What’s ahead for the insolvency profession in 2016?
The year ahead looks set to hold a significant number of changes for those involved in the area of insolvency and restructuring.
So the Christmas and New Year festivities are over for another year. As everyone heads back to work, what can those working in the insolvency and restructuring profession look forward to?
Well, 2015 was a year with significant legislative changes for the profession through the commencement of provisions within the Deregulation Act 2015, Small Business Enterprise and Employment Act 2015, Bankruptcy and Debt Advice (Scotland) Act 2014, and a significant number of secondary legislation provisions. Lots to take in, get up to speed with and amend procedures to ensure compliance is up to date. The year ahead looks to be no different.
Modernised insolvency rules
Following amendments to primary legislation in 2015 attention is turning in 2016 to the detailed requirements of insolvency procedures. A draft of the Insolvency Rules 2016 has already been submitted to the Insolvency Rules Committee for statutory consultation. The Committee is due to report shortly but it is expected that the new Rules are to become effective on 1 October, 2016.
The 2016 Rules will result in a significant departure from current insolvency working in some areas. For example, creditor meetings will no longer be the default position and decisions normally taken by creditors at such meetings will be able to be approved by ‘deemed consent’ – consent unless a specified percentage of creditors object. This won’t however apply to remuneration, removal of an office holder or approval of voluntary arrangements.
ICAS has long called for the updating and modernisation of corporate insolvency rules in Scotland.
In addition those familiar with the layout of the Insolvency Rules 1986 will need to adapt to a new approach with the 2016 Rules. While the 1986 Rules were laid out by insolvency procedure (administration, receivership, liquidation, etc), the new Rules as drafted draw out common parts to all insolvency procedures (claims, decision making, reporting and remuneration, etc).
A useful summary of the main policy changes and modernisation effects is available in the explanatory note which accompanies the draft 2016 Rules.
New corporate insolvency rules for Scotland
ICAS has long called for the updating and modernisation of corporate insolvency rules in Scotland. The Insolvency (Scotland) Rules 1986 have been tweaked over the years but lack the advancement seen in England & Wales to allow, for example, the use of electronic communication and websites in all corporate insolvency procedures. The Scottish Rules also leave many more gaps in procedures in comparison to the England & Wales counterparts and that has often resulted in court actions being required to obtain clarity on certain matters.
The Scottish Government has already started the process to introduce a new set of Insolvency (Scotland) Rules by laying a draft Public Service Reform (Insolvency) (Scotland) Order. This will allow amendments to the Insolvency Act 1986 to be made in preparation for the new Rules.
The timetable being mooted is that the new Scottish Rules would be introduced with the new Insolvency Rules 2016 for England and Wales. It is an ambitious target.
Personal Insolvency changes
The Scottish Government has introduced the Bankruptcy (Scotland) Bill into parliament and it is expected that a Bankruptcy (Scotland) Act 2016 will be commenced towards the end of 2016.
Although this is a straight consolidation of existing legislation, the new Act will have IPs searching for new section numbers. The current sections 1 to 78 will turn into section 1 to 238. Much of this is due to current trust deed provisions contained in regulations being brought into primary legislation. Sections which currently roll off the top of many IP and case administrators' heads will no longer be relevant. As an example, the well-known section 63 (or 63A) will become section 211 (or 212).
There is also anticipated to be some re-ordering of Parts within the Act to allow it to ‘flow’ more naturally.
Statements of Insolvency Practice (or Principles?)
Hot on the heals of amended SIPs 1, 9 and 16 issued in 2015, there is likely to be an array of amended SIPs in 2016. Much of the change will be as a result of changes in legislation highlighted above.
The current Joint Insolvency Committee work programme highlights work on SIPs 2, 4, 7, 8, 9 (again!), 10, 13, and 15. The JIC is also continuing its work on the Code of Ethics which should come to fruition in the year ahead.
The Insolvency Service is likely to move to an electronic and simplified reporting process for director disqualification reports in Spring 2016.
Some of the current SIPs may end up being withdrawn or combined due to a number of factors. The resultant patch numbering of SIPs may conclude to JIC issuing a new suite of statements retaining sequential numbering and coinciding with new Rules. Given the new statements are largely principles rather than practice-based there has been a suggestion any new suite would be entitled Statements of Insolvency Principles and Practice (SIPPs).
Director Disqualification Reporting
The Insolvency Service is likely to move to an electronic and simplified reporting process for director disqualification reports in Spring 2016. I have seen an alpha version of the new web reporting system and while it still requires some work before launch my initial impression is positive.
The new format of reporting will require less of an opinion to be drawn by the IP on the unfitness of a director, instead focusing more on reporting indicators that may signify unfitness.
Introduced as part of the Deregulation Act 2015, Partial Authorisation is now part of legislation. However the agreement between the Insolvency Service and the RPBs requires a pass in the JIEB exam before a person can be authorised as an IP. A pass in the JIEB exam requires a pass in all three papers in the current exam.
Discussions have been taking place between the RPBs, JIEB and the Insolvency Service on how the exam structure can reflect the new partial authorisation options. An announcement can be expected on the outcome of this shortly.
It is likely that the first partial authorisation licences will however be granted during 2016.
'The known unknowns'
The above are only some of the key changes for the insolvency and restructuring profession in 2016. Experience however suggests that there will be many other changes which will emerge during the year. Ongoing court cases in relation to reopening trust deeds, the implications of the new pension freedoms on a trustee's ability to ingather estate or income contributions and others will undoubtedly shape the year ahead (and beyond). We shall await developments.