Insolvency technical update – December 2021
By Steven Wood, Practice Support Specialist (Insolvency)
7 January 2022
Insolvency technical update – your round-up of recent developments in insolvency
Insolvency Service consultation: The Future of Insolvency Regulation
The Government has released a consulation paper setting out new proposals to reform the regulation of the insolvency profession. The proposed reforms include:
- The recommendation to create a new single regulator, sitting within the Insolvency Service. The new body would set technical standards, investigate complaints and issue sanctions. They would also gain the powers for monitoring, education, qualifications and authorisations, with those powers contracted out to another body.
- Extension of regulation to include firms.
- Creation of a public register of IPs and firms (which would also publicise any licence restrictions).
- A new framework of compensation/redress.
- The reform the bonding system.
The consultation closes on 25 March 2022.
The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act
The above Act received Royal Assent on 15 December 2021.
The Act gives the Insolvency Service powers to investigate directors of companies that have been dissolved. Extension of the power to investigate will include the relevant sanctions such as disqualification from acting as a company director for up to 15 years.
The measures are retrospective and enable the Insolvency Service to challenge directors who have inappropriately wound-up companies that have benefited from government-backed loans during the coronavirus pandemic.
To coincide with the Act coming into force, the Insolvency Service has published guidance about its investigations into companies that have been dissolved without first entering into formal insolvency proceedings.
The Insolvency Service and R3 Diversity and Inclusion Steering Group Action Plan
The Insolvency Service and R3 Diversity and Inclusion Steering Group has published its Action Plan for 2022.
The Action Plan commits the Steering Group to focus efforts in 2022 into four key areas:
- entry into the profession
- progression to associate level, and to partner level
- taking insolvency qualifications, and
- becoming a licence-holder.
Tax on statutory interest in insolvency
Following a recent ICAS technical helpdesk enquiry, HMRC was contacted regarding the treatment of tax on statutory interest in insolvency.
HMRC has confirmed that statutory interest is ‘yearly' interest under tax legislation, per the Lehman Brothers decision, from which tax falls to be deducted.
However, on the matter of deduction of tax at source, there is generally a distinction between personal and corporate insolvency.
Payments by an IP on behalf of the estate of an individual would normally be outwith the rules set down by s874 of the Income Tax Act 2007, unless payment is being made to someone outwith the UK. Consequently, deduction of tax at source is not normally required by a trustee in a sequestration or Trust Deed.
However, in corporate insolvency scenarios there is a requirement to deduct tax on interest payments at source. HMRC advise that form CT61 is the appropriate way to return deductions in corporate insolvency scenarios.
It is intended that this guidance will be added to public notice 700/56 in due course.
Financial Conduct Authority (FCA) Consultation – Debt packagers: proposals for new rules
The deadline for responses to the FCA’s consultation paper on its proposed new rules to ban debt packagers from receiving referral fees from debt solution providers passed on 22 December 2021.
ICAS’ response to the consultation has been published and is available to view.
Updated HMRC Insolvency Guidance – dedicated Account Manager for insolvency related Customs queries
HMRC has updated its bulletin of 2 November 2021 to include some background on Customs, its responsibilities and a list of the taxes/duties it covers.
Updated HMRC Insolvency Guidance - Insolvency Practitioner appointments
HMRC has issued updated its bulletin of 6 September 2021 concerning IPs seeking appointment in insolvency cases where there are no tax compliance issues or active HMRC investigations. The updated bulletin provides an amended email address where the appointment sought relates to suspected fraud or organised criminality.
Dear IP
Dear IP 139 has been issued by the Insolvency Service. The edition features details of HMRC’s introduction of a dedicated Account Manager for insolvency related Customs queries and of a mailbox for case queries. Also included are articles on the introduction of the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 and the cessation of the COVID-19 support guidance for the IVA Protocol.
Dear IP 140 has been issued by the Insolvency Service. The issue announces the publication of the Government’s consultation on the future of insolvency regulation.
Insolvency Service – winter 2021 newsletter
The Insolvency Service has released the winter 2021 edition of its newsletter.
The edition includes articles on the consultation on the future of insolvency regulation and the new powers for the Insolvency Service to investigate directors who abuse the dissolution process to avoid paying their liabilities.
AiB's contract for insolvency services
The contract notice for AiB’s contract for insolvency services has now been published on the Public Contracts Scotland website. The new contract is due to commence from 1 July 2022 and the closing date for tender submissions is 12 noon on 28 January 2022.
Individual Voluntary Arrangement (IVA) protocol guidance
The COVID-19: Individual Voluntary Arrangement (IVA) protocol guidance ceased to have effect on 31 December 2021.
Redundancy payments: Form HR1 - advance notification of redundancies
The Insolvency Service has added a Word .docx version of form HR1 for employers who need to notify the government of potential redundancies.
Insolvency Service: Changes to processing payments via cheque
As a result of the latest government guidance around working from home, the Insolvency Service’s Estate Accounts and Scanning team has notified of changes to its cheque printing service.
Report a discrepancy about a beneficial owner on the PSC register
The guidance on how to report a discrepancy about a beneficial owner on the PSC register has been updated and includes a link to the new online service to report a discrepancy.
Act of Sederunt (Sheriff Appeal Court Rules) 2021
The above Rules are affective from 6 January 2022.
The new Rules restates the Act of Sederunt (Sheriff Appeal Court Rules) 2015 with modifications.
The National Security and Investment Act 2021
The above Act allows the government to scrutinise and intervene in certain acquisitions made by anyone, including businesses and investors, that could harm the UK’s national security.
Subject to certain criteria, you are legally required to tell the government about acquisitions of certain entities in 17 sensitive areas of the economy (called ‘notifiable acquisitions’). There is no exemption for insolvency sales.
A recent article published by TLT solicitors summaries the headline issues for IPs to consider.
Legal update
Appeal by Samantha Warburton against a direction by the Accountant in Bankruptcy: A potentially significant decision by the Sheriff at Edinburgh that a charge incurred by the trustee in a Protected Trust Deed for “secure data and call recording storage” should be treated as a cost of the business and not as an outlay charged to the estate of the debtor.