Legislation
Rules

 
Part 15, IR16 - Decision Making

The Small Business Enterprise and Employment Act 2015 ("SBEE") removed physical meetings as the default mechanism for obtaining decisions from creditors. Instead insolvency practitioners ("IPs") will be required to use decision making procedures or the deemed consent procedure under s379ZB. One of the key changes is that a decision may not be made by a creditors' meeting (a physical meeting) unless the prescribed proportion of the creditors request in writing that the decision be made by such a meeting.

Sources of legislation

The new decision-making processes are contained in sections 246ZE and 246ZF of the Insolvency Act 1986 (the Act) for company insolvency and sections 379ZA and 379ZB for personal insolvency (inserted by sections 122 and 123 of the Small Business, Enterprise and Employment Act 2015). They are supplemented by detailed provisions in Part 15 of the Insolvency Rules 2016 (the Rules).

The prescribed decision procedures

The decision procedures are outlined in rule 15.3 and are:

  • Correspondence
  • Electronic voting
  • Virtual meetings
  • Physical meetings (but only if requested by the prescribed proportion of creditors). Any other decision making procedure which enables all creditors who are entitled to participate in the making of the decision to participate equally.

Rules 15.4-15.6 set out specific requirements for each type of decision procedure.

In the following sections of this article, references to a creditor also apply, with appropriate modifications, to a contributory (Rule 15.1(3) provides that Chapters 2-11 of Part 15 of the Rules about decision procedures of creditors apply with any necessary modifications to decision making by contributories).

It should be noted that creditors cannot submit a vote twice on any resolution put to a meeting Rule 15.31(7) and a vote cast in respect of a decision procedure which is not a meeting may not be changed Rule 15.31(8).

The convenor must have regard to the convenience of those invited to participate when fixing the venue for a decision procedure (including the resumption of an adjourned meeting).

Correspondence - the Rules 2016 do not provide details as to how correspondence should be operated in practice.

Electronic voting Rule 15.2 and 15.4

Electronic voting includes any electronic system which enables a person to vote without the need to attend at a particular location to do so.

The notice delivered to creditors informing them of the decision procedure must contain information on how to access the voting system, including any passwords required.

Unless electronic voting is being used at a meeting (which could be either a virtual or physical meeting) the system must allow a creditor to be able to vote at any time between the notice being delivered and the decision date.  During the course of voting, a creditor must not be able to see the vote of any other creditor.

Virtual meetings Rule 15.5

A virtual meeting is defined in Rule 15.2(B) as a meeting where persons who are not invited to be physically present together may participate in the meeting including communicating directly with all the other participants in the meeting and voting (either directly or via a proxy holder).

The notice delivered to creditors must contain information required to be able to access the meeting, including any telephone number, access code or password.  It must also contain a statement that the meeting may be suspended or adjourned by the chair, and must be adjourned if so resolved by the meeting.  

Note that this is a meeting so proxies will be required. The Insolvency Service have indicated that they see virtual meetings operating in practice as physical meetings do now, with most creditors using proxies. (The Insolvency Service have also indicated that they consider that the provision of contact details to a creditor for them to obtain details of how to access the virtual meeting will fulfil the requirements of Rule 15.5 detailed above. We are waiting written clarification from them on this point however.)

It is considered that virtual meetings will be required to consider the approval of a voluntary arrangement (company and individual) to allow for the proper consideration of any modifications proposed by creditors.

Physical meetings Rules 15.2 and 15.6

A physical meeting can be requested, in writing, accompanied by a proof of debt, by a prescribed proportion of creditors  The Rules provide that a request for a physical meeting can be made before or after delivery of the notice of a deemed consent procedure or decision procedure.  If the request is made after delivery of the notice, it must be made not later than five business days after the date on which the convenor delivered the notice of the decision procedure or deemed consent procedure.

The prescribed proportion is set out in s246ZE(7) and s379ZA(7) of the Act and is any one of the following:

  • 10% in value of the creditors or contributories
  • 10% in number of the creditors or contributories
  • 10 creditors or contributories

The convenor is responsible for checking whether any requests for a physical meeting have been made and whether they meet any one of the thresholds set out above.

The Amendment Rules provide that for the purpose of determining whether the thresholds are met the convenor must calculate the value of the creditors' debt by reference to Rule 15.31.

If a physical meeting is requested any other decision procedure is stopped and a physical meeting must be convened. The convenor must send the notice summoning the physical meeting not later than three business days after one of the thresholds has been met.

Creditors wanting to vote but not attend the meeting in person will be required to submit proxies. Creditors may be permitted to attend a physical meeting remotely. If a decision is to be made by a creditors' meeting in any procedure other than a voluntary arrangement, proofs of debt for voting purposes must be received by the convenor no later than 16;00 hours on the business day before the meeting , unless the chair of the meeting is willing to accept a later proof. (Under the 1986 Rules proofs had to be submitted by 12:00 hours).

Deemed consent Rule 15.7

As an alternative to the prescribed decision procedures, S379ZB and Rule 15.7 allow an office holder to make a decision and inform creditors accordingly under the deemed consent provisions. If no objections are received within the prescribed period the decision is confirmed.

It should be noted that deemed consent cannot be used to seek the approval of remuneration or the approval of a voluntary arrangement (company or individual).

Objections to the deemed consent have to be submitted to the convenor, in writing, together with a proof of debt, not later than the decision date. In order for an objection to be successful 10% of creditors, in value, are required to object. In calculating the value of creditors secured creditors are included however the rules re entitlement to vote (Rule 15.31) are applied so that secured creditors are valued according to any unsecured element of their claim only. If the required value of creditors do object the procedure will terminate without the decision having been made and the office holder is then required to seek a decision from creditors using an alternative decision procedure. It should be noted that deemed consent cannot be used to seek a decision where that process has already been objected to.

It is the convenor's responsibility to aggregate any objections to see if the threshold is met for the decision to be taken as not having been made. For the purpose of aggregating objections, the convenor may presume the value of relevant creditors' claims to be the value of claims by those creditors who, in the convenor's view, would have been entitled to vote had the decision been sought by a decision procedure in accordance with Part 15, even where those creditors had not already met the criteria for such entitlement to vote. The provisions of Rules 15.31(2) (calculation of voting rights), 15.32 (calculation of voting rights: special cases) and 15.33 (procedure for admitting creditor's claims for voting) apply to the admission or rejection of a claim for the purpose of the convenor deciding whether or not an objection should count towards the total aggregated objections). The decision of the convenor is subject to appeal to the court, within 21 days of the decision date (28 days in a voluntary arrangement) under Rule 15.35.

Where deemed consent has been used to obtain approval for the appointment of a liquidator in a creditors' voluntary liquidation, and the required percentage of creditors object, it should be noted that the convenor then has to convene a physical meeting of creditors, rather than an alternative decision procedure, to consider the appointment.

In addition to the information to be provided to creditors under Rule 15.8, the notice seeking deemed consent must contain:

  • A statement that in order to object to the proposed decision a creditor must have delivered a notice, stating that the creditor so objects, to the convenor not later than the decision date together with a proof in respect of the creditor's claim in accordance with these Rules failing which the objection will be disregarded.
  • A statement that it is the convenor's responsibility to aggregate any objections to see if the threshold is met for the decision to be taken as not having been made.
  • A statement that if the threshold is met the deemed consent procedure will terminate without a decision being made and if a decision is sought again on the same matter it will be sought by a decision procedure.

The office holder must keep, as part of the records of the insolvency, an authenticated record of the use of the deemed consent procedure, including the name and type of the insolvency proceedings, a statement as to whether or not the decision was taken and a list of the creditors or contributories who objected to the decision and, in the case of creditors who objected, a list of their claims (Rule 15.40).

Information to provide to creditors of the decision procedure

Rule 15.8 sets out the requirements for notices to creditors where a decision is sought by a decision procedure. The 'standard contents' provision of Part 1 also apply and there are additional requirements relevant to the type of decision procedure used. Where the decision procedure is a meeting the notice must be accompanied by a blank proxy complying with Rule 16.3.

Notice to be given to creditors

Rule 15.11 sets out the minimum notice to be given to creditors or contributories where a decision is sought by a decision procedure or deemed consent. The length of notice varies according to the insolvency process and the type of decision sought.

Note that whilst opted out creditors are not sent notice of the decision procedure or deemed consent, if they become aware of the proposed decision procedure, they can vote providing they have submitted a proof of debt and their vote before the decision date.

The court may order that notice of a decision procedure is to be given by advertisement only and not by individual notice to the persons concerned. In deciding whether to make an order, the court will have regard to the cost of advertisement compared with the cost of individual notices, the amount of assets available and the extent of the interest of creditors, members or contributories or any class of them (Rule 15.32).

Requirement to Gazette meetings

Where a decision is sought by a meeting (other than a voluntary arrangement or MVL) the convenor must Gazette a notice of the procedure, before or as soon as reasonably practicable after notice of the meeting is delivered. The convenor may also advertise the meeting in such other manner as they think fit.

Other decision procedures or the deemed consent procedure may be Gazetted by the convenor.

The notice must contain information regarding the meeting including the venue, purpose and the time and date by which, and place at which, those attending must deliver proxies and proofs in order to be entitled to vote. The notice must also identify the convenor and, if the procedure results from a request of one or more creditors, the fact that it was so summoned.

Decision date

Rule 15.e provides that the 'decision date' is:

  • In the case of a decision to be made at a meeting, the date of the meeting
  • In the case of a decision to be made either by a decision procedure other than a meeting or the deemed consent procedure, the date the decision is to be made or deemed to have been made.

A decision (other than at a meeting) is to be treated as made at 23:59 on the decision date.

The decision date is to be set at the discretion of the convenor, but must be not less than 14 days from the date of delivery of the notice, except where the Table in Rule 15.11 requires a different period or the court directs.

Excluded creditors

Rule 15.36 defines an excluded person as being one who has taken all steps necessary to attend a virtual meeting or has been permitted by the convenor to attend a physical meeting remotely but they have been unable to attend the whole or part of the meeting.

Rule 15.36 details what the convenor should do if there are excluded creditors and the chair is aware of them. Options available include:

  • Continue the meeting
  • Declare it void and convene the meeting again
  • Declare it valid up to the point of exclusion and adjourn the meeting
  • Suspend the meeting for up to an hour.

Where the chair continues the meeting the meeting is valid unless the chair decides, in consequence of a complaint under Rule 15.38, to declare the meeting void and hold the meeting again, or the court directs otherwise. A complaint may be made by the excluded person or someone who attended the meeting who considers they were adversely affected by the exclusion. Any such complaint must be made a soon as reasonably practicable and not later than 4pm on the business day following the exclusion.

An excluded creditor can, by 4pm on the business day following the exclusion, request details of what went on during the exclusion, either from the chair (if the meeting is continuing) or the convenor (if following the meeting).

Chair of meetings

Rule 15.21 requires the chair of a meeting must be:

  • The convenor;
  •  An appointed person;
  • In cases where the convenor is the official receiver, a person appointed by the official receive; or
  • Where a decision on the appointment of a liquidator under Rules 6.14(2)(b), 6.14(4) or 6.14(6) is made by a meeting or a virtual meeting, the chair of the meeting must be a convenor.

 

 

Ben LuxfordBen Luxford
Head of Technical
020 7566 4218
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