First Review of the Insolvency (England and Wales) Rules 2016: Call for evidence
Applies to England and Wales
Call for evidence description
1. Introduction
The Insolvency (England and Wales) Rules 2016 (“the Rules”) set out the detailed procedure for the conduct of company and individual insolvency proceedings under the Insolvency Act 1986, providing the framework giving effect to the regime specified in the Act. They represent the single most significant piece of legislation in respect of the insolvency regime operating in England and Wales, after the Insolvency Act itself; and the largest, with over nine hundred rules in the main body and numerous additional schedules covering specific topics.
The Rules in their current form represent the consolidation and modernisation of the earlier Insolvency Rules 1986 and the accompanying legislation that had developed in the intervening thirty-year period. That exercise aimed primarily to provide a simpler, easier to understand set of rules than existed at the time. At the same time, it introduced new rules to support changes to the insolvency regime that had been made in the Deregulation Act 2015 and the Small Business, Enterprise and Employment Act 2015, and implemented several brand-new policies that aimed to modernise the regime.
The Rules include a requirement, introduced by the Small Business, Enterprise and Employment Act, to carry out a review of the secondary legislation and publish a report setting out the conclusions of that review. The report must be published within five years of 6 April 2017, the date that the Rules came into force. Further details can be found in section 2 of this document (“About this Call for Evidence”).
As part of that review we are therefore issuing this call for evidence in order to gather information regarding the operation of the Rules in the three years since their introduction. Initial representations from insolvency professionals making direct use of the legislation suggest that for the most part the Rules are operating as intended, but that there remain a number of areas where further changes and clarifications are sought. These include issues in respect of:
- The Rules’ abolition of prescribed forms
- The new creditor opt-out from communications
- The use of electronic communications and filing of documents
- Concerns regarding changes to the procedures relating to meetings of creditors and decisions
- Provision of further information where an administrator becomes liquidator
- Establishment of committees
- Changes to the requirements around special manager bonding
- Purchase of assets and s216
- The impact on creditor engagement of the changes introduced in the Rules
- Impact on costs
- Conflicts with other law
- Other minor and technical matters
While this list has shaped certain questions we ask below (see “Questions on Specific Topics”), it is included only as an illustration of some of the known concerns and is not intended to restrict the range of responses to the call for evidence or to imply that all matters relating to those concerns are within scope of the review; further information as to the scope of the review is set out below. The majority of the questions are general and aim to determine whether the broad objectives of the Rules are being achieved.
Who this is for
This call for evidence is intended for anyone who interacts with, uses or has been affected by the Insolvency (England and Wales) Rules 2016. This may include:
- Insolvency practitioners
- The legal profession
- Directors
- Creditors
- Business and consumer groups
Responses are particularly sought from insolvency professionals and others who rely on the Rules as part of their daily work.
Enquiries
Any enquiries regarding the call for evidence should be addressed to Andrew Shore at the Insolvency Service. Due to the impact of the coronavirus, we would encourage all enquiries to be sent by email rather than physical post, for the attention of Andrew Shore, to Policy.Unit@insolvency.gov.uk.
Physical written correspondence may be sent (please use the full address below):
FAO Andrew Shore, Policy
The Insolvency Service
16th Floor, 1 Westfield Avenue
London
E20 1HZ
The response
Following the call for evidence, a report will be published on the operation of the Rules. The report will be made available in due course on Gov.UK.
2. About this Call for Evidence
The Insolvency (England and Wales) Rules 2016 came into force on 6 April 2017. They have now been in operation for over three years, providing time for users of the Rules to apply the new legislation in a variety of different scenarios and reflect on its effectiveness. Rule 7 of the Rules creates a legal requirement for a review to be carried out and a report to be published:
7(2) The report must in particular—
(a) set out the objectives intended to be achieved by the regulatory system established by these Rules;
(b) assess the extent to which those objectives are achieved; and
(c) assess whether those objectives remain appropriate and, if so, the extent to which they could be achieved with a system that imposes less regulation.
This call for evidence is therefore to request information regarding the impact that the Rules have had and the way that they have worked since coming into force, with reference to their objectives as explained below. Where appropriate, we are seeking evidence as to whether the objectives of the legislation remain appropriate, and whether another approach with less regulation could achieve the same outcome. In all cases we wish to understand whether those objectives are being met.
The primary aim of the Rules is to establish the detailed procedure for the conduct of company and individual insolvency proceedings under the Insolvency Act 1986, giving effect to that Act. That objective was shared with the previous Insolvency Rules 1986 (SI 1986/1925); the objectives in replacing that existing version with the Rules being (in summary):
- Providing a system that is easier for users to understand than that contained in the Insolvency Rules 1986, by consolidating those Rules and the 28 amending instruments that had been made subsequent to their coming into effect in 1986, as well as updating their structure, language and style so as to better meet the needs of users including the judiciary, insolvency office-holders, creditors, and public officials;
- Giving effect to policy changes made to the Insolvency Act 1986 by the Deregulation Act 2015 and the Small Business, Enterprise and Employment Act 2015; and
- Implementing specific other new policies (described in the Explanatory Memorandum to the new Rules) to modernise the UK insolvency regime.
Responses to the call for evidence will help us to comply with the requirements of the review. While all evidence will be helpful, practical examples and personal experiences in dealing with the Rules will be particularly useful.
Scope and focus of the review
The review covers the Insolvency (England and Wales) Rules 2016, their objectives and how well they have achieved those objectives.
The review is required to assess the extent to which the “regulatory systems established” by the Rules meet the objectives described above. Accordingly, we are most concerned to capture any issues where, if the matter is left unaddressed, there is a realistic possibility that the operation of the “regulatory system” will be affected.
This includes for example any significant gaps that exist in the law, if the Rules do not address certain circumstances or situations that may arise; any contradictions in the law and other matters that threaten the Rules’ ability to provide a coherent framework for insolvency proceedings; and (in light of the first objective above) any lack of clarity in the Rules. Issues concerning the operation of the new Insolvency Rules which do not meet this threshold requirement, for example areas where existing Rules that were adopted from the Insolvency Rules 1986 continue to operate effectively but could perhaps be improved upon, are out of scope of the review, although if raised they will be noted for future consideration. Where there is any doubt, the issues will be assessed on a case by case basis.
For the avoidance of doubt, provisions which have been carried over from the Insolvency Rules 1986 are not automatically excluded from consideration. However, where a rule has been applied in practice for some considerable period then more persuasive evidence will be required in order to conclude that its operation is adversely affecting the “regulatory system” for the purposes of this review.
The review will assess the new Insolvency Rules against the three objectives set out above. The nature of the review will be tailored to ensure that it is appropriate for the specific objective in issue.
Further detail regarding the specific areas of focus for the review is set out below:
Objective 1
No detailed analysis should be required in order to assess certain aspects of this objective: that the new Insolvency Rules consolidated the Insolvency Rules 1986 together with the 28 subsequent amending instruments, and that consolidation remains in general terms a desirable objective, are statements of fact. It is evident that this part of the objective has been achieved and remains appropriate.
There are other aspects that do require further evaluation. That is the case where the new Rules sought to restate the legal effect of the Insolvency Rules 1986 in a modernised, more user-friendly way. Clearly, the objectives of ensuring that legislation is user-friendly and that its language reflects modern usage remain desirable. Equally, the question of whether the new Insolvency Rules are in fact user-friendly and devoid of ambiguity can only be fully answered by reference to those using the legislation. It is not something that it would be appropriate for the review to purport to answer on their behalf without consultation.
Individual provisions of the Rules will therefore be examined where a specific issue concerning the attainment of objective 1 has been brought to our attention and where there is a realistic possibility of the operation of the regulatory system being affected. In adopting that approach we have had regard, in particular, to the efficient conduct of the review and to the fact that those aspects of the new Insolvency Rules that are derived from earlier legislative provision have been in effect for many years and well-tested in practical use by insolvency and legal professionals.
Objective 2
For sections of the new Insolvency Rules that implement Small Business, Enterprise and Employment Act and Deregulation Act policies the review will examine the following: whether the policies have been fully implemented; the extent to which that implementation is well drafted and clear; and whether the implementation has met the policy goals in practice. While rule 7 of the new Insolvency Rules requires the review to consider whether the underlying policy objectives to which those rules seek to give effect remain appropriate, those underlying policy objectives are, in this case, set out in primary legislation. Accordingly, the continued appropriateness of those underlying objectives is assumed while that legislation remains in force.
Objective 3
By contrast to the position in respect of objective 2 above, for those provisions of the new Insolvency Rules that implement new stand-alone policies, both the continued appropriateness of the policy itself and the extent to which the new Insolvency Rules have achieved the underlying policy objective will be evaluated for the purposes of the review.
Intended outcome
Responses to this call for evidence will inform the report that is required to be published under rule 7 of the Rules.
How to respond
Due to the impact of the coronavirus, we would encourage all responses to be sent by email , for the attention of Andrew Shore, to Policy.Unit@insolvency.gov.uk.
Physical written correspondence may be sent to the address provided above under “Enquiries”.
When responding please state whether you are doing so as an individual or whether you are representing the views of an organisation. If responding on behalf of an organisation, it will be helpful to understand who the organisation represents and, where applicable, how the views of members were assembled.
All responses will be held on file for future reference and use in policy development. If you would like anything in your response to be kept confidential, you are asked to state clearly what information this applies to and to explain your reasons for requesting confidentiality. This is because we may be obliged to release information in responses to this consultation to the public or other parties in accordance with appropriate law (primarily the Freedom of Information Act 2000, the General Data Protection Regulation and the Data Protection Act 2018). Your explanation of your reasons will help us, in appropriate cases, to consider our obligations under the law and ensure that all relevant factors are taken into consideration when deciding what can be disclosed.
Deadline
This call for evidence will close at 11:59pm on 30 June 2021. We would be grateful for early responses wherever possible as this will assist us in considering the information provided.
3. Questions
The questions raised in this call for evidence cover each of the above three objectives in turn. They are intended to be read broadly, to allow a full range of responses. Where possible, it will be helpful if responses can provide replies to each of the questions in order. Not all questions may be relevant to everyone; if you are responding to only some of the questions below, please indicate which in your response.
While certain matters may not fall within the scope of the review of the Rules that the call for evidence is intended to support (see above), we would nevertheless encourage individuals and organisations responding to include all concerns they may have and not attempt to pre-judge whether a particular issue is within scope. It may not be possible for an individual respondent themselves to assess how significant a particular concern is for the operation of the regulatory system as a whole since the cumulative impact of a particular issue might only be apparent once all responses have been considered. Capturing all known concerns in one place will also be an important tool for the future: all responses and the issues raised will be noted for the purposes of future policy development, regardless of whether they can be included within the current review.
4. Consolidation and Restructuring of the Rules
A significant aim in introducing the Rules was to consolidate the Insolvency Rules 1986 with its 28 amending instruments, restructuring the Rules and updating the language, including introducing gender neutral drafting. In doing so, the Rules should continue to provide an appropriate framework for the insolvency regime, by providing the additional structure and detail needed to support the provisions contained within the Insolvency Act 1986.
Q1. Do the Rules provide an appropriate framework for the UK’s insolvency regime?
This first question is intended to capture any gaps in the Rules, regardless of whether these are new as a result of the consolidation of the previous legislation, or carried over from the Insolvency Rules 1986. It also covers any issues (whether general or relating to specific areas) regarding how the Rules work in practice, i.e. the framework they provide for insolvency proceedings, where these are not specifically covered in the other sections below.
Any issues with unclear language or drafting in the Rules are instead covered at Q2, below. Q4 asks what changes could be made to improve the Rules, to address any issues raised here or at Q2.
Q2. Is the framework provided by the Rules clear?
The question of whether the framework is “clear” is intended to include both the legal clarity of the Rules and their accessibility to a user (who might for example be an insolvency professional but not a legal expert) seeking to understand the legislation by reading through it.
Any general concerns regarding the drafting of the Rules should be raised in response this question, as well as any concerns relating to the clarity of specific areas that are not covered below. Q4 below asks for suggestions for improvement in respect of any issues raised.
Q3. Does the updated language used in the new Rules improve upon that used in the Insolvency Rules 1986?
Are the Rules, and the system they create, easier to understand than their predecessors? This question will allow us to gauge whether the goal of providing a clearer framework than the Insolvency Rules 1986 has been met, regardless of whether there is any room for further improvement (to feed back in that regard, see Q2 above). The Rules introduced drafting changes such as the use of gender-neutral language; as well as positive feedback, this question is also intended to capture any concerns with those changes.
Q4. What changes, if any, could be made to ensure that the Rules provide an appropriate framework for the insolvency regime or to improve their clarity?
This question asks what improvements can be made to the Rules, with reference to the three preceding questions. It includes any changes needed to address legislative gaps that may have been introduced with the Rules or not resolved, amendments to deal with any general or specific issues with the Rules not related to new policy, and any need for further clarification.
Issues relating to the new policies implemented or introduced with the Rules are captured in the sections below instead.
5. Implementation of Primary Legislation
The Rules introduced the necessary secondary legislation to support new policies enacted in the Deregulation Act 2015 and the Small Business, Enterprise and Employment Act 2015.
The Deregulation Act 2015 changes included:
- Allowing insolvency practitioners to be appointed as interim receivers in bankruptcy cases. (Rule 10.49)
- Removal of the requirement for a bankrupt person in a creditor’s petition bankruptcy to submit a Statement of Affairs. (Rule 10.55) This was previously a requirement in every case; the change removes the requirement at the official receiver’s discretion.
Notable changes in the Small Business, Enterprise and Employment Act 2015 were:
- Removal of the requirement for insolvency practitioners to hold a final meeting of creditors in every liquidation and bankruptcy case. This relates to rules 5.9-5.10 (Members’ Voluntary Liquidation), 6.28 (Creditors’ Voluntary Liquidation), 7.71 (compulsory winding-up), and 10.87 (bankruptcy); and rule 18.14 (all). These meetings were replaced by a final report.
- The requirement to hold a physical meeting of creditors was removed, and replaced with a new decision-making process, including the introduction of the concept of deemed consent. (Chapter 15 of the Rules)
- Creditors were given the ability to opt out of receiving notices from insolvency office holders (excluding notices of a change of office holder and notices of proposed dividends). (Rules 1.37-1.39)
- Office holders are now allowed to use their discretion to not require a proof of debt, where a creditor’s debt is £1,000 or less (within the “small debt level”) and can be verified from the insolvent’s records. (Rule 14.31)
- The official receiver is appointed as trustee on the making of a bankruptcy order. (Rules 10.31 and 10.41) Previously the official receiver would act as receiver and manager and would not be appointed trustee until they filed a notice with the court that they had decided not to hold a first meeting of creditors to appoint an alternative trustee.
The Rules aim to provide the detailed secondary legislation necessary to implement each of these policies fully, clearly, and effectively.
Q5. Have the policies in the Deregulation Act 2015 and the Small Business, Enterprise and Employment Act 2015 been fully implemented in the Rules?
Are there any gaps in the provisions? For example, please provide details of any situations that have been encountered in their use in the “real world” which were not accounted for in the Rules.
Q6. Is the Rules’ implementation of Deregulation Act and Small Business Act policies clear?
This question replicates the more general Q2 in the first section above. Is the language and drafting legally clear and helpful to users of the Rules? Responses here might highlight, for example, any areas where there may appear to be an unresolved conflict with other law (whether relating to insolvency or otherwise).
Q7. Does the Rules’ implementation of Deregulation Act and Small Business Act policies operate effectively and efficiently?
When applied in practice, do the Rules provide a good framework for insolvency proceedings? As the policies described above are part of the Deregulation and Small Business Acts, not contained within the Rules, the question does not ask whether those policies are fit for purpose, but rather if the additional detail contained within the Rules implements them in an appropriate way.
Q8. What changes, if any, could be made to improve the clarity, effectiveness or efficiency of the Rules that implement the Deregulation Act and Small Business Act policies?
This question asks what improvements can be made to the Rules, with reference to the three preceding questions.
6. New Policy
Besides providing the regulations to support the Deregulation and Small Business Acts, the Rules themselves also introduced new policies to modernise and improve the insolvency regime. These reflect the increasing use of electronic communications and other developments over time, and included:
- Providing for electronic communication between office-holders and creditors (Rule 1.48)
- The use of websites to communicate certain information such as statutory notices (Rule 1.49)
- Simplification of time periods for progress reports in insolvency cases, particularly where there is a change of office-holder (Rules 18.2-18.13)
- Greater protection for personal information of customers and employees in Statements of Affairs which are filed with the registrar of companies – see rules 3.30/3.32/3.35 (administration), 4.7/4.13 (receivership), 6.2-6.4 (Creditors’ Voluntary Liquidation), 7.41 (compulsory winding-up)
- The abolition of the prescribed forms previously used to communicate certain information
In these cases, we would like to hear the views and experiences of those using the Rules in order to understand not only whether the changes have been implemented effectively, but whether the policies themselves remain fit for purpose.
Q9. Are the new policies introduced by the Rules the right ones for a modern, efficient insolvency regime?
It is important that the policies meet the needs of debtors, creditors and others who make use of or interact with the insolvency regime. Are the policies described above fit for purpose?
This question is about the intent of the policies not their implementation (which is covered in Q11-13 below). Responses should take into account the current environment in which the insolvency regime operates and any wider developments since the Rules came into force, including for example the operation of the policies during the Covid pandemic. It does not cover situations where the Rules are simply unclear (see Q11 instead) or where the practical implementation of the policy has failed (Q12).
Please provide any suggested improvements under Q8 below.
Q10. If the new policies introduced by the Rules are not fit for purpose, what alternative policy should be adopted?
What alternatives to the current policies should be considered?
This question is about the policies themselves (e.g. using electronic communications). It is not about the Rules’ implementation of the policies, which is covered below: if the idea was the right one but it has not worked in practice due to the way that the Rules operate, see Q11-13 instead.
Q11. Is the Rules’ implementation of new policies clear?
Does the language and drafting in the Rules make the policy clear? Are there areas of ambiguity or where interpretation is contentious? Are there any conflicts with other UK law? This question seeks to capture in detail any drafting and language issues. The question does not cover situations where the Rules are clear but do not work well or have an adverse effect in practice (which are covered by Q12 below).
Please provide any suggested improvements under Q13 below.
Q12. Does the Rules’ implementation of new policies operate effectively and efficiently?
Are the policies working well in practice? What issues have arisen when applying the Rules to real world situations and insolvency cases? This question seeks to capture any practical issues that arise from the way that the Rules work and the requirements they impose. That includes any areas where the requirements imposed by the Rules are too complex or detailed and so unnecessarily burdensome. The question does not cover issues with the policies themselves (see Q9) or with the clarity of the drafting and language used in the Rules (Q11).
Please provide any suggested improvements under Q13 below.
Q13. What changes, if any, could be made to improve the clarity, effectiveness or efficiency of the Rules that implement new policies?
What changes might be made to achieve the best possible insolvency regime?
This question asks about improvements to the drafting of the Rules and their practical effect. It presumes that the intention of the new policies that the Rules introduced is broadly correct (to feed back any concerns about the policies themselves, please see Q9 and Q10 instead).
7. Questions on Specific Topics
The views previously expressed by insolvency professionals and other interested parties suggest that there are a number of topics of particular concern, as outlined in the introduction to this call for evidence. The questions below are not intended to cover all of the topics that have been raised with us: their purpose is to capture more detailed responses on those issues where we have identified specific information that will be helpful. The questions therefore may not be relevant to all readers.
More general concerns regarding these topics, or in relation to other matters not covered here, should be raised in response to the other questions above.
Q14. (Rule 1.38) In your estimation, what percentage of creditors choose to opt out of receiving information?
Is the percentage of creditors opting out lower than should be expected? This question, and Q15 below, seek further information on the operation of the creditor opt-out process, which has been highlighted as an area of concern.
Q15. (Rule 1.38) Could the creditor opt-out process be improved, and if so how?
What particular issues, if any, are preventing the effective use of the creditor opt-out process? What improvements could be made to the current process, and how would they help?
Q16. (Part 15 Chapter 2) What changes could be made to assist office holders with the decision-making processes?
What practical difficulties have office holders encountered in implementing the new decision-making processes? What changes, if any, would make it easier for office holders to use new technologies to facilitate the decision-making process?
This question is of particular interest due to the impact of the Covid-19 pandemic and the need to minimise social contact where possible.
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.
Q17. In your estimation, which changes to the Rules have made it easier or more difficult for creditors in an insolvency to engage with the process?
This question explores whether the Rules have negatively or positively impacted on creditor engagement in insolvencies.
Where possible, please identify specific rules that may have had an effect; and provide any available estimate of the significance of each impact (for example, on the percentage of creditors engaging with a particular process). If there is an impact on a particular group of creditors (e.g. people who find it more difficult to access the internet, or who are not literate) please highlight this.