Ten things you need to know about the Insolvency (Scotland) Rules 2018

Allana Sweeney discusses the technical details of the modernised insolvency rules and what impact this might have on practice going forwards. 

29 April 2019

On 6 April 2019, Scotland finally saw the introduction of the modernised insolvency rules in the form of The Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018 and The Insolvency (Scotland) (Receivership and Winding Up) Rules 2018 (the 2018 Rules).

The 2018 Rules will replace the existing Insolvency (Scotland) Rules 1986 (as amended) subject to certain transitional and saving provisions.

Importantly it is worth noting the 2018 Rules do not currently apply to Limited Liability Partnerships (LLPs), and commencement of legislation in relation to LLPs is awaited.

The main changes introduced by the 2018 Rules have been widely publicised and include:

  • wider use of electronic communication and websites;
  • the ability for creditors to opt out of receiving communications;
  • the replacement of automatic creditor meetings with deemed consent and/or qualifying decision procedures; and
  • the introduction of block transfers for administration.

The purpose of this article is to highlight 10 key technical points arising from the introduction of the 2018 Rules that will have an impact on practice going forward:

1. Forms

Statutory forms for the insolvency processes have been abolished (save as provided for in the transitional and savings provisions). The 2018 Rules now prescribe the required content of documents, adverts and other notices to be issued. The common parts regarding form and content need to be read in conjunction with the specific rules applicable to the relevant process and step being undertaken. Documents and precedents require to be reviewed and updated accordingly. However, both Companies House and the Accountant in Bankruptcy (AiB) have released new forms for the purposes of submitting certain documents. These should be adopted as appropriate. Links to the forms are included here and here

2. Administration Appointment (Directors/Company)

The prescribed content of the notice of appointment of Administrators via the out of court process requires the appointer to state within the notice, the time and date of appointment of the Administrators. The notice is in the form of a statutory declaration being made by the appointer. However, the time and date of appointment is when the signed notice is stamped by the Court and the details added. To ensure the statutory declaration can be made accurately, and to minimise challenges to the validity of the appointment –  In line with currently accepted practice in England & Wales, wording along the lines of “the date and time stated in the endorsement completed by the court below” could be added by the appointer at the relevant section of the notice.

3. Small debt provisions

Office-holders can now accept a creditor’s claim where it totals less than £1,000 (i.e. a small debt) for adjudication and dividend purposes without the creditor submitting a statement of claim. However, a statement of claim still needs to be submitted by a small debt creditor to vote or participate in creditor decisions. In practice, it is unclear whether the introduction of the small debt provisions will actually save time and costs, or, whether they will largely be ignored by office holders.

4. Time periods

A number of time periods have been changed throughout the 2018 Rules (for example moving from seven days to five business days) and the 2018 Rules continue to use a mixture of days and business days. Definitions of clear days and provisions regarding calculation of time periods have been included. Further, decisions made by a qualifying decision procedure are deemed as having been made at 23:59 on the relevant decision date. Different provisions also require notices to be ‘delivered by’ or ‘sent by’ a particular time. Caution needs to be exercised in planning or reviewing steps to be undertaken / decisions to be made with account being taken of the method of delivery of notices and any deemed receipt provisions.

5. Creditors’ Voluntary Liquidation (CVLs)

With the removal of automatic creditor meetings, a decision from the creditors to appoint a Liquidator requires to be made either by deemed consent or virtual meeting. It is expected that where creditors wish to nominate an alternative Liquidator, the process of appointing a Liquidator in a CVL could well become more complex and uncertain as creditors could look to both object to the deemed consent process, and/or request that a physical meeting be called, resulting in delays. It is also worth noting that HMRC have also requested that notice of a CVL be given to a specified mailbox to ensure that notices can be acted upon, given the appointment could potentially be made three business days after notice has been delivered (unless objections to deemed consent are received, or, a physical meeting is requested).

6. Taxation of legal fees

A welcome change arises with the removal of the need for taxation of legal fees. The Liquidator and the relevant firm can now agree there is no requirement for taxation, provided they are not associates i.e. the approval of the liquidation committee or the court is no longer required.

7. Members’ Voluntary Liquidation (MVLs) and statutory interest

Under the 2018 Rules, the provisions for statutory interest will apply to MVLs, whether or not the MVL commenced before or after 6 April 2019. There are no transitional and savings provisions and therefore Liquidators, directors and creditors alike require to familiarise themselves with the impact of these changes. Going forward, it is expected that this will result in a move to pay creditors in full ahead of the MVL being commenced to avoid additional statutory interest accruing (the official rate currently being 8%).

8. Secretary of State

The administration block transfer provisions require notice to be given to the Secretary of State for Scotland. However, there is no clear information as to how that notice is to be given, and, if it is intended that an agency or body on behalf of the Secretary of State for Scotland should receive that notice (for example, the AiB acts as an agent in respect of liquidations and receiverships). Clarification is awaited to ensure processes and documentation can be updated appropriately.

9. Use of websites

The new provisions enable an office-holder to indicate that all future documents in the process (with a few limited exceptions) will be put on a website without further notice to the creditors. Whilst hard copies can still be requested by creditors, unless they actively do so it is expected that this could result in a loss of creditor engagement, and certainly it would require creditors to be more proactive in monitoring the relevant website.  

10. Remuneration

It is now possible for an office-holder to defer submission of claims for remuneration and outlays to later accounting periods without the need for approval.

The above are only a few of the technical and practical changes. If you would like to learn more about the 2018 Rules and the impact for you, please do not hesitate to contact one of the Corporate Restructuring & Recovery team.