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05/11/2014

Threat to physical creditor meetings diminishes after Government MPs fail to vote – R3

Physical creditor meetings in insolvencies – under threat by the Small Business, Enterprise, and Employment Bill – could be reprieved after the Government failed to vote on a key committee-stage amendment yesterday (4 Nov), says R3, the insolvency trade body.

Although the vote may be reversed at the Bill’s Report stage, R3 says the Government now has the opportunity to reconsider its proposal, which would limit creditors’ ability to engage in insolvencies.

Giles Frampton, R3 president, says: “While unexpected, the change to the Bill is welcome because it could make it easier for an insolvency practitioner to call a physical meeting.”

“The Government should take this opportunity to think carefully about whether its proposal to restrict the use of physical creditor meetings at the instigation of an insolvency practitioner is in creditors’ best interests.”

“Physical creditor meetings are a key way of engaging creditors in insolvencies. Creditor engagement helps keep insolvency costs down, increases returns to creditors, and helps make sure misbehaviour by failed companies’ directors is brought to light. Alternatives, like online meetings, are not accessible to all creditors and are not as effective.”

The Government had proposed that physical creditor meetings could only be held if requested by 10% of creditors in an insolvency; a Labour amendment during the Bill’s committee stage proposed that a physical meeting could be held if just one creditor requested a meeting.

In some cases, 10% of creditors would represent hundreds of different businesses or individuals.

The Labour amendment passed after Government MPs apparently failed to register their opposition when a vote was called.

Giles Frampton adds: “Importantly, making it difficult to hold physical meetings would lock some smaller creditors out of the insolvency process altogether.”

A July 2014 report by the Federation of Small Businesses (FSB) found that 45,000 small businesses had no broadband access, with connections unreliable for thousands more.

Giles Frampton adds: “The infrastructure just isn’t there for an immediate jump from physical meetings to virtual meetings. The Government is supposed to be boosting creditor engagement in insolvencies, not limiting it.”

“There is very little justification for removing an insolvency practitioner’s power to call a physical meeting. The Government claims scrapping physical meetings would cut costs, but the cost difference between setting-up a physical meeting, or writing letters, or organising a video or telephone conference is pretty negligible. Indeed, it would actually add costs if an insolvency practitioner had to contact 10% of creditors to approve a meeting, on top of actually arranging one.”

“While we welcome the amendment to the Bill, it would be much better to scrap the clause in question altogether. It’s still an unnecessary extra step for an insolvency practitioner to ask one creditor for permission to call a meeting; whether or not to hold a meeting should be up to an insolvency practitioner’s professional judgement.”

As well as R3, creditor groups including the FSB and the Institute for Credit Management have concerns about the Government’s attempts to restrict physical creditor meetings.

According to a 2013 government-backed report by Professor Elaine Kempson, 86% of unsecured creditors (excluding HMRC) ‘sometimes’ or ‘very/quite often’ attend or use a proxy vote at a creditor meeting.

The Government has one last chance to reverse the amendment at the Bill’s Report stage later this month (dates to be announced).

A transcript of the Committee stage is here (Page 462, Col 2, Clause 110).

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see www.r3.org.uk for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.