Court business for Insolvency Practitioners during the coronavirus crisis
Through engagement with its members, ICAS has heard the difficulties facing the insolvency profession in cases where there is a requirement for some form of court involvement. Below is a summary of some of the issues ICAS is aware of and details of the action that ICAS has taken.
Issues
- General treatment of insolvency business as non-urgent and a failure to deal with anything insolvency related.
- A lack of consistency in dealing with corporate appointments and, in particular, with new liquidation petitions and administration appointments. ICAS is aware of a range of approaches being taken with some courts not processing any new appointments, some dealing only with company led appointments and some apparently operating business as usual.
- A delay in Insolvency Practitioners (IPs) receiving interlocutors in liquidation petitions presented to court and granted by the court pre-lockdown.
- An inconsistent approach being taken to applications to extend administration appointments.
- Delays in dealing with applications for Court Reporter appointments to approve IP remuneration and distributions.
- Lack of clarity around how documentation that requires to be sworn before a Notary Public can be dealt with.
- IPs are restricted in the functions they can perform unless and until their appointment is confirmed and there are potential issues arising under section 127 of the Insolvency Act 1986 given the delay between presentation and granting of liquidation petitions.
- There is further a direct impact on the ability of IPs and their lawyers to advise companies and stakeholders on the likelihood of commercially urgent matters being processed by the courts at all and, even if the courts will process papers, the likely timing of appointments.
- The delays to IPs being able to draw on the funds held in estates creates cash-flow impacts for the IP firms and the lack of approval for distributions clearly means that IPs will be unable to pay out case funds to creditors.
At a time where business and individuals may be under significant cash-flow pressure, anything which can be done to get cash out to businesses must be a priority.
ICAS action
ICAS has been liaising with the Accountant in Bankruptcy (AiB), as the Scottish Government’s Executive Agency, and the Insolvency Service at a UK level as some of the insolvency processes are reserved matters, in an attempt to open a dialogue with the Scottish court with a viewing to getting insolvency matters treated as urgent business at this time.
Attention was drawn to the Practice Direction which has been issued by the Courts in England, with a recommendation that a similar statement from the Scottish courts may be appropriate. It was pointed out that it is frustrating and confusing that insolvency processes can continue in England and Wales, but there are significant barriers in Scotland to be overcome.
Response
The AiB took this matter forward with the courts, which responded to advise that they are currently operating a significantly reduced operating model in response to the coronavirus situation.
They are focusing on business considered to be essential and urgent but confirmed that provision is in place to enable judicial consideration of any matter considered to be urgent by applicants, including insolvency matters. The courts advise that their website provides guidance on the business being undertaken, and that it will be updated regularly as the situation progresses. This includes guidance related to civil business.
The courts further advise that discretion can be exercised by the judiciary on how hearings are to be conducted. A flexible approach may be applied, and this includes the ability to conduct hearings via teleconference. It is ultimately a matter for the presiding member of the judiciary to consider the appropriate method to be applied when a hearing is conducted.
The courts consider that the Scottish approach is similar to that employed in England and Wales, in that court resources and time are being preserved for genuinely urgent applications. There is constant review of the business which may be conducted by the operating courts while conforming to the directions of the UK and Scottish Governments around social distancing and other restrictions. Consideration is also being given to the provisions set out in Schedule 4 of the Coronavirus (Scotland) Act 2020, including those in respect of electronic signature and transmission and how these may be implemented to secure extensions to the types of business that may be conducted in the courts.
As far as any enquiries IPs may have, the Scottish Courts and Tribunals Service has advised that IPs or their agents should contact the relevant court. They can also check the website for general updates on business being conducted using the link in the first paragraph. For other queries the following email address can be used: litenquiries@scotcourts.gov.uk. While they might not be able to answer the query, they should be able to liaise or provide further contact details as appropriate.
Further action
In response ICAS has advised that there appears to be a tension between what the courts or individual judiciary consider to be urgent and what is considered to be urgent by IPs. To leave it to each IP to try and justify why their action should be heard does not appear to be a practical solution and will result in unnecessary costs being incurred.
ICAS has recommended detailed discussions on how ‘urgent’ is to be consistently applied and interpreted. This will bring about much needed clarity for all concerned and avoid unnecessary time and expense. There are a limited number of matters which could usefully be mutually agreed as falling within such scope.
ICAS has emphasised that there is a real risk of economic harm with the current approach and has urged the AiB to directly, and through the Scottish Government, seek further dialogue with the courts to resolve this situation.
ICAS will update its Members as the situation develops.