Insolvency technical update – December 2020
By David Menzies, Director of Practice
7 January 2021
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.
Brexit
The UK has left the EU and 31 December 2020 marked the end of the transitional period in which, under the Withdrawal Agreement, EU rules continued to apply. As a result, the legal frameworks under which insolvencies are managed across borders, and insolvency practitioners are recognised in the UK and the EU, have changed.
The Insolvency (Amendment) (EU Exit) Regulations 2019 (as amended) and the Insolvency (EU Exit) (Scotland) (Amendment) Regulations 2019 (as amended) came fully into force on 31 December 2020, the main impact for insolvency practitioners being the loss of the main operative parts of the Regulation (EU) 2015/848, Recast Regulation on Insolvency relating to automatic recognition.
For further information on changes affecting the insolvency sector please refer to Dear IP 117 recently issued by the Insolvency Service.
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2020
The regulations came into force on 31 December 2020 and extend the duration of the temporary measures restricting the use of statutory demands and winding up petitions, introduced by the Corporate Insolvency and Governance Act 2020 (“CIGA 2020”), until 31 March 2021.
The restrictions were previously extended to 31 December 2020 by the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020.
A series of articles is available looking at the various insolvency and restructuring measures introduced by CIGA 2020.
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.
FCA Consultation: Guidance for insolvency practitioners on how to approach regulated firms
The FCA are consulting on non-handbook guidance for IPs on how to approach insolvencies of regulated firms. The proposed guidance aims to help IPs comply with FCA rules and guidance and relevant legislation which aim to achieve better outcomes for consumers and market participants following the failure of a regulated firm.
Comments on the draft guidance are requested by 18 January 2021.
Dear IP
Dear IP 114 has been issued by the Insolvency Service. Included in the issue are an update on the issues affecting insolvency cases following the introduction of HMRC’s new IT platform and guidance on reporting misconduct in corporate insolvencies in which there appears to have been abuse of the various COVID-19 Government financial support schemes.
Dear IP 115 has been issued by the Insolvency Service. Included in the issue are details of the Official Receiver Services operating model and feedback on questions raised in relation to the Guide for Monitors relating to the Guidance for Monitors under Part A1 of the Insolvency Act 1986.
Dear IP 116 has been issued by the Insolvency Service. The issue provides details of changes affecting the insolvency sector from 1 January 2021, as a result of the end of the EU exit transitional period during which EU rules have continued to apply.
Dear IP 117 has been issued by the Insolvency Service. The edition provides a reminder of an Insolvency Practitioner’s responsibilities in relation to suspicious or fraudulent redundancy payment claims.
Debt Respite Scheme (Breathing Space) guidance
The Insolvency Service has published guidance for creditors and money advisers about the Breathing Space scheme due to come into force 4 May 2021.
Redundancy payments: Form RP16
The Insolvency Service has issued an updated Form RP16: actuarial certificate for claims for payment to the National Insurance Fund for an unpaid employer’s pension contributions to a defined benefit or a hybrid scheme.
HMRC Guidance: Bulk payments - Individual Voluntary Arrangements (IVAs) and Trust Deeds
HMRC has published guidance indicating that it will no longer accept bulk dividend payments from 1 February 2021. The guidance sets out full changes that should be made by those currently making bulk payments.
The Payment Services and Electronic Money (Amendment) Regulations 2020
The Regulations came into force on 8 December 2020.
The Regulations amend the Electronic Money Regulations 2011 and the Payment Services Regulations 2017 in order to apply sections 93(4) and 233-236 of the Banking Act 2009, with modifications, to authorised electronic money institutions, small electronic money institutions, authorised payment institutions and small payment institutions.
This will allow HM Treasury to make regulations to modify insolvency law with respect to these institutions, including setting up a bespoke insolvency regime applicable to them.
Insolvency changes for payment and electronic money institutions: consultation
HM Treasury has published a consultation seeking feedback on proposed insolvency changes for payment institutions and electronic money institutions, including a new special administration regime.
The consultation closes on 14 January 2021.
DAS ‘Low and Grow’ process
Following representations from the money advice community, the AiB as DAS Administrator, has introduced a short-term ‘low and grow’ Debt Arrangement Scheme (DAS) process.
The ‘low and grow’ approach is intended for individuals who would benefit from being in a DAS Debt Payment Plan (DPP), but can only afford to pay minimal instalments toward their DPP in the short-term, with their contribution increasing once their circumstances improve.
Guidance on the new process has been issued by the AiB. The guidance sets out how proposals for any potential “low and grow” DPPs would be considered if they were subject to a ‘fair and reasonable’ assessment.
Higher education restructuring regime guidance for applicants
The Insolvency Service has published guidance for higher education providers in England registered with the Office for Students in the approved (fee cap) category who are facing financial difficulties as a result of coronavirus. The guidance explains how the higher education restructuring regime will operate.
Legal update
The Royal Bank of Scotland plc v Mrs Alison Donnelly and Antonia McIntyre [2020] CSOH 106 The Outer House of the Court of Session has issued its latest opinion in the long-running litigation involving these parties. In this instance the pursuer sought reduction of the debtor’s discharge, which was ultimately refused. A request to make a third-level appeal to the Supreme Court in relation to the earlier payment action concerning the right of set-off, covered in a previous article, has been refused.
Manolete Partners Plc v Dr Amir Shafik Matta and Others [2020] EWHC 2965 (Ch) considers a director’s statutory duties and obligations as set out in the Companies Act 2006 in respect of a Director’s Loan Account which had become overdrawn over a period of time and in causing or permitting unjustified and unexplained payments made to third parties.
Arlington Infrastructure Ltd and another v Woolrych and others [2020] EWHC 3123 (Ch) considers the validity of an administrator’s appointment following a failure by junior chargeholders to obtain consent from senior chargeholders, as required under a deed of priority.
Moulds Fencing (Torksey) Ltd & Ors v Butler & Ors [2020] EWHC 2933 (Ch) A failed attempt by creditors to compel administrators to move to creditors’ voluntary liquidation and for the revocation of a proposal ‘purported to have been deemed approved’.
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