Review of the English Insolvency Rules 2016

The 2016 insolvency rules of England and Wales are being reviewed, in accord with a statutory requirement to do so by 2022. A report on the review must be published within five years of 6 April 2017, the date that the Rules came into force. Australia also (tries to) have statutory reviews of its insolvency laws.

The 2016 rules were a consolidation and modernisation of the earlier Insolvency Rules 1986 and the accompanying legislation that had developed in the intervening thirty-year period.  They supported the Insolvency Act 1986 which arose from the Cork Report of 1982.

The 2016 E&W rules were quite radical compared with the reforms introduced in Australia at the same time, under the Insolvency Law Reform Act 2016.  Some were these:

  • the abolition of prescribed forms
  • a right of creditors to opt out of receiving notices from IPs, excluding notices of a change of IP and notices of proposed dividends
  • electronic filing and communications
  • removing the requirement for a bankrupt in a creditor’s petition to submit a statement of affairs; this was left to the official receiver’s discretion
  • removal of the need for final meetings of creditors in liquidations and bankruptcies, being replaced by final reports
  • physical meetings of creditors were replaced by a new decision-making process, introducing the concept of deemed consent[2]
  • a discretion of IPs to not require a proof of debt for claims under £1,000 that can be verified from the insolvent’s records.

The Insolvency Service’s call for evidence is extensive across a range of stakeholders.  It also asks for data on the operation of various rules, for example it asks IPs about the percentage of creditors ‘opting out’ and whether that process has raised any issues and whether improvements could be made.  The review also asks IPs what new technologies could assist with the new decision-making processes, this being “of particular interest due to the impact of the Covid-19 pandemic and the need to minimise social contact where possible”.  Responses are required by 30 June 2021.[1]

Comparisons with Australia

As for a comparison with Australia, it still maintains separate processes for personal and corporate insolvency; filing of prescribed forms is de rigueur; a bankrupt who fails to file their statement of affairs has their 3 year bankruptcy extended interminably; and dividends down to a level of $25 must be paid.  While some movement is being made towards new technologies, a current inquiry only extends to corporate insolvency.  That may be as well because interest in technology in insolvency is not high.

But apart from those issues, Australia has no real focus on statutory reviews of insolvency laws.  The requirement to review its September 2017 safe harbour regime after 2 years,[3] that is after September 2019, was never met.  Then Covid-19 arrived and Australia found itself introducing a new – Covid-19 – safe harbour in 2020, but the government rejected calls for its review.

Since then, there are two more (safe harbours) – that is, Australia now has 4 safe harbour regimes, without knowing much about the operation of any.

(These are s 588GA Safe harbour–taking course of action reasonably likely to lead to a better outcome for the company; s 588GAAA Safe harbour–temporary relief in response to the coronavirus; s 588GAAB Safe harbour–companies under restructuring; with the fourth one being s 588GAAC Safe harbour–temporary relief for companies looking for   a restructuring practitioner.[4] )

It should be noted that the UK has a statutory[5] Insolvency Rules Committee which has authority to recommend rules changes to the Lord Chancellor.  It comprises judges and members of the legal and accountancy professions, with the Insolvency Service providing secretariat services.  Ideas for a comparable committee in Australia have not been accepted; whether that led to a serious drafting error in relation to an Australian court’s insolvency jurisdiction identified by a judge in 2002 taking 15 years to be corrected cannot be known.

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[1] First Review of the Insolvency (England and Wales) Rules 2016: Call for evidence – GOV.UK (www.gov.uk), 11 March 2021.

 

[2] The requirement that decisions must be made in one of the other prescribed ways (correspondence; electronic voting; virtual meeting; or other decision-making procedure) rather than at a meeting of creditors, unless creditors request a physical meeting, is contained in sections 246ZE and 379ZA of the Insolvency Act 1986 and so is not in scope of the present review of the Rules.

 

[3] Corporations Act s 588HA

[4] If anyone knows of any more, please let me know.

[5] Section 413 of the Insolvency Act 1986.

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