Keith Tully, partner, explains how insolvency changes that will come into force in 2016 will affect creditors.

Changes to the rules of insolvency are being introduced in 2016, with the aim of reducing red tape and removing long-established practices that are no longer appropriate in today’s technical age.

This is good news for creditor businesses, as the intention is to increase their returns. Here's an outline of the changes that may improve creditor dividends in the future.

Formal meetings to obtain creditor agreement

Currently, meetings are held during which the financial position of an insolvent company is presented to its creditors, and voting takes place as to the best way forward. These meetings increase the overall cost of administering the insolvency process, however, and in most cases, are unnecessary.

Expenses include the hire of meeting rooms, in addition to a charge for the IP’s time. These costs are borne by the creditor, ultimately resulting in reduced dividends for them. From 2016, in-person meetings will be replaced by other methods of communication, including email, virtual meetings, telephone conferencing and electronic voting.

A system of ‘deemed consent’ will be introduced, whereby an IP will send out notices to creditors, probably via email. If no objection is made to the proposal, agreement by the creditor will be assumed.

No more final meetings for creditors

At the end of an insolvency process, a final meeting is held to present the distribution of assets, and also to allow the IP to be released from office. Under the new insolvency rules, these meetings will be abolished, and correspondence carried out by email.

If a creditor objects to the office-holder’s release, they can do so by return of email, rather than in person – again saving money, and everyone’s time.

An opt-out option for ongoing correspondence

When creditor businesses receive notices regarding the insolvency, but have little hope of receiving any monies during the process, they will have the option to opt out of further correspondence.

This excludes notices of dividend payments, however, which will be sent regardless of whether this option has been chosen.

Submitting creditor claims

Claims for dividends of less than £1,000 will no longer require a formal application from the creditor. This saves costs incurred when the insolvency practitioner checks through the claim, and further reduces the administrative burden for all.

In short, from October 2016, an insolvency practitioner will be able to use the accounts and financial records of the insolvent business to establish validity of creditor claims under £1,000.

These are some of the changes to insolvency rules that will affect creditor businesses. All are intended to reduce the regulatory burden, and save money.

Cost savings made by the insolvency practitioner will be passed on to creditors, either directly or indirectly via the reduced cost of administering the process.

About the author

Keith Tully is a partner at Begbies Traynor Group and has 25 years' experience in the corporate insolvency sector, specifically advising company directors and stakeholders during times of financial uncertainty.