Decision making under The Insolvency (England & Wales) Rules 2016
This article forms part of a series looking at the significant changes to insolvency procedures being brought in from 6 April 2017. 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 (England & Wales) Rules 2016 (the 2016 Rules) 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 15 of the 2016 Rules.
One of the more controversial changes which have been brought in following the Government’s Red Tape Challenge exercise is the removal of physical meetings as the primary way of engaging with creditors.
The fear among many commentators in the profession is that the removal of physical meetings will result in creditors being even further disengaged from the process and result in information which was often useful in pursuing delinquent directors or recovering assets being ‘lost’ to the office holder.
Despite their concerns, the reality is that physical meetings will no longer be the default and the profession now needs to work with this in the best way possible.
Qualifying decision procedures
The Small Business Enterprise and Employment Act 2015 introduced sections 246ZE and section 379ZA to the Insolvency Act 1986 (the Act). These sections require 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 2016 Rules are:
- electronic voting
- virtual meetings
- any other decision making procedure which enables all creditors who are entitled to participate in the making of the decision to participate equally.
Sections 246ZF and 379ZB of the Act provide that unless the Act, the 2016 Rules, 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; and
- 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 must be convened if requested by 10% by value, 10% by number or 10 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 particularclass 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 most procedures (see rule 15.13), where a decision is to be made by a meeting, the convenor of the meeting must also advertise the meeting in the Gazette.
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. Remember that this will be based on the date of deemed delivery and that this will vary depending on the method of delivery used (see Ground Rules).
Decisions are treated as having been made at 23:59 on the decision date set and therefore it would appear that any return up to that time on the decision date will require to be counted. It could prove interesting determining whether a resolution returned through the office holder letter box overnight on decision date was received before 23:59 or not!
Notices to creditors (or contributories) are required to contain prescribed information. In addition to information required by section 246ZE, 246ZF, 379ZA or 379ZB as appropriate, the general requirements are set out in rule 15.8. Additional requirements for the various procedures are also set out as follows:
electronic voting rule 15.4
virtual meetings rule 15.5
physical meetings rule 15.6
deemed consent procedure rule 15.7
Details of minimum notice periods and who is to receive notice is set out in a table in rule 15.11. The court may order that notice can be given by general advertisement rather than individually to each creditor.
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 proof 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, proof of claims must be submitted on or before 4pm on the business day prior to the meeting, although the convenor has discretion to allow proof of claims submitted after that time to be accepted.
IPs and their firms will need to consider several matters to comply with the 2016 Rule 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.
- 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.