Changes to insolvency legislation enacted
Royal assent has been given to two acts which make changes to insolvency legislation. Read our summary of what the changes mean in practice.
Changes introduced by the Small Business, Enterprise and Employment Act 2015 (most provisions to be implemented over the course of the next year or more)
Directors’ disqualification
Introduces:
- a new approach to the reporting of director misconduct by liquidators, administrators and administrative receivers
- two new grounds for disqualifying a director in the UK: against a person convicted of a company-related offence overseas and against a person who has instructed a disqualified director
- broadens the range of matters a court must consider when disqualifying, to include consideration of the nature and extent of harm the misconduct has had and the directors track record in running failed companies.
Creditor Redress
The Secretary of State will have new powers to seek a compensation order against a disqualified director where misconduct for which they have been disqualified has caused identifiable loss to creditors.
Liquidators and administrators will be able to assign certain legal claims to third parties such as creditors.
Creditor engagement
The ways in which creditors may engage with office-holders in insolvency proceedings are increased to make full use of modern communication methods.
The requirement to hold physical meetings in every case is removed and replaced with alternative methods, such as virtual meetings, electronic voting, meetings by correspondence or deemed consent where appropriate. Creditors will still be able to ask for a physical meeting.
Administration – sales to connected parties
A reserve power has been taken making it possible in the future to create regulations to either prohibit administration sales to connected parties or to impose conditions or requirements to allow a connected party administration sale to proceed. This would include connected ‘pre-pack’ sales. This power (which lapses five years after commencement) would only be used if the voluntary measures arising from the Graham Review into pre-pack administration prove unsuccessful.
Regulation of Insolvency Practitioners
New regulatory objectives will provide the insolvency regulators with a clearer, enhanced framework within which to carry out their activities and provide the oversight regulator (the Insolvency Service) with a legislative framework to hold the regulators to account.
These include a requirement that insolvency practitioners should provide services at a cost which is fair and reasonable. This will require the regulators to take action to deal with unreasonable fees charged by insolvency practitioners.
A range of sanctions, including directing a regulator to take action, imposing a financial penalty, issuing a reprimand or revoking recognition, will be provided to ensure that appropriate action is taken where a regulator is not acting in accordance with the regulatory objectives.
The oversight regulator will also be able to apply to court to directly sanction an Insolvency Practitioner where it is in the public interest to do so.
Power to establish a single regulator of Insolvency Practitioners
A reserve power has been taken to establish a single insolvency regulator if the reforms to strengthen the regulatory regime do not build confidence.
You can also read factsheets and impact assessments on the provisions in the Small Business, Enterprise and Employment Act 2015.
Changes introduced by the Deregulation Act 2015 (most provisions to be implemented in or after October 2015)
Authorisation of Insolvency Practitioners
A new regime will allow for the partial authorisation of insolvency practitioners. In future, insolvency practitioners will be able to be authorised in relation to companies, individuals or both (as is currently the case).
The Secretary of state will no longer directly authorise insolvency practitioners so, in future, all insolvency practitioners will be authorised by Recognised Professional Bodies.
Appointment of administrators
Changes will prevent unnecessary delays to the appointment of administrators, for example, by clarifying that winding-up petitions presented during the interim moratorium preceding administration do not prevent the appointment of an administrator.
Bank accounts for bankrupts
Changes to law governing ‘after-acquired property’ in bankruptcy mean that the BBA will act to improve access to bank accounts for bankrupts. If account holders withdraw funds, banks will be protected from recovery action by trustees in bankruptcy if they had not received specific notice that the funds had been claimed as part of the bankruptcy estate.