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With the Insolvency (Amendment) Rules 2015 having come into force from 1 October 2015, Susan Kelly of Squire Patton Boggs considers what this will mean for insolvency practitioners and the lawyers who advise them.
With the implementation of the Insolvency (Amendment) Rules 2015, SI 2015/443, IPs seeking to charge on a time costs basis in an administration, creditors’ voluntary liquidation (CVL), compulsory liquidation or bankruptcy, must provide creditors with an upfront estimate of their fees. The estimate has to be approved by creditors (including any subsequent increase in that estimate) prior to the IP being entitled to draw any funds from the insolvency. (Please see Squire Patton Boggs' earlier blog post—Tick Tock: What Fees Are On The Clock? Increased Scrutiny Of Insolvency Practitioners’ Fees In England And Wales)
The new rules also mean that the High Court will be able to transfer winding-up cases to the County Court at Central London.
The aim of the new estimating process is to provide greater transparency for creditors and trust in the insolvency system. The provision of more detailed information upfront about what the IP will be doing and the time to be spent in doing it should hopefully achieve this. It should also enable IPs to demonstrate what they do and the value they deliver in return for their fees. In Australia, a similar (although non-legislative) regime has been working well since 2007 (through the Australian Restructuring Insolvency and Turnaround Association Code of Professional Practice and APES 330).
It is a move away from the government’s original proposals, which were to abolish time costs altogether where there is no secured creditor or creditors’ committee. The changes will be compounded by the abolition of creditors’ meetings (unless they are requested by ten creditors or 10% of creditors in number or value). This change will be brought into force sometime in 2016. It will be more difficult for IPs to engage with creditors over such questions as fee estimates without meetings.
This will mean a new way of working for IPs. Usually the amount of work an insolvency appointment will generate is unknown at the outset, especially if the pre-planning phase has (of necessity) been relatively short and there is an incomplete understanding in the early phases of the issues an IP will have to deal with during the life of a matter. There will need to be a balance therefore, in providing a reasoned and realistic estimate and providing sufficient scope for dealing with contingencies.
IPs should also comply with the best practice guidelines set out in Statement of Insolvency Practice 9 (SIP 9). The current SIP 9 is being updated but the new version was not in place by 1 October 2015, leaving IPs in a very difficult position at the moment.
It would have been helpful if the new SIP 9 could have attached an approved format for IPs to use for their fee estimates to creditors so that there was an industry standard.
The IP will need to provide an indication of the anticipated expenses in each case. Lawyers advising in this area can expect to receive requests for estimates for their time costs for the work they think will be involved in a case. These estimates will be for creditors’ information only and will not need approval so there will be no need to go back to creditors if the estimates are exceeded.
Susan Kelly leads the Squire Patton Boggs restructuring and insolvency practice group in the UK and Europe.
Interviewed by Lucy Trevelyan.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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