Where an insolvent corporate franchisee is about to close its business, franchisors may look for a potential solution to try to retain goodwill in the brand in that particular territory...
As of 6th April 2017 the Insolvency Rules (England and Wales) 2016 (‘the New Rules’) will be in force. These replace the Insolvency Rules 1986 (and their 28 amending instruments) and provide the framework for the Insolvency Act 1986. They encompass the relevant amendments made by the Deregulation Act 2015 & The Small Business, Enterprise and Employment Act 2015.
The purpose of the New Rules is to consolidate the existing insolvency rules and their numerous amendments, update and improve the structure of the rules and bring welcome modernisation to the rules and the procedures within them.
The New Rules should have the effect of reducing costs and thereby increase returns to creditors.
We have highlighted below some of the most significant changes incorporated in the New Rules.
Abolition of statutory forms
Instead of the statutory forms there are now prescribed requirements for notices which are set out in Part 1 of the 2016 Rules.
For example if you are a franchisor for example serving a Statutory Demand on a debtor you should not be using the old form of Statutory Demand but instead should ensure that your forms meet the prescribed requirements of the New Rules.
Changes to the rules
Changes to reduce unnecessary correspondence and to modernise communications including the use of emails and website notices:
- the option for creditors to opt out of correspondence from office-holders (except for notices of intended dividends)
- provision for the use of electronic communications with creditors without first obtaining their written consent where they have been using electronic communication with debtors as a matter of course prior to insolvency – this consent can be revoked;
- provision for office holders to publish notices on websites after giving creditors notice of this without first having to obtain a Court Order
- permitting office-holders to pay out dividends of less than £1,000 without requiring the creditor to formally submit a claim
Physical meetings of creditors
Significant changes to the requirements for creditor meetings:
- the removal of the automatic requirement for physical meetings of creditors to discuss proposals, which may unnecessarily increase costs to the insolvency estate and often do not have a good attendance rate.
- Office holders can instead send written proposals to creditors, which will be deemed accepted (referred to as ‘deemed consent’) unless over 10% of creditors (in value) object.
- If 10% of creditors in value object, then an alternative decision making process will be used. The New Rules provide for such alternative decision-making processes which include electronic voting, correspondence and virtual meetings. There are limits to the alternative decision making process, where a liquidator is being appointed in a creditors voluntary liquidation.
Physical meetings of creditors cannot be called by officer holders unless at least 10% of creditors in value, 10% of the total number of creditors or 10 individual creditors require it.
There are exceptions to deemed consent in some circumstances such as approvals or IVA or CVAs, removal of an office-holder or approval of office-holder’s remuneration.
- replacement of the requirement for a final meeting of creditors in liquidation and bankruptcy, with a requirement to produce a report containing prescribed information, (unless the Official Receiver is the trustee).
- replacement of the requirement of physical meetings, for creditor approval of a creditors voluntary liquidation, or compulsory liquidation, with a deemed consent procedure or virtual meeting
Other changes contained in the New Rules
- the Official Receiver will be appointed trustee on the making of a bankruptcy order unless the Court appoints a supervisor instead.
- where a Statement of Affairs is to be filed with Companies House, details of employees, ex-employees and customers must now be in a separate schedule rather than in the Statement of Affairs and will therefore not be published. This follows privacy concerns about such information being published.
- reflection of changes to the Insolvency Act to permit insolvency practitioners to be appointed as interim receivers, in bankruptcy proceedings in wider circumstances.
There are some limited transitional provisions in Schedule 2 of the New Rules, which permit the use of the old statutory forms and provide for the old rules to apply, in relation to some meetings.
A link to the New Rules is: http://www.legislation.gov.uk/uksi/2016/1024/contents/made If you have any queries or would like to discuss any insolvency-related matters with us please contact the Dispute Resolution team.