Frequently Asked Questions
New Rules Q & A
15 May 2017
This page is just a small sample of the 20 to 30 emails we have received each working day in the two months after the Insolvency (England and Wales) Rules 2016 (“New Rules”) came into force. We have dropped the queries into roughly related blocks, to help you find them later. Some of them could have appeared in more than one block, but we have avoided duplication. Please note that the New Rules are still very new and the interpretation of them is changing as people start to use them and find what does or does not work. The Old Rules were still subject to legal challenge and disputed interpretation 30 years after they were written. This summary is just the best we can do based on what we currently know and it should not be taken as a statement of law. If you are ever uncertain, you should obtain a formal legal opinion that you can rely on.
1. Do you still use a certificate of postage with documents?
A: You have to prepare a “certificate of proof of delivery of documents” whenever you issue a circular document, notice or report per rule 1.52, and there is a pro forma in each of the packs in the Case Management folder. A certificate “must state the method of delivery and the date of the sending, posting or delivery (as the case may be)” and may be endorsed on the document to which it relates.
2. Can you send the Statement of Affairs (“SA”) and explanatory information at a later date than the letter to creditors with notice of the decision procedure?
A: Yes, but we think that is a risky strategy and we don’t provide documents for it in our packs. The danger is that the Director might not co-operate and produce the SA and while it is his duty, if the regulators see the same IP having a lot of missing SA’s they could make life difficult. We expect the New Rules to require changes in some common practice and earlier planning of CVL entry is likely to be one of those.
3. Does the whole meeting notice pack have to be posted?
A: Until you are officeholder you cannot use a website to communicate with the creditors. Also, unlike the rules surrounding electronic delivery, there is no reference to the convener, i.e. the directors, being able to communicate via a website either. As a result, you will have to post the notices of the decision procedure to creditors, together with the SA. However, since providing the explanatory information to the creditors, i.e. the directors’ report, is not a statutory requirement, but an additional non-statutory obligation imposed by the SIP, then we are of the view that you can put that on a website and just direct the creditors to it since it is not governed by the rules. We say “post the documents to the creditors”, but since the rules refer to the ability of the convener to deliver documents electronically, if you can get email addresses for the creditors from the directors then there is nothing to stop you from emailing the documents on their behalf. Since you are doing it on behalf of the directors, not in your capacity as officeholder, then you do not need the specific consent of the creditors, and we received confirmation from the Insolvency Service that the consent provisions set out in Rule 1.45 do not apply to the directors as conveners of the decision procedure.
4. Does the SA sent out with the initial notice pack have to be a full copy of the signed original?
A: Yes, but when you file the statement of affairs with the Registrar of Companies you do not send any schedules detailing the names, addresses and amounts owed to employees and consumers (Rule 6.3(6)). Slightly oddly, if a creditor asks for a copy after you have filed it at Companies House, you don’t have to provide it (Rule 1.56), so if they lost the full version you’d originally sent, or if they only find out about the proceedings late, they might only get to see the restricted version.
5. When is a liquidator not a liquidator, even when appointed by the members?
A: This is a contrived question to draw your attention to the implications of one of the amendment rules. Rule 6.20(2) now says “The liquidator’s appointment takes effect from the date of the passing of the resolution of the company or, where the creditors decide to appoint a person who is not the person appointed by the company, from the relevant decision date.” As a result, if you have a planned Centrebind, or an accidental Centrebind where you originally went for deemed consent by the creditors, objections were received such that you held a physical meeting, and the creditors subsequently appoint someone else, your appointment as liquidator falls into a gap in the legislation.
6. At a virtual meeting, can the proposed Liquidator, director, members, etc also dial in if not in the office
A: The whole point about a virtual meeting is that there is no venue. There is, however, a practical issue in getting documents signed and returned, so having the director present in your offices while joined to the virtual meeting would allow you to supervise the completion of the required documentation. Without that, you’d probably need to check scanned copies at the time.
7. The new statement of affairs to be sent to Companies House “LIQ02” does not have a statement of truth at the front, just a signature at the bottom of each page. Is the statement of truth no longer required?
A: Section 99(2A) still requires the statement of affairs to be verified by a statement of truth, and our pro forma CVL103 includes this.
8. If the Board nominate someone to chair the members meeting and also nominate someone to call a decision procedure to appoint the Liquidator. Who can be nominated to do this? Can the proposed Liquidator do it himself?
A: The members’ meeting should always be chaired by a director in order to comply with Companies Act requirements. Similarly, it is only a director who can sign the documents to initiate a decision procedure for the creditors to appoint a liquidator. It is the director of the company who is the convener of such a decision procedure, not the IP.
9. As nominee, are we able to send out a notice to creditors stating that the proposal pack is located online with their login details.
A: Yes, as nominee, you can use the web delivery provisions. We think that HMRC don’t like it and TIX may want it emailed to a specific address, but those are practical issues, rather than strict compliance ones.
10. Why doesn’t your covering letter for the CVA or IVA proposals include mention of an invitation to form a creditors committee?
A: Rule 17.1, which deals with the formation of committees contains no reference to VAs, and parts 2 (CVA) and 8 (IVA) contain no reference to a committee, or inviting creditors to form a committee either. We think that it was deliberate policy to leave them out, given how rarely a committee is used in a VA. Our proposals presuppose that a committee won’t be needed, but refer to the BKY legislation for Protocol IVAs, the R3 standard terms for non-Protocol IVAs, or the adapted version of the R3 terms that we use for our CVAs, if one should be formed.
11. Dear IP 76 says that you should be able to approve VAs by correspondence or an electronic vote. How can that be done?
A: The reason that we think that you have to use a virtual meeting to approve a VA is that the rules don’t allow you to change the resolution in a decision by correspondence or electronic voting (Rule 15.31(8)). In order for Dear IP 76 to work, you would need creditors to co-operate and agree the any modifications beforehand, so that any vote could just be to approve the arrangement as modified. Although there will always be exceptions where you might be able to push one through, in the main we expect you to receive modifications right up to the last minute and that will require the extra flexibility of a virtual meeting.
12. I have an MVL with just directors (both also shareholders) loans as creditors. I note under the old rules notice of intended dividend was optional. Under the new rules do I need to do the notice of intended dividend for the two director loans?
A: I am afraid so as Part 14 of the rules applies equally to MVLs. You will also need to gazette the notice of intended dividend unless you gazetted for claims on appointment per rule 14.28.
13. I have an MVL with just directors (both also shareholders) loans as creditors. I note under the old rules notice of intended dividend was optional. Under the new rules do I need to do the notice of intended dividend for the two director loans?
A: I am afraid so as Part 14 of the rules applies equally to MVLs. You will also need to gazette the notice of intended dividend unless you gazetted for claims on appointment per rule 14.28.
14. Once appointed on a CVL can a fee estimate then be issued with approval by postal/written resolutions or is a virtual meeting only option?
A: You can use any qualifying decision procedure to seek fee approval, i.e. virtual meeting, correspondence or electronic voting. The choice of decision procedure is entirely up to you. It is just that you cannot use the deemed consent procedure.
14. When seeking fee approval post appointment, by electronic vote, does the Liquidator have to issue his report and notice as a hard copy to creditors or can a one page letter be issued to creditors advising them that there is a report and notice online in respect of the Liquidators remuneration for which votes can lodged on the same platform?
A: Yes. You can just send a letter directing the creditors to a website containing the report and any supporting information, which could be the same website/portal that they will have to use to vote.
15. In a CVL with no known assets, if the directors sign a guarantee to pay the pre-appointment fees from personal funds (albeit after decision date) is approval of the IP’s pre-appointment fee still needed at a virtual meeting or can deemed consent be used?
A: As long as you are not going to seek to recover the pre-appointment costs, or repay the director for any pre-appointment costs they have paid to you, from any company assets realised in the liquidation then there is no need to seek a decision from the creditors to approve your pre-appointment costs. You just disclose to them the amount paid to you by the director, or indicate the amount that will be paid by the director as appropriate. As a result, you could certainly use the Deemed Consent procedure since no fee related decision is being sought. Effectively there is no difference under the New Rules to the position under the Old Rules as regards the need to obtain approval for pre-appointment fees.
16. Can you seek a decision by correspondence to approve the liquidator’s remuneration at the same time as, and in parallel to, the decision to appoint a liquidator?
A: No, we do not think so. While the rules now permit the proposed liquidator to seek a decision from the creditors regarding their fees, that must be in conjunction with the decision to appoint a liquidator, i.e. using that virtual meeting approach. That is on the basis that prior to their appointment as liquidator the IP has no locus to issue a notice seeking a decision from the creditors. It is only the directors who can do that, and the rules make it clear that they can only seek a decision by way of a virtual meeting or deemed consent, and deemed consent cannot be used for fee approval.
17. We have a case where we were appointed under the old rules, and we issued a Notice of Business by Correspondence under the old rules for our post appointment fees. Unfortunately we did not receive a vote. Would the correct procedure still be to issue a Report and Notice of a Physical Meeting, by using the new rules?
A: No, since Schedule 2, paragraph 5(3) says that the Old Rules will apply to this case, and they require you to hold a physical meeting if you cannot seek a decision by correspondence. If you have already closed a case where this applies, without drawing any fees and seeking a physical meeting, it is unlikely that a regulator would see it as a significant default. You should make a note for your files and no further action is required. If you have used a New Rules decision procedure to seek fee approval, you should convene a meeting under the old rules to obtain a resolution confirming it, explaining in the covering email that this is being done to correct a technical error in the application of the New Rules. If you have not convened a meeting or sought a decision procedure, and the case is not yet closed, you should convene a physical meeting under the Old Rules to address the deficiency.
SIP 9 fee guides
18. Which version of the fee guides should we use.
A: The recently updated version of the Guidance Notes currently on the R3 website will be amended to make it clear that the Guidance Notes were “updated in April 2017”. That is the version of the Guidance Notes that you should use going forward for new cases, together with any cases commenced after 1 October 2015, i.e. ones to which the revised fee rules apply. R3 will be updating the pre-October 2015 version of the Guidance Notes, i.e. the November 2011 version, in due course so that they will also reflect the New Rules. However, in the interim that creates a void and unless you want to update the November 2011 version for the New Rules yourself, whichever version you send/direct creditors to will be wrong. We think that it is more important to give creditors the correct information about the fee approval regime rather than the change from meetings to decision procedures. As a result, we would plump for using the November 2011 version, possibly with a brief note explaining about the change in the decision procedures that can be used for approval.
19. What is the difference between something that has to be “sent” by post 7 days before an event and something that has to be “delivered” by post 7 days before an event.
A. If something just has to be sent, you count from the date that you put it in the post, no matter where you are sending it. If it has to be “delivered” by post, it is deemed delivered by 1st class post on the second business day after it is sent, or by 2nd class post on the fourth business day, but only for UK recipients. (Rule 1.42). For overseas recipients, you have to use the Royal Mail anticipated delivery times which are available online and vary from 4 to 8 days. Because some rules require you to have delivered a document to everyone by a set date, you would have to use the longest delivery applicable in that case. Take an example: If a letter had to be sent to creditors, including an 8 day overseas creditor, on 15 May, it could be sent by any class of post today and qualify. If it had to be “delivered” by 15 May, it would have to have been sent by 7 May.
20. Why have you just been careful to qualify the above answer with “by post”?
A. Where electronic delivery is used, the notice is delivered at 9.00 am on the next business day after it was sent. (Rule 1.45) Where DX is used, on the next business day after the day on which it is posted if the same DX exchange is used, and on the second business day after the day on which it is posted if a different DX exchange is used. (Rule 1.43)
21. The New Rules state in Rule 1.3 and Schedule 5, that CPR 2.8(1) applies when calculating days in the Insolvency Act and Rules, with the exception of paragraph 4. Paragraph 4 says, “(4) Where the specified period –(a) is 5 days or less; and
(b) includes – (i) a Saturday or Sunday; or
(ii) a Bank Holiday, Christmas Day or Good Friday, that day does not count.” I am a little confused about the exclusion of paragraph 4 though, as it was our understanding that we should not count bank holidays and weekends when calculating time periods (thus effectively giving a longer period).
A. The confusion arises between “days” and “business days”. In Rule 1.2 it says, ““business day” means, for the purposes of these Rules as they relate to Parts 7A to 10 of the Act (insolvency of individuals; bankruptcy), any day other than a Saturday, a Sunday, Christmas Day, Good Friday or a day which is a bank holiday in England and Wales [Note: for the purposes of these Rules as they relate to Parts 1 to 7 of the Act (company insolvency; company winding up) section 251 defines “business day” as including additionally a day which is a bank holiday in Scotland]. Rule 1..3 and Schedule 5 deal with the calculation of “days”, which is why in those cases the bank holidays etc listed in CPR 2.8(1)(4) are omitted.
22. Do you still use a certificate of postage with documents?
A. You have to prepare a “certificate of proof of delivery of documents” whenever you issue a circular document, notice or report per rule 1.52, and there is a pro forma in each of our packs in the Case Management folder. A certificate “must state the method of delivery and the date of the sending, posting or delivery (as the case may be)” and may be endorsed on the document to which it relates.
23. Can you deliver a document to the creditors by fax?
A. No, we don’t think so since faxes are specifically referred to in the rules, e.g. in respect of applications to Court out of hours for Administrations, so that suggests strongly that they are something different from electronic delivery. We think that electronic delivery is restricted to email and the like.
24. Our appointment was confirmed by creditors however we received three requests for a creditors committee. The voting form provided was returned by all three creditors without any instructions as to membership. Per Rule 17.5(4) I can see that we now need to convene another decision procedure in relation to the membership of the committee but cannot see that there is a particular timeframe in which we need to do this. Are you aware if there is a timeframe for this?
A. No, but given that if there is a committee it is for them to fix the basis of your remuneration and approve any pre-appointment fees then it is in your own interests to convene the decision procedure to obtain nominations to act on the committee without delay. Since sufficient creditors have indicated that they want a committee, then albeit that one has yet to be appointed you would be on extremely dodgy ground to rely on any resolution of the creditors approving your fees or pre-appointment costs.
25. Is it a requirement to send the voting form with the notice of invitation to form a committee? I can’t see that it is having looked at Rule 6.19.
A. No, it is not. Under rule 6.19(2) you just invite nominations from creditors for membership of the committee, as per our standard document, CVL229. The reasoning behind this is, I think, that if you get at least 3 nominations and not more than 5 then those nominated will be the committee members, once you have got their consent so to act. If you get more than 5 nominations then you will have a decision procedure to decide who is appointed. Where you get less than 3 nominations then as long as you have got a request for a committee from at least one creditor you then hold a decision procedure to get additional nominations to bring the numbers up to 3. Effectively the rules now provide that you can have either a one stage or a two stage process to appoint a committee: either a one stage process where creditors both decide on having a committee and between 3 and 5 nominations of creditors to act as committee members are received; or a two stage process where creditors decide that they want to have a committee, but no nominations for committee members are received, insufficient nominations are received, or too many are received, such that a further decision procedure is then required to finalise nominations for the committee. This is all covered off in rule 17.5. If the two stage process applies on a case then unless at least 3 nominations for committee members are received by the end of the second decision procedure the committee will not be formed.
26. In a CVL where I am writing to ask for fee approval do I need to ask the creditors whether they wish to form a committee?
A. Yes. In a CVL, every time you seek a decision from the creditors then you have to invite them to form a committee.
Pre-6 April 2010 cases
27. Do we still need to submit the 4.68 every 6 months in a pre-6 April 2010 CVL?
A. For CVLs, pre April 2010 cases still have to have old style 4.68s under Schedule 2, paragraph 7(4).
28. Do we use the old Form 4.68 or the new Form LIQ03?
A. Logic says that if the New Rules do not apply, you should be able to file the 4.68 using the old forms. However, logic is rarely applicable in insolvency, let alone where the Registrar is involved, so they might well want you to use LIQ03. Try checking with them, or just submit it nice and promptly with one or the other and see if they file it. As long as you submit it promptly, if they subsequently return it, you should have time to resubmit it with the other form.
29. Do we need to call annual meetings in a pre-6 April 2010 CVL?
A. For CVLs, pre-April 2010 cases still have to have meetings under schedule 2, paragraph 5(1)(d), as amended.
30. Do we have to do Progress Reports in a pre—6 April 2010 BKY and CWU?
A. No. For CWU and BKY, para 7(3) of schedule 2 excludes the New Rules for progress reporting in respect of cases where the petition was presented in BKY or CWU before 6 April 2010.
31. Do we use the New Rules when closing a pre-6 April 2010 case of any type?
A. Yes, the transitional provisions do not exclude the closing rules for old cases of any type (except pre-15 September 2003 ADM as below), so you should close them under the New Rules.
32. Please can you clarify whether the new decision process applies to Pre Sept 2003 Administration?
A. Paragraph 17 of Schedule 2 of the 2016 Rules indicates that “the 1986 Rules continue to apply to administrations where the petition for an administration order was presented before 15 September 2003”.
33. We are in the process of dealing with our first closure under the new rules. I have always looked at the anniversary dates and told administrators to make sure they do their final reports before the anniversary date. Is this still applicable under the new rules or do we also have include delivery dates?
A. Rule 18.7(5) covers this off and it states that “A progress report is not required for any period which ends after the date to which a final account is made up under section 94 or 106(b) and is delivered by the liquidator to members (members’ voluntary winding up) or to members and creditors (creditors’ voluntary winding up).” As you can see from the wording used it is delivering the final account to creditors and members that is the trigger to avoid having to issue an annual progress report, not the sending of the final account and notice to Companies House. It means that you can start closing procedures by issuing the final account just before the anniversary date, remembering though to factor in the deemed delivery provisions, 2nd business day after posting if 1st class post is used, or 9 a.m. next day if email is used, since the rules refer to “delivery of the final account” as being the trigger for not having to prepare an annual progress report, not issuing the final account.
34. Do I use the old Form 600?
A. Yes, Form 600 was a Form required by the Act, so the changes to rules do not affect it.
35. What new forms are there and where can I find them?
A. The use of forms is governed by Companies House and their legislation, not prescribed in the Insolvency Rules any more. While the insolvency rules simply say that the New Rules won’t apply to cases with a continued requirement to submit 6 monthly returns, Companies House set their own requirements. The full list, together with PDF copies that you can download, is at the following web address: https://www.gov.uk/government/collections/companies-house-forms-for-insolvency-rules-2016
36. Where are the old forms and when would we need them?
A. The old Companies House forms are still required for some regimes that have not yet been drafted under the New Rules. The most likely situation where you will need them, we think, is LLPs. The New Rules will not apply to LLPs until further legislation is introduced later in the year. The old forms are at the following web address: https://www.gov.uk/government/collections/companies-house-forms-for-insolvency
37. Does a director need to attend a physical meeting of creditors if so requested?
A. It depends on who was the convener of the original decision procedure. If it was a decision under section 100 to appoint a liquidator then the director would be the convener of the original decision procedure and they should attend any requisitioned physical meeting. If, however, you were the convener as office holder, then it is at your discretion as to whether or not you want the director to attend, per rule 15.14. You need to send the director a formal notice to attend in such circumstances.
Replacement of liquidator
38. A creditor has asked me to outline the procedure available to them for the replacement of a liquidator (they are circa 90% of the creditors). As I understand under S171(2)(b) (it is a CVL) a liquidator can be removed and replaced using a QDP, however I cannot see how the creditors can request the liquidator to instigate the QDP in order to replace him?
A. Quite simply it is using rule 15.18. Some other points to remember are that the request must specify the decisions being sought, which will be for a decision to remove the liquidator and also to replace them with a named alternative IP. It is for the IP in office as liquidator to decide on which decision procedure to use, although you could rely on rule 15.6(1), which indicates that “a request for a physical meeting may be made before or after the notice of the decision procedure has been delivered”, to request a physical meeting when you requisition the decisions procedure. However, you need to bear in mind that under rule 15.19 the IP in office can request a deposit for the payment of the expenses of such a procedure and a physical meeting will be more expensive. If a deposit is sought then the IP only has 14 days from the date of their receipt of a valid request for a requisitioned decision to provide itemised details of the sum to be deposited. If they do not provide the details in that timescale then they are prohibited from seeking a deposit from the creditor. The IP need not convene the decision procedure until any deposit requested has been received, although the creditors can, however, make a decision at the requisitioned decision procedure for the payment of the deposit as an expense of the liquidation.