One Minute With Glen Davis QC & Marcus Haywood, Editors of the Butterworths Insolvency Law Handbook

What new insolvency legislation do practitioners need to know?

Royal assent has recently been given to two Acts which make some significant changes to insolvency legislation namely:

  • The Small Business, Enterprise and Employment Act 2015 ("SBEEA"); and
  • Deregulation Act 2015 ("the Deregulation Act")

The insolvency related provisions of both of these Acts are included in the seventeenth edition of the Butterworths’ Insolvency Law Handbook. In addition, the Handbook contains the changes to the Insolvency Rules 1986 made by the Insolvency (Amendment) Rules 2015 and the insolvency related provisions of the Co-operative and Community Benefit Societies Act 2014 and the Pension Schemes Act 2015. Significant changes to the Scottish insolvency regime made by the Insolvency (Scotland) Amendment Rules 2014 and the Bankruptcy and Debt Advice (Scotland) Act 2014 are also included in the book.

What are key insolvency related changes brought about by SBEEA?

In July 2013 the Department for Business, Innovation and Skills consulted by seeking feedback to a discussion paper, amongst other things, on measures to strengthen the director disqualification regime. The Government response to the consultation was published in April 2014, and the proposals made included those to provide a new ground for disqualifying a director convicted abroad of a company-related offence; changes to the matters that a court must take into account when considering a disqualification and measures to provide a process for pursuing compensation for creditors following the disqualification of a director. Part 9 of SBEEA contains measures that seek to put these proposals into legislation. No date for the commencement of these provisions has yet been set. However, the changes, when acted, will be significant. They include the following:

  • Convictions Abroad

Section 104 of SBEEA introduces a new ground for bringing disqualification proceedings under the Company Directors Disqualification Act 1986 (“CDDA 1986”). It allows the Secretary of State to apply to the court for the disqualification as a director of a person who has been convicted of certain offences overseas.

  • Persons instructing unfit directors

Section 105 of SBEEA inserts new sections into the CDDA 1986 to introduce a new ground for disqualification for persons who are not directors but who exert requisite influence over a director.

  • Reports of office-holders on conduct of directors of insolvent companies

Section 107 of SBEEA inserts a new section 7A into the CDDA 1986 with the aim of simplifying the procedure whereby office-holders report on the conduct of directors of insolvent companies. The new section will require submission to the Secretary of State of a conduct report on every director of a company that becomes insolvent.

  • Compensation orders

Section 110 of SBEEA gives the court a new power to make a compensation order against a person, on the application of the Secretary of State, where the conduct for which that person has been disqualified has caused loss to one or more creditors of an insolvent company of which they have at any time been a director.

Insolvency office holders and creditors of insolvent companies will, no doubt, be encouraged by the possibility of enhanced recoveries possible under compensation orders when the relevant provisions come into force.

Are there any other significant changes brought about by SBEEA practitioners should be aware of?

The Insolvency Red Tape Challenge, which was established by the Government in 2012, identified a number of measures designed to improve the efficiency of insolvency processes and reduce the costs of administering insolvency proceedings. The Insolvency Service consulted on these measures in July 2013 and published the Government response to the consultation in January 2014. Part 10 of SBEEA contains measures that result from these proposals. Some significant changes to be brought about by Part 10 of SBEEA include:

  • A power for administrators to bring claims for fraudulent or wrongful trading

Section 117 amends the Insolvency Act 1986 ("IA 1986") to permit an administrator to bring an action for wrongful or fraudulent trading where a director (or in the case of fraudulent trading, any person) has caused the business of an insolvent company to trade wrongfully or fraudulently.

  • A power to assign statutory causes of action

Section 118 of SBEEA amends the IA 1986 to allow a liquidator or administrator to assign causes of action in respect of, amongst other things, fraudulent trading, wrongful trading, transactions at an undervalue and preferences.

  • Meetings

Section 122 and 123 of SBEEA amend the IA 1986 so that physical meetings will no longer be the default mechanism for seeking decisions from creditors and contributories in insolvency proceedings.

  • Administration: sales to connected persons

Section 129 of SBEEA creates a power for the Government to make regulations in respect of sales in administration to connected parties. Such regulations could prohibit such sales or stipulate conditions to be met to allow such sales to proceed. This follows the ‘The Graham Review into Pre-Pack Administration’ which recommended a package of voluntary reforms to improve the transparency and outcomes of pre-pack administrations. That report also recommended that the Government take a power along the lines set out in section 129 to cover all business sales to connected persons in administrations, not just what are traditionally thought of as pre-packs (in case the market did not adopt the Review’s voluntary reforms). The conditions and requirements that could be stipulated include, in particular, the requirement to seek the approval of creditors, the court or an independent person.

All of the changes described above will only come into force once further secondary legislation has been passed.  There is, however, no precise indication, at this stage, as to when this may be.

And what are the main insolvency related changes brought about by the Deregulation Act?

The main changes to be brought about by this Act are as follows:

  • A new regime will allow for the partial authorisation of insolvency practitioners. In the future, insolvency practitioners will be able to be authorised in relation to companies, individuals or both (as is currently the case).
  • Changes will be introduced to prevent unnecessary delays to the appointment of administrators, for example, by clarifying that winding-up petitions presented during the interim moratorium preceding administration do not prevent the appointment of an administrator.

The majority of these changes will be introduced in or after October 2015.

Filed Under: Insolvency

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