Rationale for the New Insolvency Rules - October 14 meeting

The Insolvency Service have provided the following guidelines as the rationale for the new Insolvency Rules reform process. There will be a meeting on the 14 October 2009 to discuss the reforms.


The main areas in which the modernised legislation will be delivered are set out below (and exclude the estimated £18m pa of savings that will be delivered by the modernisation of advertising provisions that were implemented in April 2009). The savings that will be delivered include those arising from changes to the Insolvency Act arising under the related Legislative Reform Order.

1. Electronic Communication

The existing Insolvency Rules require all communications within insolvency processes to be in the traditional form of a hard copy document sent by post. Although the courts have occasionally varied that by allowing electronic communication (and indeed use of websites in the odd case), there is presently considerable uncertainty in the minds of users as to whether that is permitted more widely. The changes we propose are intended to make it explicit that insolvency office-holders may communicate electronically with creditors, members and others provided there is consent between the parties for communication to be effected in that way. 

2. Authentication

To further facilitate electronic delivery of documents within insolvency procedures, new authentication provisions are proposed, to replace the existing requirement that all insolvency documents must be physically signed. Where e-delivery of insolvency documents is made, with the consent of the recipient, the document will not need to be signed provided that it is authenticated sufficiently to confirm the identity of the sender.

3. Flexible Meetings

Similarly, meetings that are required to be held within insolvency processes must generally be held at a physical venue. This rather rigid requirement is unhelpful to creditors who may be based well away from the area in which the insolvency proceedings are being administered and it is thereby difficult for such a creditor to fully engage in the insolvency process. The changes we propose will enable the insolvency office-holder to allow attendance at a meeting by telephonic or electronic means (perhaps via an internet chat room for example).

4. Websites

Within some insolvency procedures very bulky documents are required to be sent to creditors and in large administrations such documents may need to be sent to thousands of creditors at great cost to the estate in terms of printing and postage (not to mention the environmental cost). It is proposed to allow insolvency office-holders to place such documents on a website as an alternative to sending them to all creditors by post, with a mere single page notice being sent (or e-mailed where consent has been given to electronic communication) to creditors to inform them of that fact. Creditors will be able to request a hard copy of any document so posted should they so wish.

5. Replacing the use of affidavits

The Act and the Rules currently require certain documents which are submitted in the course of insolvency proceedings to be sworn by affidavit. This results in the deponent needing to attend upon a solicitor or commissioner for oaths to administer the swearing, for which they incur a swearing fee for each document sworn to.  It is proposed to bring insolvency law into line with the Civil Procedure Rules 1998 by instead providing that such documents should be verified by a statement of truth.  This will not remove any protection for creditors because the CPR provides that proceedings for contempt of court may be taken against any person who makes a false statement in a document verified by a statement of truth without an honest belief as to its truth.

6. Remuneration and Reporting - modernising to provide greater flexibility and transparency

To try and improve transparency and provide greater flexibility as to the means by which insolvency office-holders get their remuneration agreed it is proposed to introduce measures to give creditors more options as to the basis of remuneration that they can fix. It is additionally proposed to provide a system of more regular reporting to creditors, with clearer rights to request fuller particulars and to challenge those amounts where they consider amounts charged to have been excessive. Alongside this initiative it is proposed to remove the need for holding an unnecessary annual meeting in liquidations which have lasted for more than a year.

7.     Pre-appointment Administration Expenses

These amendments to the regime for agreeing remuneration will for the first time include an express mechanism enabling creditors, after the company has entered administration, to approve the payment of any unpaid fees as an expense of the administration for pre-appointment work which has been carried out by the administrator provided that work has helped to achieve the objective of the administration. To ensure creditors are provided with the information they need to form a view as to whether those amounts should be approved there will be a requirement for details of that work to be disclosed within the administration proposals.

8. Standard Content for gazette notices and advertisements

In response to requests that have been made by certain stakeholders, notice of insolvency events that are required to be placed in the London Gazette(and in addition any other form of advertisement that the insolvency office-holder may place) will be required to follow a standard format. This more consistent approach will ensure that users such as credit reference agencies will always have the information they need and this measure is not expected to carry any additional cost for the insolvent estate.

9. Reduction in Court Filings

The current requirement for documents in many insolvency proceedings to be filed with the court will be reduced. This will remove administrative burdens on the courts and in some cases provision will be made for such documents to be filed with the Registrar of Companies, where they will be more accessible to creditors.

10.           Victims of Violence

Certain voluntary organisations have pointed out that the requirement for a debtors bankruptcy to be publicised by their details being entered on the insolvency register and by advertisement in the London Gazette (and in some cases through additional publicity) deters vulnerable people(such as those with violent former partners) from seeking debt relief through bankruptcy.  It is proposed to amend the Rules to make it explicit that individual debtors facing bankruptcy who consider themselves at risk of violence may apply to the court for an order to limit disclosure of their address." 

Picture Credit: http://www.insolvency.gov.uk/