One minute with His Honour Judge Edward Bailey

His Honour Judge Bailey was called to the Middle Temple Bar in 1970 and has been a circuit judge (SE Circuit) since 2000. He is also the editor of Bailey and Groves: Corporate Insolvency - Law and Practice.

How do you think the Small Business Enterprise and Employment Act 2015 (SBEEA 2015) will affect the courts?

It is a particular feature of English insolvency law when contrasted with the insolvency laws of almost all continental systems that so much can take place in the insolvency of a company without the involvement of the court. This is possible of course because we have both the official receiver and the qualified insolvency practitioner (IP), the latter regulated by his professional body. Against this general background it is unsurprising that there is little in the SBEEA 2015 which impacts directly on the courts.

The prime exception is the new power, with as yet no date for implementation, of an administrator or liquidator to assign a right of action vested in him as office-holder. For the litigator and the courts it will be intriguing to see the extent to which this power is used. Given the importance in the insolvency landscape of administration, the extension of claims for fraudulent and wrongful trading to administrations is significant in this connection. Office-holders have been understandably reluctant to pursue such claims themselves, and for so long as the proceeds of any successful claim formed part of the company’s assets there was little incentive for creditors, however incensed with the manner in which the company’s pre-insolvency affairs had been administered, to fund the bringing of office-holder claims. This is now changed. A third party may take an assignment and keep the proceeds, subject to the agreement he makes with the office-holder. In the majority of cases there will be sufficient uncertainty in the success of any particular claim to justify an assignment at a relatively low premium making it a sufficiently attractive proposition to encourage the use of these provisions.

If the market in office-holder claims assignment does indeed take off, the focus will turn to the ability of the courts to handle the additional work with reasonable expedition. Waiting times both for interim and final hearings are at present not what most courts would wish. It is plain that whoever wins the forthcoming election there will be considerably increased pressure on HMCTS budgets, so the outlook for improvement in a generally unsatisfactory situation is not exactly bright. Litigants can rely on the Chancellor to do whatever can be done to reduce waiting times, but the background is not favourable.

Which areas of the reforms are likely to concern lawyers (if any)?

Lawyers should not be concerned, in the sense of being uneasy, at any of the changes resulting from the SBEEA 2015. The assignment of office-holder actions should interest lawyers, especially where the office-holder is agreeable to assigning the claim for a percentage of recovery (after costs) as opposed to the payment of a fixed sum. Experience in other fields of litigation is hardly comparable but is generally encouraging.

Other than the above, the more technical changes, the removal of the need for sanction for the liquidator (or trustee) exercising his Schedule 4 (or 5) Insolvency Act 1986 powers, the removal of the need to hold physical meetings, the extension of an administrator’s term of office, and the ability of an office-holder to pay small debts without formal proof, will reduce the need (such as it is) for legal advice on technical matters.

Which areas of reform are likely to concern IPs (if any)?

An essential element of the 1986 legislation the requirement for properly qualified and regulated IPs has worked well. England and Wales have avoided the scandals encountered in continental countries involving IPs and judges, and not only because of the quality of our judiciary. Nonetheless, IPs have to steady themselves for choppy waters ahead both on fees and regulation. The changes to fees were coming without the SBEEA 2015, and it remains to be seen whether the requirement to provide additional information to creditors will in fact reduce overall fee levels or whether, as is regrettably the case in much of the smaller civil litigation, it will have no or even the reverse effect.

SBEEA 2015 brings in a new regulatory regime, and brings insolvency work into line with other areas of life where broadly stated and high-minded regulatory objectives are the order of the day. The new recognised professional bodies (RPBs) (s.137) are given ‘regulatory objectives’ (hardly new but newly stated) to provide a framework within which their regulatory functions are to be carried out (s.138). As the explanatory notes to SBEEA 2015 (s.780) state ‘At present, these do not exist in law’. Why, it may be asked, after almost 30 years of the new regime? How did we manage? But this is the tide that is flowing strongly, and any suggestion that the profession managed well without such a statutory framework must be consigned to a misplaced eddy. These regulatory objectives are intended to ensure that:

(1) The RPBs have a system of regulating IPs that:
(a) delivers fair treatment for persons affected by an IPs’ acts and omissions;
(b) reflects the regulatory principles that the RPB’s regulatory activities are transparent, accountable, proportionate, consistent and targeted; and
(c) ensures consistent outcomes.
(2) the RPBs are encouraging an independent and competitive IP profession, whose members deliver high quality services at a fair and reasonable cost, act with transparency and integrity and consider the interests of the creditors in the case;
(3) IPs seek to maximise returns to creditors and are prompt in making those returns; and
(4) the public interest is protected and promoted during the insolvency process.

The concern of IPs must be that on the one hand any professional who misbehaves is caught and dealt with firmly, and on the other hand that monitoring for regulatory purposes is concerned more with substance than form. IPs face a torrent of time limits which they must take seriously. They will appreciate that it is easier for a monitor to pick up on actions taken a day or two late than on an asset sale pursued with less diligence than might have been employed and, by the same token, less credit given for a sale achieving a higher price than might reasonably have been expected. At the end of the day there is no escaping the fact that effective regulation requires monitors both to put in the necessary hard work and to exercise sensible judgment. The present regime has done pretty well and, while there can never be cause for complacency in this area, IPs are entitled to hope that the changes in statutory background will not lead to any more intrusive monitoring than exists at present. They can have no realistic expectation however that the cost associated with being an IP will not rise just at a time when there is to be pressure on fees. Doubtless the profession as a whole will manage.

The technical changes referred to above will surely be welcomed by IPs. The changes continue an updating process began with the 2010 amendment rules and which, it may reasonably be expected, will continue without lagging too far behind technological change.

Filed Under: Market news

Relevant Articles
Area of Interest