Insolvency technical update - July 2020
By David Menzies, Director of Practice
3 August 2020
Insolvency technical update – your round-up of recent developments in insolvency.
Coronavirus
This update relates to matter not directly linked to the coronavirus crisis. For coronavirus updates please go to the regularly updated A-Z of all things insolvency amid the coronavirus outbreak.
Corporate Insolvency and Governance Act 2020
The Corporate Insolvency and Governance Bill was laid in Parliament on 20 May 2020 and came into force as the Corporate Insolvency and Governance Act 2020 (CIGA 2020) on 26 June 2020, following an accelerated passage through Parliament.
The government previously consulted on changes to the corporate insolvency regime and announced plans to introduce new insolvency restructuring procedures in August 2018. The new legislation, in large part, implements those plans.
The overarching objective of CIGA 2020 is to provide businesses with the flexibility and breathing space they need to continue trading and avoid insolvency, particularly during this period of economic uncertainty.
A series of articles has been produced by ICAS looking at the various insolvency measures introduced by CIGA 2020.
CIGA 2020 was also the subject of an Ask ICAS webinar on 25 June.
ICAS also took part in ‘Corporate Insolvency and Governance Act 2020 – A Discussion of the Insolvency Aspects of the Act’ with Paul Bannister, Head of Policy, Insolvency Service. The joint webinar was hosted by R3 on 7 July 2020 and is available to view on demand.
Company Moratorium – use of websites
As part of the previous webinar on CIGA 2020 a question was asked querying whether the use of websites is allowable for the monitor to communicate with creditors.
The answer provided in the subsequently issued Q & A document indicated that Schedule 4 to CIGA 2020 does not permit the use of websites.
On further review this is incorrect. Paragraph 18 of Schedule 3 to CIGA 2020 states “In section 246B (use of websites), in subsection (3), before paragraph (a) insert— ‘(za)the monitor in relation to a moratorium under Part A1,’.” Section 246B applies the relevant rules in relation to the use of websites under the Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018 and the Insolvency Rules 2016 without requirement for specific mention in Schedule 4 of CIGA 2020.
Moratorium – Charitable Incorporate Organisations (CIOs)
The Charitable Incorporated Organisations (Insolvency and Dissolution) (Amendment) Regulations 2020 came into force on 7 July 2020 to allow the new moratorium legislation to apply to CIOs.
The CIO is a legal structure that is only available in England and Wales. In Scotland, the Scottish Charitable Incorporated Organisation is a similar but different legal structure, regulated under Scots law, and not subject to the corporate insolvency framework.
Companies House moratorium forms
A suite of forms has been produced by Companies House for notifications required in relation to the new moratorium process introduced by CIGA 2020.
Breathing Space
The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 were laid in draft on 15 July 2020 with a view to implementing the government’s new statutory breathing space scheme in England and Wales.
The Regulations are considered in detail in a separate article on icas.com, with another article to follow comparing breathing space against the moratorium available to assist individuals in problem debt in Scotland.
Finance Act 2020
The Finance Bill 2019-21 received Royal Assent on 22 July 2020 and came into force as the Finance Act 2020.
The legislation will amend s386 and Schedule 6 to the Insolvency Act of 1986 and s129 and Schedule 3 of the Bankruptcy (Scotland) Act 2016. The effect will be 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 measure will apply to any case where the relevant date is on or after 1 December 2020.
The draft Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations 2020, pursuant to clause 99 of the Finance Act 2020, have also been published.
Companies House upload – insolvency filings
Companies House has confirmed that it is now allowing users to upload certain statutory insolvency documents using the ‘Upload a document to Companies House’ service. A list of documents that can be initially uploaded via this service has been produced.
Insolvency practitioners that haven’t already got a Companies House Service (CHS) account will need to register for a CHS account. Practitioners can register for a CHS account here.
Dear IP 106
Dear IP 106 has been issued by the Insolvency Service. Included in the update are new Court Practice Directions for the Corporate Insolvency and Governance Act 2020. A new Schemes Practice Statement has also been published for the new Restructuring Plan under Part 26A of the Companies Act 2006. Both documents are included as attachments to the update.
Dear IP 107
Dear IP 107 has been issued by the Insolvency Service. Included in the update are details of changes to the reference period used to calculate the rate of holiday pay following redundancy and details of the process for submission of VAT426 forms to HMRC via the Dropbox file sharing service.
Redundancy and furlough
The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 came into force on 31 July 2020. The new regulations are intended to ensure that furloughed employees receive statutory redundancy pay based on their normal wages, rather than a reduced furlough rate.
The legislation also covers other employment rights that rely on average weekly pay, including notice pay, unfair dismissal, and short-time working.
HMRC moratorium notification
HMRC has provided guidance, including relevant contact details, for all notifications and contact in relation to a moratorium.
HMRC – voluntary arrangements
HMRC has issued guidance on its approach to variations and new proposals in respect of Individual Voluntary Arrangements (IVAs), Partnership Voluntary Arrangements (PVAs) and Company Voluntary Arrangements (CVAs) from 1 July 2020 until 30 November 2020.
Companies House voluntary strike off process
In March 2020, Companies House introduced temporary easement measures to suspend voluntary strike off action in response to coronavirus. Companies House has announced that this temporary measure will be lifted from 10 September 2020.
Insolvency Service newsletter
The latest edition of the Insolvency Service newsletter includes a review the features of the Corporate Insolvency and Governance Act 2020 and details of the steps the Insolvency Service has taken to continue to offer its public services during the coronavirus pandemic.
Pension Protection Fund
The Pension Protection fund has a dedicated email address for notifications, 2020actnotification@ppf.co.uk, which replaces their previously published email address.
Court Fees
The Court Fees (Miscellaneous Amendments) Order 2020 comes into force on 3 August 2020. The fee for filing a Nominee’s report at court has been reduced from £50 to £35.
The Smart Meter Communication Licensee Administration (England And Wales) Rules 2020
The above statutory instrument implements the detailed rules and procedures of the Smart Meter Communication Licensee Special Administration Regime that would protect consumers in the event of the Smart Meter Communication Licensee becoming insolvent.
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 Account update & helpful tips
- Adjudication and Supervision update & reminders
- Bankruptcy Restrictions update & reminders
AiB experimental statistics publication
Publication dates have been announced for the upcoming Scottish Statutory Debt Solutions (Experimental Statistics) Editions. The experimental statistics releases will contain summaries of the latest monthly estimates on Scottish statutory debt solutions in Scotland.
The July 2020 edition will be published at 9.30 am on 12 August 2020.
Consumer sales contracts: transfer of ownership
The Law Commission is consulting on draft legislation which would implement recommendations it made in July 2016 to modernise the rules on when consumers acquire ownership of goods under sales contracts.
The consultation closes on 31st October 2020.
Legal update
Re Lehman Brothers International (Europe) [2020] EWHC 1932 (Ch) The High Court considered whether to allow administrators to consent to the making of a distribution by the directors and whether it was necessary that the actions of the administrators, in giving that consent, must be actions that had the objective of rescuing the company as a going concern.
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