The new insolvency rules, one year on: an IP's view
David Kirk looks at what has changed for insolvency practitioners and the liquidation process since April 2017.
The new insolvency rules came into force on 6 April 2017, so what’s 
changed, and how has the industry adapted to them?
The new rules were designed to modernise outdated legislation, with the following key changes:
- greater use of email and technology in communications
- the end of physical creditors meetings, unless requested
- the requirement to use gender-neutral language
The new rules have had an effect on all insolvency procedures, but most of all, the greatest impact has been on creditors’ voluntary liquidations (CVLs), which is a major part of our work.
There are now two ways to get into CVLs
Deemed consent
Deemed consent means that all of the paperwork is sent to creditors (part must go by post, and other parts may be emailed, which isn’t ideal) at the earliest opportunity. Within effectively eight days, the company is in liquidation.
A notice does not need to be placed in The Gazette, and no creditor needs to vote, although they can request a physical meeting. If no one objects to the appointment of a liquidator, then the company is deemed to have gone into liquidation at 11.59pm on the decision day. I’m not sure why the deadline to object wasn’t earlier in the day, say at 5pm. Nobody wants to have a client asking them at midnight what the outcome was.
Virtual meetings
The second way of getting into liquidation is by calling a virtual meeting of creditors. A notice is placed in The Gazette and the meeting paperwork is sent by email, but the statement of affairs has to be physically posted to creditors, which seems odd. The virtual meeting means setting a date and time at least 14 days in the future, when creditors can telephone in or join a meeting by telephone or videoconferencing facilities, such as Skype.
The meeting will normally be held in the liquidator’s office, so the director will attend in person to sign the forms, but bizarrely, if a creditor turns up, they will be sent away to telephone in to join the meeting. They can’t actually be present in person.
The remedy for the above for an unhappy creditor is for them to request that a physical meeting is held if they represent 10 per cent of the total value of claims; if ten creditors want this; or if 10 per cent of the total number of creditors in the case want this. This may cause some confusion for creditors.
In both cases above, a physical meeting is still required of shareholders. I am not sure why this wasn’t changed at the same time.
What has been the biggest impact on the industry?
The biggest impact has been the end of physical creditors’ meetings in liquidations. This has taken away a great opportunity for the liquidator to find out a little more about the relationships between directors and creditors, which has been helpful in many cases that I’ve encountered.
The law needed to change, because creditors hardly ever bothered to attend or vote at meetings. However, the new rules have perhaps made the process more complicated for creditors.
What are the positive outcomes of the new rules?
- It's certainly easier to communicate with creditors by email, and this has speeded up the process and saved postage costs, as well as allowing certainty that the communication has been received.
- Creditors no longer need to attend meetings because they think they’d otherwise be missing out, which sometimes meant a day of travelling to and from the location.
- The deemed consent procedure has also been good for smaller cases, and has made the process of liquidation cheaper.
What needs to change in the future?
Working through some examples to practice the (mostly good) ideas for the new rules may have helped to address these anomalies, which a revision may be required to remedy.
About the author
David Kirk is a chartered accountant and licensed insolvency practitioner based in the south west. Follow @kirksinsolvency or visit www.kirks.co.uk.
See also