances would not be in keeping with the stated principle of speed in facilitating the administration procedure (paragraph 4 of Schedule B1). Rule 2.112(2) provides that a request to creditors for an extension of the administration must be accompanied by a progress report, which is a clear inference that there must be an interval between the commencement of the administration and seeking the extension in which the administrator has, at the least, sought to progress the administration. If such resolutions were obtained as a matter of course, no matter whether consideration is given to the question of likely duration of the administration, this would run counter to the spirit of the legislation, and best practice would dictate that it is not appropriate to include such a provision. Any enquiries regarding this article should be directed towards Muhunthan Vaithianathar, Area 5.7, 21 Bloomsbury Street, London, WC1B 3QW, telephone: 020 7637 6515, email: Muhunthan.Vaithianathar@insolvency.gov.uk General enquiries may be directed to Policy.Unit@insolvency.gov.uk 13. Pre-packaged administrations and SIP 16 Statement of Insolvency Practice (SIP) 16 came into force on 1 January 2009, and is intended to give greater transparency to the operation of pre-packaged administrations by giving creditors improved information about the sale of a business. Insolvency practitioners will be aware of the background to the introduction of the new SIP 16 and of measures being implemented by the Insolvency Service to monitor compliance with the new requirements, the detail of which was set out in a Dear IP letter to all insolvency practitioners on 28 January 2009. The full text of that letter is available on our website at the following address: http://www.insolvency.gov.uk/insolvencyprofessionandlegislation/iparea/prepackleter.doc We would like to remind insolvency practitioners of the requirement to send the relevant information required by SIP 16 to creditors at the earliest available opportunity, which we would expect in all but exceptional cases to be with the first notification to creditors. In addition, the relevant SIP 16 information must in every pre-pack case also be sent to the Insolvency Service at the following address: Insolvency Practitioner Policy Section, The Insolvency Service, 21 Bloomsbury Street, London WC1B 3QW; or email to IPPolicy.Section@insolvency.gov.uk However, we would ask you to note that we do not routinely require the administration proposals document, unless that is the only place where the SIP 16 information has been provided, nor do we require information on administrations where businesses or assets have been sold other than through a pre-pack. We would also like to thank insolvency practitioners for their co-operation in this regard and for the SIP 16 information that we have received to date. Any enquiries regarding this article should be directed towards Toby Watkinson, IP Policy Section, Area 5.7, 21 Bloomsbury Street, London WC1B 3QW; telephone: 020 7637 6566; email: toby.watkinson@insolvency.gov.uk General enquiries should be directed towards IP Policy Section, Area 5.6, 21 Bloomsbury Street, London, WC1B 3QW; telephone: 020 7291 6772; email: IPPolicy.Section@insolvency.gov.uk 14. Statement of Insolvency Practice 16 – Guidance for Insolvency Practitioners Article withdrawn 15. Notice of intention to appoint an administrator The Insolvency Service has been asked to provide its view on the circumstances in which a copy of the Form 2.8B notice of intention to appoint an administrator is required to be given to the persons specified in Rule 2.20(2) of the Insolvency Rules 1986 by either the directors or the company (depending on who is seeking to effect the appointment). It is our view that, when read together, paragraph 26(2) of Schedule B1 of the Insolvency Act 1986, Rule 2.20 and Form 2.8B should be interpreted to mean that paragraph 26(2) does not give rise to a standalone requirement to give notice of the intention to appoint an administrator. Form 2.8B is not a form that can be completed unless notice of intention to appoint is also being given under paragraph 26(1). Rule 2.20(2) requires that specified persons must be given a copy of the Form 2.8B notice (given under paragraph 26(1)) and a copy of the form cannot be made and given where no original form exists. To interpret paragraph 26(2) as requiring a standalone notice independent of paragraph 26(1) would serve no useful purpose and would be contrary to the policy intention. The Insolvency Service has commenced preparation of the new insolvency rules following the delivery of the first two phases of rules modernisation in April 2009 and April 2010. We have now started to publish draft parts of the proposed new rules on The Insolvency Service website to give stakeholders the opportunity to familiarise themselves with the new structure and drafting of these rules and to provide any feedback. When preparing the new rules on Administration, we propose to clarify the content in current Rule 2.20 to follow the interpretation given above. 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.gov.uk General enquiries may be directed to: policy.unit@insolvency.gov.uk Telephone: 020 7291 6772 16. Extensions to administration in Scotland Insolvency practitioners have drawn The Insolvency Service’s attention to the fact that Scottish courts have been unwilling to grant administration extensions under paragraph 76 of Schedule B1 to the Insolvency Act 1986 in cases where creditors have not been provided with an opportunity to object to such an extension. The Insolvency Service considers that it would be a burden to require administrators to separately contact the creditors shortly prior to applying for an extension, for little corresponding benefit. However, it is mindful of the concerns of the Scottish courts and of the possible difficulties that insolvency practitioners could encounter were those concerns not adequately addressed. Accordingly (and following correspondence with court officials), it is proposed that, where the administrator, based on his or her professional judgment, anticipates (at the date of the first progress report) that there will be a need to extend the administration beyond 12 months, that the progress report be used to relay this information to creditors. In doing this, the report should also provide an email address to which any concerns about the extension can be sent. If an extension is subsequently required, the administrator can prove to the court, if necessary, that creditors have had an opportunity to object to the extension (and draw the court’s attention to any such objections received). The Insolvency Service does not anticipate that such statements will be put into progress reports as a matter of routine, as to do so will be unlikely to address the concerns of Scottish judges. Rather this content should only be included where there is a realistic expectation that an extension will become necessary and that such an application would be made within three or four months of the progress report in question. Any enquiries regarding this article should be directed towards Steven Chown, 21 Bloomsbury St, London WC1B 3QW telephone: 020 7637 6501 email: steven.chown@insolvency.gov.uk General enquiries may be directed to email: policy.unit@insolvency.gov.uk Telephone: 020 7291 6772 17. Administration expenses: Financial Support Directions and The Pensions Regulator On 10 December 2010 Mr Justice Briggs delivered a judgment in the High Court in actions brought by the administrators of the Lehman Brothers and Nortel Groups to the effect that where a Financial Support Direction (FSD) is issued to an insolvent company after the commencement of its administration, the cost of complying with it is an expense of the administration and must be paid before any disbursement to unsecured creditors (and also ahead of the administrator’s remuneration in the priority of expenses). The administrators have been given permission to appeal but we are considering its implications in any event. This will include discussing the judgment with representative bodies over the coming weeks. The FSD, which is part of the Pensions Regulator’s anti-avoidance regime, was introduced by the Pensions Act 2004 alongside the creation of the Pensions Protection Fund (PPF). A FSD, which requires reasonable financial support to be put in place for a scheme by its employer or those connected or associated with the employer, was intended to protect scheme members' benefits and reduce the risk of calls on the PPF. The Pensions Regulator’s powers include conditions set out in the legislation that limit their use and the Regulator is required to act reasonably, mindful of other directly affected parties. The judgment found that this was highly relevant in mitigating administrators’ concerns as the Regulator can and should identify a level of financial support that takes account of creditor claims. The Regulator has published a statement on its web-pages in response to the judgment, which confirms that it will not alter its approach to determining FSDs in any situation including its duty to act reasonably in using these powers and to have regard to the interests of those directly affected by them. The Regulator’s statement is available at http://www.thepensionsregulator.gov.uk/press/pn10-26.aspx The issue of administration expenses is one that has been raised by several stakeholders during the engagement we have been undertaking in recent months as part of our work to modernise the Insolvency Rules in England and Wales. This judgment adds weight to the case for reviewing Rule 2.67 and the administration expenses regime and we will therefore discuss this rule more generally when we meet with representative bodies early in the new year. We will keep practitioners and other stakeholders informed of the outcome of those discussions and of any changes we might subsequently propose to make. We are grateful for the numerous responses which have been submitted to the letter we published at the end of October 2010 inviting views as to whether or not we should proceed with a full re-write of the1986 Rules. Those responses are in the process of being considered and we expect to be able to announce Ministers’ decisions on the way forward early in the new year. Any enquiries regarding this article should be directed towards Tom Phillips Zone B, 3rd Floor, 21 Bloomsbury St, London WC1B 3QW, telephone: 020 7637 6307, email: tom.phillips@insolvency.gov.uk 18. Pre-appointment administration expenses Recent monitoring visits by the RPBs have identified a number of cases where the responsible insolvency practitioner’s pre-appointment administration fees and expenses have been paid directly by the purchaser of the insolvent business. While there is no specific regulation which prohibits this practice, our opinion is that such a payment may represent a conflict of interest which threatens the objectivity of the insolvency practitioner, and so constitute a breach of the Ethical Code. We are concerned that an agreement for the purchaser to pay pre-appointment fees effectively reduces the total consideration payable in the transaction by a similar or equivalent amount. As the insolvency practitioner has a financial interest in his pre-appointment fees being paid, this could represent a self-review threat to his objectivity, one of the fundamental principles of the Ethical Code. The statutory mechanism to recover pre-appointment administration expenses introduced by the Insolvency (Amendment) Rules 2010 was intended to ensure that creditors would have the opportunity to review the pre-appointment expenses, to consider whether they are reasonable in the circumstances of the case, whether they were incurred in support of the objective of the administration and ultimately to approve their payment. Any arrangement for the purchaser to directly pay pre-appointment fees and expenses circumvents this mechanism and can effectively reduce the monies available to creditors without them being given the opportunity to assess the appropriateness of the pre-appointment work undertaken. Where an insolvency practitioner is considering entering into such an arrangement with a proposed purchaser, it is expected that the practitioner would recognise the potential conflict of interest and retain written evidence that the matter had been considered and appropriate safeguards put in place to reduce any perceived or actual threat to his objectivity. Any enquiries regarding this article should be directed towards Chris Phillips, Zone B, 3rd Floor, 21 Bloomsbury St, London, WC1B 3QW, telephone 020 7637 6544, email: Chris.Phillips@insolvency.gov.uk General enquiries may be directed to IPPolicy.Section@insolvency.gov.uk Telephone: 020 7291 6772 We are grateful to continue to receive timely copies of insolvency practitioner’s SIP 16 statements in pre-packaged administrations. Practitioners can send their disclosures via email to IPRegulation.Section@insolvency.gov.uk instead of sending in postal copies if they have the facility to do so. For practitioners who wish to continue to post their statements to us we would like to remind them of our new address: 4th Floor, 4 Abbey Orchard Street, London SW1P 2HT. Any enquiries regarding this article should be directed towards Joseph Sullivan, 4th Floor, 4 Abbey Orchard Street, London, SW1P 2HT telephone: 0207 637 6495 email: joseph.sullivan@insolvency.gov.uk 20. Revised SIP 16 and withdrawal of Dear IP 42 Insolvency practitioners should be aware that the revised version of SIP 16 has been agreed by the Joint Insolvency Committee and is being issued on 1 October 2013. The implementation date of the revised SIP is 1 November 2013. On 1 November The Service will be withdrawing Dear IP issue 42. There will be no change on The Service’s monitoring activities in respect of insolvency practitioner’s compliance with SIP 16 as a result. Any enquiries regarding this article should be directed towards Joseph Sullivan, The Insolvency Service, Policy Unit, 4th Floor, 4 Abbey Orchard Street, London, SW1P 2HT, telephone: 020 7637 6495, email: joseph.sullivan@insolvency.gov.uk General enquiries may be directed to email IPRegulation.Section@insolvency.gov.uk 21. When a legal aid contract holder goes into administration This article provides guidance to insolvency practitioners on the procedures to follow when a legal aid contract holder goes into administration. When a company which holds a legal aid contract with the Legal Aid Agency (LAA) goes into administration, there are additional, very specific factors to consider. Those factors apply to both solicitor firms and not-for-profit organisations. As the contractor of a service which involves taxpayers’ money and legally-aided clients, it is important that the LAA is kept informed about the administration process throughout and where possible is made aware before that process formally begins. To all intents and purposes, the agency needs to be treated as a third party to the matter to allow it to consider what steps it has to take to ensure that clients continue to get the help they need and to ensure that the public purse is being protected. When to notify the LAA, and who to notify Every firm which contracts with the LAA has a dedicated Contract Manager. Insolvency practitioners should ask the firm who their Contract Manager is. It is the Contract Manager who should be told as soon as the legal aid provider in question is considering insolvency proceedings. The Contract Manager should be informed even when insolvency proceedings are imminent but not yet in place. Equally, if circumstances arise that might entitle a creditor or court to make a winding-up order or appoint an administrator the LAA should also be notified immediately. Upon appointment, the administrator should immediately inform the LAA of any material constitutional changes to the contract holder. The agency will need to know of any changes which may impact on the firm’s ability to deliver the work they are contracted to carry out, and if there is any consideration to close an office or stop providing a service. Unlike the privately funded work of a firm, legally aided work does not belong to the administrator. It is crucial that practitioners are aware that the legal aid contract with the LAA cannot be given, sold, assigned or its benefits otherwise disposed of. Nor can it be sub-contracted, novated or otherwise delegated without the LAA’s express permission. This may include, but is not limited to, the entire contract or parts of the contract, as well as work in progress on client files or duty slots. Therefore, express authority from the LAA must be sought when the provider is discussing with the administrator the possibility of assigning the contract to another entity, for example through a merger or acquisition, prior to the firm entering administration. All contract liabilities pass with the contract to the new entity. Contract sanctions The LAA also requires a full financial disclosure. This will inform its consideration of whether it is appropriate to apply one of the sanctions available under the legal aid contract, so as to protect both clients and/or public funds. Sanctions which the agency can apply include:
Transfer of client case files Client consent must be sought before active legal aid files are transferred to other providers, either with or without the conducting solicitor. Files can only be transferred to other firms or legal advice providers who hold the appropriate legal aid contracts. Though billing on cases usually occurs when the matter has been completed, in some circumstances it is possible to bill for the work completed on live files which are being transferred to a new legal advice provider. Billing and payment for work There are many different work streams and billing regimes under the Legal Aid Contract and the Contract Manager will be able to provide guidance and appropriate contacts at the agency who will be able to assist in making arrangements for the billing of outstanding work. The Contract Manager will be able to provide information on the financial position of the firm with the LAA. They can provide assistance with establishing the extent of any assets or liabilities as regards their Legal Aid Account. During case progression, payments on account of profit costs and disbursements are paid to the conducting solicitor/advice provider. These are reconciled by our case management system when the LAA comes to pay the final bill. Completed matters may be billed by the administrator or an appointed representative, for example a costs draughtsperson. With exception of barristers, the LAA cannot directly pay third party agents appointed by the firm. It is likely that the LAA will conduct some audit activity to check the accuracy of billing. The LAA has the right to assess claims and set off any monies due to the agency against any payment due. Where there has been an overpayment or mis-payment, the LAA has the right to recover that money. To navigate the process successfully, practitioners need to engage as early as possible with the firm’s named Contract Manager. It is the Contract Manager who will guide you through our processes and restrictions. General enquiries may be directed to email IPRegulation.Section@insolvency.gov.uk; Telephone 020 7291 6772 22. Graham Review into Pre-pack Administration As practitioners will no doubt be aware, Teresa Graham’s independent report into pre-pack administration has recently been published: https://www.gov.uk/government/publications/graham-review-into-pre-pack-administration The Insolvency Service will continue its monitoring of SIP 16 statements pending the handing over of this responsibility to the Authorising Bodies as recommended by the Graham report. In the meantime, we will work with the Authorising Bodies to ensure a smooth handover of monitoring responsibilities. Insolvency practitioners should therefore continue to comply with the requirement to send copies of all SIP 16 notices to the Insolvency Service. We will provide a further update on the handover of monitoring to the Authorising Bodies in due course. Any enquiries regarding this article should be directed towards Joseph Sullivan, Insolvency Practitioner Regulation Section, telephone: 0207 637 6495 email: joseph.sullivan@insolvency.gov.uk 23. Specifying the purposes of a meeting where approval is sought for pre-administration costs The statutory mechanism to recover pre-appointment administration costs introduced by the Insolvency (Amendment) Rules 2010 is intended to ensure that creditors have the opportunity to review the pre-appointment costs, to consider whether they are reasonable in the circumstances of the case, whether they were incurred in support of the objective of the administration and ultimately to approve their payment by way of a separately identifiable resolution. Following the introduction of this mechanism, it has become apparent that when sending notices of meetings in administration pursuant to Rule 2.35 of the Insolvency Rules 1986, insolvency practitioners are not identifying that one of the purposes of a meeting called to approve the administrator’s proposals is to obtain a separate resolution for the approval of pre-appointment costs in relevant cases. Insolvency practitioners are asked to note that where such a resolution is sought for approval of the pre-appointment costs, this additional purpose should be identified in the relevant notice of the meeting, in order to ensure maximum transparency to creditors. General enquiries may be directed to IPRegulation.Section@insolvency.gov.uk 24. Climate Change Agreements – Hidden Assets? The Department of Energy and Climate Change (DECC) would like to draw insolvency practitioner’s attention to the need for them, whilst acting as administrator, to ensure the provisions of Climate Change Agreements, as applicable to certain businesses, are fulfilled and the possible reduction in the value of the company where they fail to do so. This article replaces article 9 of this chapter which has been withdrawn. If you are appointed as an administrator of a company, particularly those operating in high energy usage industries, do you look out for environmental schemes that may affect the company’s balance sheet, profitability and re-sale value? One such scheme is the Climate Change Agreement. This scheme gives companies a 90% reduction in the Climate Change Levy (a tax paid on energy use) on supplies of electricity and 65% on other energy supplies in return for meeting challenging energy efficiency targets. Under state aid rules a company that is a “firm in difficulty” as set out in the “European Commission Community Guidelines on State Aid for Rescuing and Restructuring Firms in Difficulty (2004/C 244/02)” is not eligible to claim the discount on the Climate Change Levy and should voluntarily terminate their Climate Change Agreement. This voluntary termination should start a series of actions that will cancel the discount. Any discount that is claimed where there is no eligibility may have to be repaid. The administrator should notify the CCA scheme’s administrator, the Environment Agency, via the sector association of the company’s status and request that the Environment Agency terminate the agreement. The Environment Agency will issue a variation certificate that notifies HMRC of the change in status. The agreement holder must submit a new PP11 CCL Supplier Certificate to their energy supplier and PP10 CCL Supporting Analysis form to HMRC showing a relief claimed of 0 per cent. Once the period of administration is over and the company is no longer a firm in difficulty, or the facilities have been sold to a new operator, then an application may be made to re-join the scheme. Companies must report their energy performance data every two years. The next reporting period ends on 1 May 2015. If, because of administration and possibly a change of ownership, records have not been kept for the preceding two year period showing that targets have been met, the company can lose its future eligibility to pay the reduced rate of CCL for two years. This could have serious implications for the viability of some companies, and hence for their re-sale value Where a company in administration cannot provide the required data to prove that they have met the energy efficiency targets the company will lose the entitlement to pay the reduced rate of CCL for two years. It is therefore important for the future of companies in administration that the administrator checks whether the company had a Climate Change Agreement. The insolvency practitioner must also ensure that data is preserved and passed onto a new owner. A change of ownership will not be taken into account when the targets are assessed, because the agreements cover the facility, not the owner. The slate is not wiped clean on change of ownership. There may be cases where a company is in administration at the time when the data on CCA performance should be reported to the Environment Agency via the sector association. If the administrator reports the data, consisting of energy use and throughput figures, and if the company has passed its CCA target (with the purchase of buy-out if necessary to make up any shortfall in meeting the target), the company will be eligible for the discount from the CCL for the following two years, which will add value to the facility, once the company ceases to be a firm in difficulty or the facility is sold to another operator. What should insolvency practitioners look out for? Climate Change Agreements are typically held by manufacturing industries which carries out an activity listed in the Environmental Permitting (England and Wales) Regulations 2010 (EPR), Part A, or are listed under The Climate Change Agreements (Eligible Facilities) Regulations 2012. A list of eligible sectors, with the agreements that contain descriptions of the eligible processes can be found on the gov.uk website at https://www.gov.uk/climate-change-agreements--2#sector-umbrella-agreements Further background on the agreements is also on the gov.uk website at https://www.gov.uk/government/policies/reducing-demand-for-energy-from-industry-businesses-and-the-public-sector--2/supporting-pages/climate-change-agreements-ccas When acting as administrator of a company (often a manufacturing company, but also food producers, pig and poultry farms and some services such as cold storage and data centres), insolvency practitioners should check with the company’s staff whether there is a CCA for any sites within the company, or if the staff have changed, check with the relevant trade association who manage the agreements for their sector. Lists of currently eligible facilities are published by the Environment Agency on the gov.uk website at https://www.gov.uk/government/collections/climate-change-agreements-reduced-rate-certificates Trade associations will be happy to advise on how to proceed. Their contact details can be found at https://www.gov.uk/climate-change-agreements--2#sector-associations-with-ccas If practitioners have any queries regarding this article in the first instance they should visit the Environment Agency gov.uk website: https://www.gov.uk/climate-change-agreements--2#about-climate-change-agreements; further contact details are provided on that site. The Teresa Graham Review of Pre-pack Administrations found pre packs to be an important part of the insolvency landscape, as they can save jobs and preserve value for a distressed business. It also recommended ways, including the establishment of a Pre-Pack Pool, in which the transparency of the process could be improved. The Pre-Pack Pool working group has been tasked with turning this recommendation into a reality. The working group comprises a cross-section of professional organisations, creditor bodies, and the insolvency profession, and recently announced the progress they have made in setting up the Pre-Pack Pool. The Pool will be made up of experienced business people, able to independently scrutinise pre pack transactions to connected parties. Although the working group initially encountered a number of important issues that needed to be resolved before the Pool could commence operation, for example in sourcing a host for its administrative functions, positive steps have now been taken towards resolving these. The working group has already received many applications for the position of pool member, from highly experienced business people, and their recruitment process is well advanced. The Pool anticipates accepting its first cases in summer. This timing should enable the commencement of the Pool to coincide with the introduction of a strengthened SIP16, which is also intended to be published in the summer. General enquiries may be directed to email policy.unit@insolvency.gov.uk 26. Pre-pack Administrations and SIP 16 Following Teresa Graham’s independent report into pre-pack administrations, insolvency practitioners should be aware that the revised version of SIP 16 has been agreed by the Joint Insolvency Committee and is being issued on 1 October 2015. The implementation date of the revised SIP is 1 November 2013. The pre-pack pool will be launched on 2 November 2015. Following the introduction of the revised SIP 16, the Insolvency Service will be ceasing its monitoring activities and the monitoring of SIP 16 will instead be carried out by the RPBs. For all appointments in pre-pack administrations prior to 1 November 2015, practitioners should continue to send their SIP 16 disclosures to the Insolvency Service. For all appointments from 1 November 2015 onwards, practitioners should send a copy of their disclosure to their own RPB. In the case of joint appointments, and where practitioners are authorised by a different RPB, the disclosure should only be sent to the lead practitioner’s RPB. Any enquiries regarding this article should be directed towards Joseph Sullivan, nsolvency Practitioner Regulation Section, telephone: 0207 637 6495, email: joseph.sullivan@insolvency.gov.uk
As advised in Dear IP 69 of September last year, following Teresa Graham’s independent report into pre-pack administrations, the pre-pack pool was launched on 2 November 2015. This is part of a package of industry measures, including the revised SIP 16, which aims to improve the transparency of pre-pack administrations. The pre-pack pool is a group of experienced business people who will offer an opinion on the purchase of a business and/or its assets by connected parties to a company where a pre-pack sale is proposed. It is a separate process from the work of insolvency practitioners and the intention is to give creditors increased confidence in the sale. As part of the requirements of the revised SIP 16, insolvency practitioners should ensure that any connected party considering a pre-packaged purchase is aware of their ability to approach the pre-pack pool and of the potential that this may give to enhancing stakeholder confidence in the sale. All applications to the pool will receive a response within 48 hours. The SIP 16 statement should include either a reference as to whether or not the pre-pack pool has been approached by the connected party or a statement that a copy of the pool’s opinion has been given. Where an opinion has been given by the pool, this should be included within the SIP 16 statement, clearly indicating the date of the opinion. Practitioners can find out more information about the pre-pack pool and how an application can be made by going to www.prepackpool.co.uk or by contacting Duncan Grubb, Director, Pre Pack Pool Ltd - Tel: 07713 680672 or e-mail: governance@prepackpool.co.uk. If the pre-pack pool and other industry measures fail to improve transparency and stakeholder confidence, the Government has time-limited reserve powers which would enable it to restrict pre-pack administrations. Any enquiries regarding this article should be directed towards Judith Marsden, Insolvency Regulation Practitioner Section: Tel 0207 637 6547, email: Judith.marsden@insolvency.gov.uk
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