May 2015
Small Business, Enterprise and Employment Act.
Insolvency related changes.
SUMMARY
ISSUE
PROVISIONS
COMMENCEMENT
26 May 2015
Shadow
Applying to shadow directors the Companies Act 2006 general duties of directors, to
Part 7, ss89-
directors
the extent they are capable of applying (with clarification to be provided in regulations)
91
and also amending the definition of shadow director to expressly exclude from the
concept persons exercising a statutory function whose directions or instructions the
board follows.
Removal of
Removes all need for a liquidator to get the sanction of the court or liquidation
requirements to
committee to exercise any of the powers in Schedule 4 to the Insolvency Act 1986.
ss120-121
26 May 2015
s127
26 May 2015
s128
26 May 2015
s129
26 May 2015
s131
26 May 2015
seek sanction
Extending
Creditors will now be able to extend the administrator’s term of office by one year,
administrator’s
rather than just 6 months.
term of office
Administrator:
Empowers the administrator to distribute the prescribed part to unsecured creditors
payments to
without the need to obtain court consent. Clarification is also made to the
unsecured
administrator’s option to move into CVL from administration under para.83 – it does
creditors
not apply where the only distribution being made to unsecured creditors is the
prescribed part.
Reserve power
Provides for a reserve power of the Secretary of State to prohibit or impose
to regulate
requirements or conditions on administration sales to connected persons. The power
connected
expires in June 2020. The reserve power was included to ensure industry compliance
party sales
with the non-binding recommendations of the Graham review on insolvency prepacks.
No need to
Enables provision to be made in the Insolvency Rules under which creditors will not
prove for small
be required to prove for any “small debt” but will be treated as having done so for the
debts
purposes relating to the distribution of the company’s property. The amount is to be
prescribed by the rules, although the current draft suggests a small debt will be one
not exceeding £1000.
Small Business, Enterprise and Employment Act
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Voluntary
Clarifies when the commencement of the 28 day time limit for challenging an IVA
arrangements
begins, depending on whether a report to court on the outcome of the creditors’
ss134-135
26 May 2015
s136
26 May 2015
Tbc
meeting to consider the IVA proposal was required to be made. Abolishes the
individual fast-track IVA.
Progress
Clarifies that a progress report must be made if the liquidator changes within the first
reports
year of the liquidation.
Directors’
Introduces a new approach to the reporting of director misconduct by liquidators,
Part 9 (ss104-
disqualification
administrators and administrative receivers and provides for two new grounds for
116)
disqualifying a director in the UK - against a person convicted of a company-related
Schs.7 and 8
offence overseas and against a person (not necessarily a shadow director
themselves) who has instructed a disqualified director. Also broadens the range of
matters a court must consider when disqualifying, to include consideration of the
nature and extent of harm the misconduct has had and the director’s track record in
running failed companies. Extends from 2 to 3 years the period after which the court’s
permission is necessary to bring a disqualification claim. Provides for a new power of
the court to make a compensation order against a disqualified director who has
caused loss to one or more creditors, such compensation to be payable to a specific
creditor or to creditors or a class or classes of creditor.
Abolishing
The ways in which creditors may engage with office-holders in insolvency
ss122-123
need for
proceedings are increased to make full use of modern communication methods. The
Sch.9
creditor
requirement to hold physical meetings in every case is removed and replaced with
meetings and
alternative methods, such as virtual meetings, electronic voting, meetings by
deemed
correspondence or deemed consent where appropriate. Creditors will still be able to
consent
ask for a physical meeting. Final meetings of creditors, for which there is rarely any
Tbc
creditor interest, will be abolished. The deemed consent procedure may be used
unless the legislation or the court says otherwise (in which case the ‘qualifying
decision procedure’ will be used). Under it, creditors would be given notice of the
relevant matter and the proposed decision and would be treated as having made that
decision unless more than 10% in value object.
Enabling
Allows creditors with no further interest in the insolvency to opt out of – or even to be
ss124-126
creditors to opt
deemed to have opted out of - receiving routine correspondence and reports from the
Sch.9
out of receiving
office holder. This will not include correspondence with regard to payment of a
notices
dividend. The revised Insolvency Rules (likely to come into force in 2016) will set out
Tbc
the process for a creditor to opt out or be deemed to have opted out (as well as how
to opt back in).
Office holder
Extends fraudulent and wrongful trading powers to administrators by introducing new
Part 10,
actions
sections 246ZA and 246ZB to the Insolvency Act 1986 respectively. Liquidators and
ss117-119
Tbc
administrators will be able to assign ‘officeholder’ causes of action – namely,
fraudulent and wrongful trading claims and claims for any transaction at an
undervalue, preference and extortionate credit transaction. Clarifies that the proceeds
Small Business, Enterprise and Employment Act
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of any such claim or assignment are not caught by pre-existing floating charges.
Regulation of
New regulatory objectives will provide the insolvency regulators with a clearer,
IPs
enhanced framework within which to carry out their activities and provide the
ss137-146
Tbc
s133
Tbc
oversight regulator (the Insolvency Service) with a legislative framework to hold the
regulators to account. These include a requirement that insolvency practitioners
should provide services at a cost which is fair and reasonable. This will require the
regulators to take action to deal with unreasonable fees charged by insolvency
practitioners. A range of sanctions, including directing a regulator to take action,
imposing a financial penalty, issuing a reprimand or revoking recognition, will be
provided to ensure that appropriate action is taken where a regulator is not acting in
accordance with the regulatory objectives. The oversight regulator will also be able to
apply to court to directly sanction an Insolvency Practitioner where it is in the public
interest to do so. A reserve power has been taken to establish a single insolvency
regulator if the reforms to strengthen the regulatory regime do not build confidence.
Trustees in
Clarifies who will be an individual’s first bankruptcy trustee, including where a
bankruptcy
bankruptcy order is made following an IVA.
Small Business, Enterprise and Employment Act
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Contacts
For further information
please contact:
Tony Bugg
Partner and Global Head,
Restructuring & Insolvency
Group
(+44) 207 456 4470
[email protected]
Richard Bussell
Partner, Restructuring &
Insolvency Group
(+44) 207 456 4672
[email protected]
Rebecca Jarvis
Partner, Restructuring &
Insolvency Group
(+44) 207 456 4466
[email protected]
Richard Hodgson
Partner, Restructuring &
Insolvency Group
(+44) 207 456 3797
Author: Paul Sidle
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© Linklaters LLP. All Rights reserved 2015
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Paul Sidle
Senior PSL, Restructuring &
Insolvency Group
(+44) 207 456 4698
[email protected]
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Small Business, Enterprise and Employment Act
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