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INSOLVENCY REFORM - A Flavour of The New Simplified Rules.

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In 2011 the Government launched the Red Tape Challenge to cut down unnecessary business legislation. The Insolvency Service was tasked with streamlining the insolvency process on the premise that less and more consistent legislation will cut costs and increase returns to creditors.

hlw Keeble Hawson logoA 2011 review called “Reform to the Process to Apply to Bankruptcy and Compulsory Winding Up” was underway and helped form the basis for The Insolvency Rules (2015.)

It is these Insolvency Rules in their current guise ‘The Insolvency Rules 1986’ (‘IR’86’) which add the meat to the bones of the Insolvency Act 1986 and have been amended 23 times since they came into force. So an overhaul rather than another makeover was long due.

The first draft of the Rules was published in September 2013 and there will now be a gap of a year until October 2014 before any redraft is published to allow for consideration of the consultation process that closed in January.
This note provides merely a flavour of the changes to come. The changes fall under three basic headings.

1. Changes to the structure of the rules

  • Re-ordering the content,
  • Making rules generally applicable rather than of specific application to one or other process,
  • Seeking to use consistent and clear wording.
  • Doing away with prescribed forms and replacing them with specific required content so forms can be sent more easily in electronic format;

2. Introducing substantive changes common to all insolvency processes;

  • The new Rules have a single set of definitions, and consistent calculation of time periods.
  • They provide common provisions applicable to all insolvency procedures. These will deal with creditor claims and distributions, liaising with creditors, how creditors committees will work, progress reports and remuneration.  In each area the new Rules mantra is simplification. So creditors meetings will no longer be the default for decision making so that matters can be now dealt with by correspondence. Final creditors meetings will be abolished to cut down cost.

3. Introducing some process specific changes.

  • In administrations the requirement to notify the Company is restricted so as to circumvent the risk of an invalid appointment due to technicalities, extensions to the time to submit the initial report may be advertised and the obligation to state prior professional relationships with the debtor company is removed;
  • In Liquidation the rules on personal service of a petition are harmonised with bankruptcy;
  • In Bankruptcy the process for making yourself bankrupt will be dealt with on an administrative rather than judicial basis by an adjudicator;
  • In IVAs the much heralded and never used fast track IVA is to be scrapped.

Regrettably some of the ideas which came from the initial consultation have been omitted. Examples are making extension of administration beyond a year easier, allowing creditor information to be posted on a website thereby cutting the cost of providing paper details and distribution of dividends of low value without the creditor having to submit a formal proof.

The new Rules are to be welcomed. Clients might think lawyers like advising on the difference between the ‘sending’ of a notice and its ‘delivery’ and perhaps we do but any simplification must be welcomed and it is a pity that the review doesn’t cut deeper and create a process for the digital age. It’s worth remembering that a successful economy needs a system for dealing with failure able to encourage honest people to try again and discourage rogues. The new Rules on their own would never address the latter but we hope they address the former.

The new rules are likely to be introduced the start of 2015.  Further updates will follow.

For further information please contact Andrew Young on 0114 2521413 or

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