Insolvency Rules 2016 – Decisions

Understanding the new means by which decisions will be made in an insolvency situation will be vital for insolvency practitioners after 6 April 2017. No more creditors' meetings, decision procedures instead.

How creditors will make insolvency decisions after 6 April 2017

Insolvency practitioners are long used to the legal procedure of creditors’ meetings as the way in which creditors, the key players in the insolvency process, make vital decisions about a company or individual who is insolvent.
From 6 April 2017 this will change completely. Creditors will still be the key decision makers in the insolvency process but physical creditors’ meetings will now only be called at the request of at least 10% of creditors in number or value or of at least 10 creditors in number and then only after one of the new decision making procedures has been initiated.

The Insolvency Rules 2016 (IR), which may be accessed on http://www.legislation.gov.uk/ have introduced a number of different decision making procedures that are to be used instead of creditors’ meetings.

Insolvency practitioners should consider the different options available to them and in sufficient time before 6 April 2017 to enable any systems changes to be put in place. Not all decision making procedures can be used for all decisions. If electronic procedures are to be used it may be necessary to upgrade websites.

Convener. IR1.2

The person setting up the decision process is known as the ‘convener’ and will be the insolvency practitioner unless the decision procedure is for the approval of a liquidator’s appointment (the previous S98 meeting) in which case the convener will be a director of the company.

Decision procedures. IR 2016 Part 15.

There are now four ‘decision procedures’ specifically defined by IR15.2 and IR15.3, namely virtual meeting, correspondence, electronic voting and physical meetings. Physical meetings may only be used in exceptional circumstances, as detailed above. Deemed consent can be used to obtain a decision from creditors but it is not a ‘decision procedure’ as defined by the Insolvency Rules 2016.

This is definition is extremely important as only decision procedures as defined by the Insolvency Rules 2016 can be used for the approval of remuneration. See IR18.18(3), 18.20(3) and 18.21(3).

Virtual meeting. IR15.2 & 15.5.

A virtual meeting is one where creditors are not invited to be at a physical location but may participate in the virtual meeting or communicate directly with the convener and others present at the virtual meeting. Virtual meetings may lead to ‘excluded persons’ under IR15.36. Excluded persons are people who cannot take part in the meeting because of the nature of the way it has been called. For example a virtual meeting to be held using a website would lead to excluded persons if the website had crashed at the time of the virtual meeting.

Electronic Voting. IR15.2 & 15.4.

Electronic voting is an electronic system whereby creditors may vote without having to attend a physical location to do so. The main difference between electronic voting and virtual meetings seems to be that it is possible for those at the virtual meeting to communicate directly with each other. Electronic voting is merely voting, by the decision date.

Physical meeting. IR15.6.

A physical creditors’ meeting may only be called if, after notice of a decision making process has been sent to creditors, more than 10% in number or value of creditors or more than 10 creditors in actual number request a physical meeting.

See S122 and S123 Small Business Enterprise and Employment Act 2015, to introduce S246ZA(7) and S379ZA(7) Insolvency Act 1986 from 6 April 2017.

Deemed consent. IR15.6 & 15.7

Creditors are deemed to have consented to a decision or resolution after notice of the decision or resolution is sent to creditors and fewer than 10% in value have objected to it.

If objections are not received by the decision date creditors will be deemed to have consented to the decision or resolution. Deemed consent may not be used for the approval of remuneration or appointment in a creditors' voluntary liquidation.

See S122 and S123 Small Business Enterprise and Employment Act 2015, to introduce S246ZA and S379ZA Insolvency Act 1986 from 6 April 2017.

Decision date. IR1.2 & 15.2.

The ‘decision date’ for all decision processes other than deemed consent or physical meetings is the date selected by the convener for the decision to be made or taken to have been made. Unless a different notice period is to be given under IR15.11 (for example three business days' notice is to be given in respect of a decision to appoint a liquidator) at least 14 days’ notice must be given to creditors of the decision date. The decision date and information about the voting procedure and how it is to be followed must be given to creditors with notice of the decision date.

It will take a while before the decision making processes introduced by the Insolvency Rules 2016 become as familiar as the old creditors’ meetings. This email gives the outline of the new decision procedures and when presented in this way they become more straightforward. More detailed reference has been given to specific legislation than would usually be the case in my updates but this gives you an important opportunity to check the new legislation.

Caroline Clark's insolvency career started over 30 years ago and since 1994 she has specialised in insolvency compliance and regulation.

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