Decision making under the Scottish Insolvency Rules 2018

david-menzies By David Menzies, Director of Practice

14 February 2019

This article forms part of a series looking at the significant changes to insolvency procedures being brought in in Scotland from 6 April 2019. In this article, David Menzies looks at the changes relating to decision making.

One of the most significant changes being brought in by the Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018 (ISCVAAR 2018) and the Insolvency (Scotland) (Receivership and Winding Up) Rules 2018 (ISRWUR 2018), together the Insolvency Scotland Rules 2018, relates to how decisions to be made as part of the insolvency process involving members or creditors, can be made.

The detailed provisions are contained in Part 5 of ISCVAAR 2018 and Part 8 of ISRWUR 2018.

The decision-making procedures mirror those in the Insolvency (England & Wales) Rules 2016 and remove physical meetings as the primary way of engaging with creditors.

Qualifying decision procedures

The Small Business Enterprise and Employment Act 2015 introduced section 246ZE to the Insolvency Act 1986 (IA 1986). These provisions will be commenced for Scotland on 6 April 2019 and provide that any decisions of creditors (or contributories) may be made by any qualifying decision procedure, but that will not include a physical meeting unless a request is made for one. The qualifying decision procedures (in addition to a physical meeting) set out in the Insolvency Scotland Rules 2018 are:

  • correspondence
  • electronic voting
  • virtual meetings, and
  • any other decision-making procedure which enables all creditors who are entitled to participate in the making of the decision to participate equally

Deemed consent

Section 246ZF of the IA 1986 provide that unless the IA 1986, the Insolvency Scotland Rules 2018, or any other legislation or a court order specifically requires a decision to be made by a qualifying decision procedure, then deemed consent may be used for that decision.

Any decisions in respect of remuneration of any person must be made by a qualifying decision procedure.

If the deemed consent procedure is to be used, notice is given to creditors (excluding opted-out creditors) or contributories of the matter about which a decision is to be made and that the deemed consent procedure is proposed to be used. They also require to be informed within that notice that:

  • if less than 10% by value of relevant creditors (or contributories) object to the proposed decision then the proposed decision is treated as having been made
  • if more than 10% by value of relevant creditors (or contributories) object that it is treated that no decision has been made about the matter in question and that if a decision about the matter is again sought that it must be sought using a qualifying decision procedure

In considering whether the 10% by value threshold is reached, only those creditors (or contributories) who would be entitled to vote under a qualifying decision procedure are counted.

Physical meetings

Physical meetings must be convened if requested by 10% by value, 10% by number or ten individual creditors. Requests for a physical meeting may be made before or after a notice of decision procedure or notice of deemed consent is issued. Any request must, however, be made no later than five business days after the notice of decision procedure or notice of deemed consent is delivered.

In calculating the relevant percentage or numbers required to call a physical meeting this is by reference to all creditors, even when the decision is being sought only from a particular class of creditor.

Notice of the physical meeting must be issued within three business days of the relevant threshold being exceeded. Procedures will, therefore, need to capture requests and monitor whether any of the thresholds have been exceeded in real time.

In an administration, a creditors voluntary winding up, and a winding up by the court, where a decision is to be made by a meeting, the convenor of the meeting must also advertise the meeting in the Gazette.

Decision date

Where correspondence or electronic voting is used, then the decision date must be set by the convenor but must be no less than 14 days from the date of delivery of the notice of decision procedure or notice of deemed consent, unless a different minimum notice period is provided for in the tables in ISCVAAR 2018 r 5.11 and ISRWUR 2018 r 8.11. This will be based on the date of deemed delivery and that this will vary depending on the method of delivery used.

Decisions are treated as having been made at 23:59pm on the decision date set and therefore any return up to that time on the decision date will require to be counted. How a firm is to determine whether a return posted through the letterbox of the firm was returned prior to or after that time when the office is closed overnight remains to be seen!

Notices

Notices to creditors (or contributories) are required to contain prescribed information. In addition to information required by IA 1986, ss 246ZE, or 246ZF, as appropriate, the general requirements are set out in ISCVAAR 2018 r 5.8 and ISRWUR 2018 r8.8.  Additional requirements for the various procedures are also set out as follows:

  • electronic voting (ISRCVAAR 2018, r 5.4 and ISRRWUR 2018, r 8.4)
  • virtual meetings (ISCVAAR 2018, r 5.5 and ISRWUR 2018, r 8.5)
  • physical meetings (ISCVAAR 2018, r 5.6 and ISRWUR 2018, r 8.6)
  • deemed consent procedure ISCVAAR 2018, r 5.7 and ISRWUR 2018, r 8.7)

Details of minimum notice periods and who is to receive notice is set out in tables in ISCVAAR 2018, r 5.11 and ISRWUR 2018, r 8.11. The court may order that notice can be given by general advertisement rather than individually to each creditor.

Electronic voting

Any system used must be capable of the respondent voting at any time between the issue of the notice and the decision date.

Entitlement to vote

Other than for votes cast at a meeting, votes shall only be counted where the vote is received on or before the decision date and, where the vote is from a creditor, a statement of claim has been submitted with the vote or to the convenor previously.

For a decision to be made, the convenor must receive on or before the decision date at least one valid vote.

For meetings, statements of claims must be submitted at or before the meeting. Where a meeting is adjourned the chair may allow a statement of claim and documentary evidence of debt to be used if delivered at or before the resumption of the adjourned meeting.

Action required

Insolvency practitioners and their firms will need to consider several matters to comply with the Insolvency Scotland Rules 2018 requirements. This will include:

  • document templates and checklists will require to be updated to incorporate the new decision procedures
  • consider what decision procedure is likely to be used as the firm’s main process. While in many cases this will be correspondence, it is worth considering whether technology solutions such as e-voting (especially when coupled with e-communication) would be more efficient and cost effective
  • put in place procedures to capture objections to deemed consent procedures being used and to ensure that where the trigger value is exceeded that an alternative qualifying decision procedure is commenced, and
  • put in place procedures to capture requests for physical meetings and to ensure that where any of the trigger thresholds are exceeded that a notice for a physical meeting is issued within three business days