Small Business, Enterprise and Employment Act 2015—impact on insolvency

The Small Business, Enterprise and Employment Act 2015 (SBEEA 2015) has introduced a number of changes to the law relating to companies and insolvency.

What is the significance of SBEEA 2015 for insolvency professionals?

SBEEA 2015 received Royal Assent on 26 March 2015 and introduced a series of amendments and legislative clarifications intended to ensure that the UK continues to be recognised globally as a trusted and fair place to do business and to open up new opportunities for small businesses to innovate and compete. This has brought in a number of changes to companies and insolvency to ensure a strong regulatory regime for those that administer insolvencies.

Insolvency professionals should be aware of these changes as they have an impact on many aspects of insolvency practice and procedures, and the directors disqualification regime. Most of the changes brought about under SBEEA 2015 will be introduced by separate statutory instrument, but some are effective from 26 May 2015 (see Commencement below).

Directors disqualification (SBEEA 2015, ss 104–111 and Sch 7)

The main changes to the Company Directors Disqualification Act 1996 brought about by SBEEA 2015 are:

  • to require insolvency practitioners (IPs) to report to the Secretary of State (SoS) on the conduct of every director of a company that becomes insolvent
  • to require the report to describe any conduct which may assist the SoS in deciding whether it is in the public interest to apply for the making of a disqualification order
  • to require courts to consider a wider range of matters than previously, including the director’s track record, and the nature of those who have suffered due to the misconduct, when deciding whether or not to disqualify
  • to enable disqualification proceedings to be taken in the UK where there has been misconduct, or directors have been convicted, in overseas companies
  • to enable proceedings to be taken against a person who has caused a director’s unfitness
  • to increase the period of time within which disqualification proceedings may be taken following a formal insolvency from two to three years
  • to remove legislative barriers between regulators which currently restrict the use which may be made of information and reports provided by other regulators in deciding whether or not to bring disqualification proceedings, and
  • the introduction of a new power to enable the SoS to apply for a compensation order to be made against a disqualified director where the misconduct has caused identifiable loss to a creditor or creditors

Office-holder actions (SBEEA 2015, ss 117–119)

The main changes to office-holder actions brought about by SBEEA 2015 are:

  • fraudulent and wrongful trading actions will be able to be brought by an administrator (currently, only liquidators have the power to bring such actions)
  • corporate office-holders will be able to assign causes of action or the proceeds arising from them, in respect of:
    • fraudulent and wrongful trading
    • transactions at an undervalue and preferences (England and Wales)
    • gratuitous alienations and unfair preferences (Scotland)
    • extortionate credit transactions
  • a new statutory provision will confirm the existing position created by case law that the proceeds arising from the above claims—or any assignment of them—will not be treated as part of the company’s net property for distribution to the holders of any floating charge created by the company

Removal of the requirement to seek sanction (SBEEA 2015, ss 120, 121)

SBEEA 2015 contains provisions meaning that liquidators and trustees in bankruptcy will no longer be required to seek sanction of either the court or a creditors’ committee (or where there is none, the SoS or (in the case of a liquidation) a meeting of creditors).

Position of creditors (SBEEA 2015, ss 122–126 and Sch 9)

The main changes to the position of creditors brought about by SBEEA 2015 are:

  • physical meetings of creditors will no longer be the default mechanism for decision making by creditors in insolvency proceedings. This also applies to contributories in corporate insolvency proceedings
  • a new deemed consent procedure is being introduced which can be used in certain cases. This will mean that a proposed decision will be deemed approved unless sufficient creditors object—should such objection be made, then the office-holder must use a qualifying decision procedure or creditors' decision procedure
  • creditors will be able to opt-out of receiving notices (which will include correspondence and reports) from the office-holder in relation to any given insolvency proceeding. This ability to opt-out will not, however, extend to a notice of distribution or proposed distribution, or where the court orders that any notice must be given

Administration (SBEEA 2015, ss 127–130)

The main changes to administration brought about by SBEEA 2015 are:

  • the period by which an administration may be extended with the consent of creditors is to be extended from six months to one year
  • where there is a prescribed part available for distribution to unsecured creditors, administrators will no longer need to seek the court's permission to make such a distribution. However, administrators will still need the court's permission to make a distribution of funds to unsecured creditors which are not derived from the prescribed part
  • the SoS will be given a reserve power to regulations by way of statutory instrument to either prohibit disposals, hiring out or sale of property to connected parties where the company is in administration or impose requirements or conditions on them. This should allow such transactions with connected parties in administration to be reviewed if the non-legislative solutions recommended by the Graham Review (ie oversight by a pool of experienced practitioners or other measures) do not change behaviour/increase confidence in these transactions. As it is only a reserve power, it falls away if not exercised within five years of the relevant provision coming into force

Small debts (SBEEA 2015, ss 131, 132)

Where a creditor is owed a small debt (expected, at least initially, to be a debt of less than £1,000), and the office-holder has clear and undisputed evidence that the debt is due, SBEEA 2015 creates the power for rules to be made effectively exempting that creditor from having to prove for their debt.

Trustees in bankruptcy (SBEEA 2015, s 133 and Sch 10)

SBEEA 2015 contains provisions meaning that upon the making of a bankruptcy order, unless the court orders otherwise, the Official Receiver (OR) will be appointed as trustee in bankruptcy. This will bring to an end the current position where the OR is appointed as receiver and manager of the bankruptcy estate until a trustee in bankruptcy is appointed (whether that is the OR himself or an IP). The OR will no longer have to summon a meeting of creditors to appoint a trustee in bankruptcy, although it will still be possible for creditors to request that the OR apply to the SoS for the appointment of a different trustee in bankruptcy.

Voluntary arrangements (SBEEA 2015, ss 134, 135)

The main changes to voluntary arrangements brought about by SBEEA 2015 are:

  • where, in the case of an individual voluntary arrangement (IVA), no interim order has been sought by the debtor, it will be made clear that the period in which a creditor can challenge a decision of creditors in relation to the IVA proposal will be 28 days from the date of that decision
  • fast-track IVAs are to be abolished

Regulation of IPs and power to establish a single regulator of IPs (SBEEA 2015, ss 137–146 and Sch 11)

SBEEA 2015 amends the Insolvency Act 1986 to introduce:

  • regulatory objectives for the recognised professional bodies (RPBs) when regulating IPs
  • a range of sanctions so that proportionate action can be taken where the SoS (as oversight regulator) is satisfied that an RPB is not adequately fulfilling its role as a regulator, or where it is in the public interest to do so, apply to court for a direct sanctions order against an IP, and
  • a reserve power for the SoS to designate a single regulator of IPs

Commencement

The majority of the provisions of SBEEA 2015 relevant to insolvency professionals will be brought into force by statutory instruments which are yet to be made. However, the following provisions will come into force on 26 May 2015:

  • the removal of the requirement for liquidators and trustees in bankruptcy to seek sanction (SBEEA 2015, ss 120, 121)
  • those relating to administrations (SBEEA 2015, ss 127–130)
  • the power to create rules in relation to small debts (SBEEA 2015, ss 131, 132)
  • the clarification of the period in which a decision of creditors in respect of an IVA may be challenged, and the abolition of fast-track IVAs (SBEEA 2015, ss 134, 135)
  • those relating to progress reports in voluntary winding-ups (SBEEA 2015, s 136)

Further Reading

The LexisPSL Restructuring and Insolvency team have published the following Practice Notes, which provide further detail and analysis of the changes being brought in by SBEEA 2015 that are relevant to insolvency professionals. In addition, each Practice Note links to a separate document showing in redline the amendments being made to legislation. Click the links below for further information (subscribers only):

Small Business, Enterprise and Employment Act 2015—amendments affecting the Company Directors Disqualification Act 1986

Small Business, Enterprise and Employment Act 2015—office-holder actions and removal of requirement to seek sanction

Small Business, Enterprise and Employment Act 2015—position of creditors (decision making, notices, small debts etc)

Small Business, Enterprise and Employment Act 2015—changes affecting administrations

Small Business, Enterprise and Employment Act 2015—trustees in bankruptcy

Small Business, Enterprise and Employment Act 2015—changes to regulation of IPs

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First published on LexisPSL Restructuring and Insolvency

Filed Under: Insolvency , Reform

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