MVL interest - HMRC position statement under forthcoming insolvency rule changes
HM Revenue & Customs have issued a statement which sets out their views on statutory interest payable on Scottish Member Voluntary Liquidations under the Insolvency (Scotland) (Receivership and Winding Up) Rules 2018 (ISRWUR). David Menzies looks at the latest developments in this long-running area of contention.
The position in relation to the liability for statutory interest being payable in MVLs has been the topic of hot debate within the insolvency profession over the last few years, mostly predicated by a closer scrutiny and application of the provisions by HMRC. The position under insolvency legislation in Scotland and England and Wales was not identical and it took a while for the approach in the different jurisdictions to be agreed.
Just months after the position settling down, it time for it all to change again. ISRWUR has filled the lacuna that previously existed in legislation and will come into effect on 6 April 2019.
In advance of the new rules coming into effect, HMRC have issued a note setting out their position in relation to a statutory interest in MVLS, the full note is reproduced below.
In summary, where statutory interest was not payable in a Scottish MVL from 6 April 2019 it will become payable. The good news, however, is that the rate of statutory interest under ISRWUR is set at 8%, a reduction from the statutory interest rate of 15% which was set in the Insolvency (Scotland) Rules 1986. In addition, a claim in a MVL which is not due until a date after the date of winding up should be discounted at the statutory rate of interest. So where a debt is paid within the normal due date timescales post-MVL then the company (and its shareholders) will not be penalised. Indeed, if the debt is paid in advance of the normal due date then there is a financial advantage to the company (and its shareholders).
It should be noted that due to the transitional and savings provisions contained within ISRWUR the new rules will apply to any MVL which is open on 6 April 2019 as well as new cases on or after that date.
HMRC note in full:
‘In November 2018 HMRC issued a note clarifying its interpretation of relevant legislation about Members’ Voluntary Liquidation (MVL) in Scotland. With the introduction of the Insolvency (Scotland) (Receivership and Winding up) Rules 2018 (“ISRWUR”) on 6 April 2019 this note updates HMRC’s view.
References are to legislation are as they are expected to be on 6 April 2019:
- Insolvency Act 1986 (“the Act”) and
- Insolvency (Scotland) (Receivership and Winding up) Rules 2018 (“ISRWUR”)
Declaration of solvency
Section 89 of the Act will continue to apply in Scotland. A company’s directors are required to make a declaration of solvency expressing the opinion that the company will be able to pay its debts in full, together with interest at the official rate within 12 months from the commencement of the winding up.
HMRC’s note in November 2018 acknowledged the lacuna that Rule 4.66 of the Insolvency (Scotland) Rules 1986 (“the 1986 Rules”) is not noted in Schedule 2 to those Rules. In consequence, the 1986 Rules do not provide for an official rate payable to creditors in an MVL. With the introduction of ISRWUR the position will change.
Part 3 ISRWUR is about MVL. The Note at the head of Chapter 1 of Part 3 ISRWUR makes it clear the “official rate” of interest mentioned in the directors’ declaration of solvency is the rate of interest specified in Rule 7.26 ISRWUR. At the time of writing this rate is 8% and HMRC will expect interest to be paid at this rate in any MVL which is in progress on 6 April 2019. This interest will be payable from the date of commencement of the MVL.
Discounting future debts
HMRC’s note in November 2018 pointed out that Rule 4.16E of the 1986 Rules was not applied by Schedule 2 to those Rules. This meant that that debts payable after the date of MVL might not be discounted but ought to be paid in full, even if payment was being made before the due date for payment. With the introduction of ISRWUR the position will change.
Rule 7.1 ISRWUR tells us Part 7 applies in winding up and so applies to MVL. Rule 7.22 provides that a debt payable after the date of liquidation is to be treated as if it were payable on the date of liquidation. The debt is to be discounted from the date for payment to the date of liquidation. The rate at which the discount is to be calculated is the official rate (currently 8%). HMRC will apply Rule 7.22 when making claims.
The transitional provisions in ISRWUR are such that the new Rules will apply to all MVLs in progress on 6 April 2019.
MVL communication address
MVL work is currently in the process of being migrated to our Newcastle office. This process should be completed by 6 April, and we appreciate your patience while this is ongoing. The address that should be used to contact the MVL team with effect from 6 April is:
HM Revenue & Customs