Insolvency technical update – November 2020
By David Menzies, Director of Practice
4 December 2020
Insolvency technical update – your round-up of recent developments in insolvency.
Coronavirus
For all coronavirus related updates please go to the regularly updated A-Z of all things insolvency amid the coronavirus outbreak.
HMRC debts: priority on insolvency
Section 98 of the Finance Act 2020 makes amendments to UK insolvency legislation in respect of any case where the relevant date is on or after 1 December 2020.
The legislation amends s386 and Schedule 6 to the Insolvency Act of 1986 and s129 and Schedule 3 of the Bankruptcy (Scotland) Act 2016. The effect is to move HMRC up the creditor hierarchy for the distribution of assets in the event of insolvency by making HMRC a secondary preferential creditor in respect of certain tax debts such as PAYE, CIS, employee NICs and VAT.
The Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations 2020, pursuant to clause 99 of the Finance Act 2020, also came into force on 1 December 2020. The Regulations specify the relevant deductions under the legislation as follows; tax deducted under the Construction Industry Scheme (CIS), employee National Insurance contributions (NICs), income tax deducted under Pay As You Earn (PAYE) and deductions in respect of student loans.
In anticipation of the change HMRC issued a policy paper, which includes some background to the change and some practical information for insolvency practitioners, including contact information.
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020
The Regulations came into force on 26 November 2020 and revive the temporary suspension of liability for wrongful trading for company directors until 30 April 2021.
The original suspension was introduced by the Corporate Insolvency and Governance Act 2020 and expired on 30 September 2020. The regulations do not have retrospective application so the worsening of the company’s financial position between 1 October to 25 November 2020 will be of relevance to courts considering wrongful trading actions against directors and the contribution a director may require to make to the company’s assets.
The original suspension was considered in a previous article on icas.com.
HMRC insolvency guidance – VAT processing
On 1 October 2020 HMRC issued guidance regarding changes to its IT systems, which have been impacting insolvency cases. An accompanying article with further details was published on icas.com.
HMRC has now issued further guidance setting out a temporary solution which should result in the service improving.
HMRC has requested that IPs and their staff do not follow up cases affected by this issue, as they work to clear the backlog. HMRC will also be closing telephone lines for EIS Newcastle from 30 November until 11 December to allow for staff training in respect of the temporary solution.
Insolvency Service Redundancy Payments Service RP1 factsheet
The Insolvency Service’s Redundancy Payments Service RP1 factsheet for employees made redundant by an insolvent employer has been updated with new information added about Protective Awards.
Redundancy payments guidance
The Insolvency Service has published new guidance and further information for insolvency practitioners about the Redundancy Payments Service (RPS).
It includes:
- details of how to set up a case, including a link to the updated template for setting up a case,
- details of how to provide employee information,
- the process for unpaid pension contribution claims,
- information about protective awards,
- guidance on how to calculate a 52-week rate of pay for holiday pay, and
- contact details for proof of debt enquiries or IP fee enquiries.
Dear IP
Dear IP 113 has been issued by the Insolvency Service. Included in the update are guidance for IPs who are appointed to businesses which have customs authorisations, a reminder for IPs of the requirements when filing a report of an approval of an IVA with the Secretary of State and details of the revival of the suspension of wrongful trading provisions of the Insolvency Act 1986.
Insolvency (VAT Notice 700/56)
HMRC’s Insolvency (VAT Notice 700/56) has been updated with amended addresses for sending forms VAT 833 and VAT 426.
Guidance issued by the Society of Messengers at Arms & Sheriff Officers
Following the publication of the Scottish Government’s ‘Scotland’s Strategic Framework’, the Society of Messengers at Arms & Sheriff Officers has updated its guidance to members, setting out an approach for each of the 5 tiers of protection levels.
Customs Authorisations and Insolvency
HMRC has published guidance for IPs who are appointed to businesses which have customs authorisations.
The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020
The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (“the Regulations”) have now been made and will come into force on 4 May 2021.
The Regulations establish the first part of a debt respite scheme ‘Breathing Space’ for people in problem debt in England and Wales. This part gives eligible people in problem debt who receive professional debt advice access to a 60-day period in which interest, fees and charges are frozen and enforcement action is paused.
For people receiving mental health crisis treatment, the Regulations establish an alternate route by which the protections of a moratorium may be accessed and ensures that the protections are in place for the duration of their crisis treatment.
A previous article on icas.com looks at the Regulations in more detail. A further article provides a comparison between the scheme to be introduced by the Regulations and the Scottish moratorium on diligence.
Bona Vacantia Discretionary Grants
Updated guidance has been published detailing how to apply for a discretionary grant where the dissolved company can be restored. The updated guidance reflects essential amendments to current guidance and associated forms.
TIX DATA Tokenisation
From January 2021, The Insolvency Exchange (TIX) will be required to tokenise Primary Account Number (PAN) data in order to adhere to the Payment Card Industry Standard (PCI DSS).
PAN data is usually the 14, 15, or 16-digit numbers found on the front of a credit card. In order to be compliant with the industry standard, TIX will be required to tokenise the middle digits of all card references when processing this information.
This will apply to the emailing of spreadsheets, statements and proxy and PODs forms. However, for IP's who use or sign up to SFTP transfer, the data can be received without tokenisation being applied.
For further information IPs should contact one of the TIX IPM team.
Dear Trustee - changes to AiB’s retention and destruction process
The AiB has published a new ‘Dear Trustee’ letter to advise of a change to its retention and destruction policy for sederunt books.
Furlough and redundancy
The Insolvency Service has issued updated its guidance for people who were furloughed using the Coronavirus Job Retention Scheme (CJRS), then made redundant because their employer is now insolvent.
The guidance has been updated to reflect extension of CJRS to 31 March 2021.
AiB Supervision Standard
The Accountant in Bankruptcy has published the latest edition of its ‘Supervision Standard’ newsletter. The edition includes:
- Statutory Debt Solutions statistics
- Trustee Accounts helpful tips & reminders
- Adjudication and Supervision update
- Bankruptcy Restrictions update & reminders
The Insolvency Service annual plan 2020 to 2021
The Insolvency Service has published its annual plan 2020 to 2021. Commitments include development of a user-friendly insolvency technical guide, development of a programme of director education and exploring ways to improve diversity in the profession.
Legal update
Brake and others v Lowes and others [2020] EWCA Civ 1491 The Court of Appeal has issued its judgment in relation to two interrelated appeals to decide whether the appellants had standing to challenge the conduct of a trustee in bankruptcy and joint liquidators.
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