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The draft Small Business, Enterprise and Employment Act 2015 (Consequential Amendments, Savings and Transitional Provisions) Regulations 2017 have now been made by Parliament as the Small Business, Enterprise and Employment Act 2015 (Consequential Amendments, Savings and Transitional Provisions) Regulations 2018. Simon Hunter, barrister at 3 Stone Buildings, says the regulations are identical to the draft version circulated in 2017.
When will the new regulations come into force?
Parts 1 and 5 of the Small Business, Enterprise and Employment Act 2015 (Consequential Amendments, Savings and Transitional Provisions) Regulations 2018, SI 2018/208, came into force in part on the day after they were made, which was 20 February 2018 (therefore 21 February 2018). Parts 2, 3 and 4 will come into force 21 days after the date the regulations were made, ie on 13 March 2018. Practitioners should note the transitional provisions made in Part 4 of the regulations.
What is the purpose of the regulations?
The purpose of these regulations is to start the process of aligning the special insolvency regimes that exist for financial institutions and other connected parties and bodies with the reforms to the general insolvency legislation which came into effect on 6 April 2017. The core of those reforms to the general insolvency legislation was the removal of various of the requirements to hold physical meetings.
The regulations are, in essence, a stopgap measure. The explanatory memorandum produced to accompany them admits that the process of aligning the special regimes with the reformed general regime will take some time.
For those parts of the special regimes where the impact of the reforms is clear, they have been varied by the regulations to align with the general position. Where more work is needed to ascertain what the impact will be, the regulations expressly disapply the reforms, thereby preserving the position as it was before 6 April 2017. No doubt this will not be the last that practitioners hear of this subject.
Furthermore, practitioners will be aware that the Insolvency Rules 1986 (IR 1986), SI 1986/1925, have been replaced by the Insolvency (England and Wales) Rules 2016 (IR 2016), SI 2016/1024. The regulations also make provision for the old, IR 1986, SI 1986/1925 to apply in relation to special insolvency rules that exist in relation to some types of financial institutions.
What are the changes for building societies?
For building societies, the regulations insert new paragraphs into Schedules 15 (new para 6ZA) and 15A (new para 6A) of the Building Societies Act 1986 (BSA 1986). The effect of these paragraphs is to disapply the reforms to the general insolvency law concerning meetings and the rights of creditors to opt out of notices.
The regulations also provide that the IR 1986, SI 1986/1925 shall apply—as they were before their revocation—to the Building Society Special Administration (England and Wales) Rules 2010, SI 2010/2580, and the Building Society Insolvency (England and Wales) Rules 2010, SI 2010/2581.
What are the changes for friendly societies?
For friendly societies, the regulations insert a new paragraph into Schedule 10 (new para 6A) of the Friendly Societies Act 1992. The effect of this paragraph is, as with the paragraphs in BSA 1986, to disapply the reforms to the general insolvency law concerning meetings and the rights of creditors to opt out of notices.
What are the changes for authorised persons and others under the Financial Services and Markets Act 2000 (FSMA 2000)?
Practitioners will no doubt be aware that under FSMA 2000 provision is made for regulating certain activities in the financial sector. FSMA 2000 defined classes of regulated parties, including authorised persons (which may be individuals or companies), recognised investment exchanges and appointed representatives. Certain activities are also defined as regulated activities.
FSMA 2000, s 355 and following modifies the application of the general insolvency law to these regulated parties and, in certain cases, to unregulated parties carrying on regulated activities. One effect of that modification has always been to permit the appropriate regulator (currently the Financial Conduct Authority or the Prudential Regulation Authority as the case may be) to be heard in the proceedings and at meetings of creditors.
The main effect of the changes made by the regulations is to allow regulators to be heard at, but not to vote in, creditors’ decision procedures under the reformed scheme of the insolvency legislation. This is one area where the special regimes described above have been modified to take account of the reforms to the general insolvency legislation.
What are the changes for banks?
Part 2 of the Banking Act 2009 (BA 2009) creates two special insolvency procedures called ‘bank insolvency’ and ‘bank administration’. It is not the purpose of this note to detail these procedures, but they are in part created by reference to the Insolvency Act 1986, which is then modified by BA 2009, Pts 2 and 3. The regulations alter those modifications so that they continue to apply as they were before the reforms to the general insolvency legislation described above.
For investment banks, a special insolvency procedure called ‘investment bank special administration’, or simply ‘special administration’, is created by the Investment Bank Special Administration Regulations 2011, SI 2011/245. Again, this is in part created by the modified application of the general insolvency legislation. The regulations also alter those modifications so that they continue to apply as they were before the reforms to the general insolvency legislation described above.
However, for banks which are former authorised institutions, the reformed provisions are applied, by virtue of the modifications made by the Banks (Former Authorised Institutions) (Insolvency) Order 2006, SI 2006/3107, which is not modified to disapply the reforms.
The regulations also provide that the IR 1986, SI 1986/1925 shall apply—as they were before their revocation—to the Bank Insolvency (England and Wales) Rules 2009, SI 2009/356, and the Bank Administration (England and Wales) Rules 2009, SI 2009/357. For the Investment Bank Special Administration (England and Wales) Rules 2011, SI 2011/1301, the IR 1986, SI 1986/1925 are not to apply (no provision being made for their general application), but the effect of IR 1986, SI 1986/1925, r 12A.30, is saved in respect of the statements of affairs and concurrence required by Investment Bank Special Administration (England and Wales) Rules 2011, SI 2011/1301, r 54.
What are the changes for financial market infrastructure companies?
As with banks, for financial market infrastructure companies there is a special insolvency procedure, known as ‘FMI administration’. This is created by the Financial Services (Banking Reform) Act 2013. The regulations apply the reformed provisions of the general insolvency law to this procedure. However, practitioners should be aware that the explanatory memorandum which accompanies the regulations states that ‘special rules are being drafted in a separate set of amendments’, so this will not be the last that we hear on this subject.
What are the main changes for insurers?
For insurers, the modifications necessary for the proper conduct of their insolvency are found in a series of pieces of secondary legislation. The following are modified by the regulations:
The main change made is to apply the reformed provisions of general insolvency to insurers.
What are the other main changes?
The modifying provisions of two further SIs (the Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2013, SI 2013/1388, and the Co-operative and Community Benefit Societies and Credit Unions (Arrangements, Reconstructions and Administration) Order 2014, SI 2014/1822) are amended to ensure that they apply without the reforms to the general insolvency legislation referred to above. Provision is also made for the IR 1986, SI 1986/1925 to continue to apply to procedures under these two SIs.
Interviewed by Anne Bruce.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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