Changes to the UK insolvency regime
The Small Business, Enterprise and Employment Act 2015 received Royal Assent on 26 March 2015. The Act, together with the Deregulation Act 2015 will make a number of changes to UK insolvency law over the coming months and years. The following provides a snap-shot of the changes affecting bankruptcies and IVAs, Liquidations and Administration now come into force.
Schedule 5 to the Insolvency Act 1986 contains a list of statutory powers that a Trustee in Bankruptcy can exercise with sanction (permission) of the court or creditors. Following the introduction of the Small Business, Enterprise and Employment Act 2015, a Trustee in Bankruptcy no longer needs sanction before exercising any of these powers contained in Part 1 and 2 of the Schedule. These include the power to bring, institute or defend any action or legal proceedings relating to the property comprised in the bankrupt's estate and the power to pursue claims relating to transactions at an undervalue, preferences and transaction to defraud creditors.
Challenging an IVA
Previously a challenge to an IVA could be brought during a period of 28 days from the report of creditors being issued to the Court. Challenges to an IVA must now be brought within 28 days of the meeting called to consider an IVA proposal.
Fast Track IVAs
Fast Track IVAs have been abolished.
Schedule 4 to the Insolvency Act 1986 contains a list of statutory powers that liquidators can exercise with sanction of the court or creditors. Following the introduction of the Small Business, Enterprise and Employment Act 2015, a liquidator no longer needs sanction before exercising any of the powers set out in Parts 1 - 3 of Schedule 4. These include the power to pay any class of creditors in full, bringing or defend any action or other legal proceeding in the name of and on behalf of the company, bringing claims in relation to fraudulent trading, wrongful trading, transactions at an undervalue, preferences and transactions defrauding creditors.
Previously a year end report only had to be produced if the period of winding up continued for more than a year. Now, a progress report must now be issued at the end of a year, regardless of the duration of the winding up.
Appointment of administrator
The issue of a winding up petition will no longer prevent the appointment of an administrator by the company or its directors, provided that the petition was presented during an interim moratorium.
Extension of the administrator's term of office
Previously, the term of an administrators' office could be extended by an agreement of the creditors by a period of 6 months. The term of office can now be extended by creditors by a period of up to 12 months. Whilst it will still be possible to apply to the Court for an extension, the change will, assuming creditor agreement to an extension can be obtained, avoid the need to apply to the Court for an extension of the term of office until almost 2 years from the administrator's appointment.
Administrators will no longer need to obtain the Court's permission to make distributions of the prescribed part to unsecured creditors. Permission of the Court will still be required to make a distribution (other than of the prescribed part) to creditors.
Administration to Creditor's Voluntary Liquidation
Under the new regime, a company cannot move from administration to a CVL where the only distribution to unsecured creditors is a distribution of the prescribed part.
Connected party sales
In an apparent effort to address one of the main concerns regarding pre-packs, specifically sales to connected parties, under the new regime, provision has been made to enable the Secretary of State to prevent or impose conditions on the sale to connected parties where a company is in administration. Secondary legislation is needed for this to come into effect.
Further changes to the UK insolvency regime will be highlighted in due course
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.