Review of insolvency secondary legislation
Comments from ACCA
January 2006
ACCA is pleased to comment on the Service’s project to review the body of secondary legislation on insolvency.
We welcome the initiation of this project. We think that there is indeed scope for the achievement of some streamlining, a reduction of duplication and inconsistencies, and an increase in general user-friendliness. All of these outcomes offer the prospect of reducing the cost burden to stakeholders. Our specific suggestions for the Service to consider are set out below.
Format of the Insolvency Rules
Much of what may be regarded as duplication in the Rules arises from the fact that the various types of procedure are dealt with separately in them. This leads to some degree of repetition with respect to matters which are common to (or similar in) more than one type of procedure.
While this does tend to increase the size of the Rules overall, we still consider that it is best to set out all the rules applicable to each type of procedure separately. Doing it this way tends to be more user-friendly and avoids the need for readers to cross-refer to other sections of the text. It also acknowledges the reality that many IPs will specialise in only one or two procedures and rarely if ever need to consult the rules on other types of procedure.
A separate issue for consideration is whether the various secondary statutes might be consolidated. At present we have not only the Rules but numerous Regulations and Orders. While consolidation would result in a very sizeable single statute, having all the relevant rules in one place could have the benefit of ensuring that users were aware of all the provisions which applied to them.
As regards actual content, the current Rules contain provisions on some matters, such as court procedure, which are not directly concerned with case administration. There may be scope for taking such provisions out of the Rules so that the Rules can focus exclusively on technical insolvency matters.
Post-Enterprise Act matters
Following the changes introduced by the Enterprise Act 2002, aspects of both primary and secondary legislation have become particularly complicated. This is certainly the case with regard to Administrations. At present the Rules incorporate separate provisions in respect of cases commenced before and after 15 September 2003. Other procedures reformed by the Enterprise Act have not resulted in this sort of complexity. The review should aim to eradicate this where it exists and ensure that only one set of rules applies to each procedure.
Access to the Rules and Regulations
Consolidated versions of the Rules and Regulations are available in hard copy format from several commercial sources, and all IPs can be expected to have access to one or more of these. But these publications are updated only on an annual basis and IPs may not always be referring to the legislation which is actually in force. We suggest that the Service considers the possibility of carrying links to consolidated versions of the secondary legislation on its web site, using resources which are already available via the HMSO web site. There will remain a strong market for the hard copy publications because of the narrative guidance which invariably supplements the legal text in them.
Remuneration
Consideration needs to be given to the rules on approval of remuneration, which often cause difficulties in practice for IPs. The two primary bases of remuneration approval remain i) percentage of realisations and ii) time properly spent on the case. Both these bases assume some knowledge on the part of the creditors of the amount of work carried out by the IP. If the resolution is taken at the outset of the procedure, it is impractical to expect the creditors to have any such knowledge, hence they will be giving their approval without any insight into, for example, additional investigatory work which a liquidator might be obliged to carry out. Where an IP defers the resolution until late on in the case, by which time creditors can be expected to have had feedback about the extent of the IP’s involvement in the case, creditors will often not be interested in participating attending meetings – this can prevent the IP from obtaining authorisation for his remuneration.
There needs therefore to be some alternative formula for the basis of remuneration that rewards value added and which enables IPs to obtain authorisation on a basis that is comprehensible to creditors or shareholders. We believe that the Service should consider the merits of permitting the approval of fixed fees in certain types of procedure where this would be appropriate, such as SIVAs and members’ voluntary liquidations, and which would be in line with what we understand shareholders’ preference to be.
The review might also consider whether there needs to be some new provision in the Rules to address the recovery of final case costs by the IP, particularly where there is for some reason a substantial delay between the final meeting where approval for the quantum of fees is obtained and actual case closure.
Electronic communications
We agree that the review needs to address the issue of how to modernise the legislation so as to reflect the role which electronic communications now plays in business life. Other parts of UK law now accept electronic communications as being equally valid to written ones, so updating insolvency law, where it is valid to do so, would be consistent with what is happening elsewhere. It may not be appropriate, however, to mandate electronic communications in all cases, especially where individual consumers are affected.
Advertisements
The legislation still requires IPs to publish prescribed information about insolvency cases in the Gazette and in local publications. We accept the continued case for requiring advertisements to be placed in the Gazette, which is a publication of record and is widely understood in business to be the carrier of important commercial notices. But we query whether it is still appropriate to require notices to be filed in the classified columns of local publications. We suspect that, where creditors access relevant information about the insolvency of a business via a ‘local’ publication, this may be more likely to arise from editorial coverage than from reading the classified notices.
It would be in order, we suggest, to conduct some assessment of whether these notices really serve a useful purpose in bringing relevant information about insolvencies to creditors in the locality served by the publications concerned. There might also be some consideration given to alternative means of disseminating the information concerned.
Also with regard to advertisements in local publications, the Rules contain requirements for such notices to be filed with the court in bankruptcies and compulsory liquidaitons. Whether or not the requirement to send notices to local publications is retained, we query whether the requirement to file them in court serves any useful purpose – if proofs of debt do not have to be filed, there does not seem to be any pressing case for local notices to be filed.
Creditors’ meetings
Creditors’ meetings, including committee meetings, often involve the substantial expense of time and money on the part of IPs and their staffs, the costs of which are charged to the estate. Consideration should be given to whether it should be acceptable for such meetings to be held via alternative means to the holding of a physical meeting, for example by means of correspondence or telephone conferencing. Meetings in Administrations can already be held by correspondence. If such means are to be made more widely available, however, it would be appropriate to make their use dependent on specified qualifying criteria being met.