Scottish insolvency procedure tweaked: The Insolvency (Scotland) Rules 2018 (Miscellaneous Amendments) Rules 2019

Steven Wood, Practice Support Specialist (Insolvency) at the Institute of Chartered Accountants of Scotland (ICAS), considers the changes to Scottish insolvency procedure brought in by two recent SIs: The Insolvency (Scotland) Rules 2018 (Miscellaneous Amendments) Rules 2019 and The Small Business, Enterprise and Employment Act 2015 (Consequential Amendments, Savings and Transitional Provisions) Regulations 2019. 

Two statutory instruments have been laid which make minor corrections to the new Scottish Insolvency Rules and makes miscellaneous amendments to reserved and devolved legislation required as a result of the introduction of the new rules.

The Insolvency (Scotland) (Company Voluntary Arrangement and Administration) Rules 2018, SI 2018/1082 (ISCVAAR 2018) and the Insolvency (Scotland) (Receivership and Winding Up) Rules 2018, SSI 2018/347 (ISRWUR 2018), (referred to jointly as the 2018 Rules), came into force on 6 April 2019.

The Insolvency (Scotland) Rules 2018 (Miscellaneous Amendments) Rules 2019, SI 2019/1059 (the amendment Rules) have been laid in Parliament and come into force on 23 July 2019. 

Delivery of draft final account to members in an MVL 

Rule 3.11 ISRWUR 2018 relates to the delivery of the draft final account to members in a members’ voluntary liquidation (MVL). It states that the liquidator must give members a minimum of eight weeks’ notice of a specified date on which the liquidator intends to deliver the final account, as required by section 94(2) of the Insolvency Act 1986 (the 1986 Act).

Rule 3.11(3) currently states that the eight-week period can be shortened ‘if every member confirms in writing to the liquidator that they do not intend to make any such request or application.’ However, there is no prior paragraph to define what ‘request or application’ is being referred to.

In order to rectify this, the amendment Rules will modify rule 3.11(3) so that it reads ‘if every member confirms in writing to the liquidator that they are content with the draft final account.’

This change clarifies that the eight-week period can be shortened with the members’ consent, allowing the liquidation to be concluded at an earlier point.

Transitional and savings provisions-progress reports and statements to the registrar of companies

Schedule 2 of ISRWUR 2018 provides transitional and savings provisions. Paragraph 7 of the transitional and savings provisions relates to progress reporting obligations in liquidations.

Paragraph 7(2) states that the provisions of ISRWUR 2018 regarding progress reporting do not apply at all to cases where the petition was presented prior to 6 April 2019. However, the intention, per AiB guidance, was simply to disapply the reporting provisions of ISRWUR 2018 for circumstances where para 7(1) applies (where the obligation to report had arisen before 6 April 2019 but had not been fulfilled).

The amendment Rules correct the position by omitting para 7(2) entirely and amending para 7(1) so that it reads ‘Where an obligation to prepare a progress report arises before the commencement date but has not yet been fulfilled 1986 rules 4.10 (information to creditors and contributories), 4.11 (information to register of companies) and 4.56 (liquidator’s reports) continue to apply and the provisions of these Rules relating to progress reporting do not apply.’

Notwithstanding the change, the amendment Rules do not address the question of what should be the period covered by the first progress report issued after 6 April 2019, which was raised in a previous article published on icas.com.

ISCVAAR 2018 

The regulations make six minor amendments to ISCVAAR 2018 to rectify small errors in terminology or cross-referencing of section numbers, mostly in relation to Part 3—Administration. 

Other 

The regulations also make some minor technical amendments to other legalisation which currently refers to the Insolvency (Scotland) 1986 Rules (the 1986 Rules), to ensure it now refers to the 2018 Rules. The amendments affect:

• Insurers (Winding Up) (Scotland) Rules 2001, SI 2001/4040  

• SI 2005/524Insolvency Practitioners Regulations 2005,  

• SI 2015/1493European Grouping of Territorial Cooperation Regulations 2015,  

• Bankruptcy (Scotland) Act 2016

The Small Business, Enterprise and Employment Act 2015 (Consequential Amendments, Savings and Transitional Provisions) Regulations 2019, SI 2019/1058 (SBEAA Regulations 2019) 

The SBEAA Regulations 2019  have also been laid and will come into force on 23 July 2019. These regulations make consequential amendments to other secondary legislation that refers to the 1986 Rules, which are necessary in order to fully and consistently implement the measures in the Small Business, Enterprise and Employment Act 2015 in Scotland to mirror changes already implemented in England and Wales.

The regulations also introduce further savings provisions in relation to the 1986 Act and 1986 Rules which has the effect of retaining the application of the 1986 Rules for a number of special insolvency procedures in Scotland where the SBEEA reforms have not been enacted.