Part 18 brings together many of the procedures and requirements relating to reporting and remuneration that are common to most insolvencies. It deals with reporting and remuneration in Administrations, the three types of Liquidation and Bankruptcies, although it does not deal with the remuneration of provisional liquidators or interim receivers or voluntary arrangements.
In general, the Rules' transitional provisions, which appear in Schedule 2, maintain the current position as regards the following:
- progress reporting for pre-April 2010 cases (but the new Rules' final accounts/reports will be required in these cases); and
- the approval of remuneration for pre-October 2015 cases.
However, apart from these few exceptions, the requirements in this part will apply to all relevant cases regardless of their commencement date.
Although the new Rules introduce no fundamental changes in these areas, changes in key processes elsewhere in the Rules, e.g. the removal of final meetings, have necessitated changes in this Part and the Insolvency Service has taken the opportunity to clarify some wordings.
Contents of Progress Reports
Rules 18.2 to 18.5 describe the main contents of progress reports and generally repeat the 1986 Rules, although the old Rules' requirement to provide "details of assets that remain to be realised" has been changed to "details of what remains to be done" (Rule 18.3(1)(h)). Further Rules (18.10 to 18.13) contain additional reporting requirements in the event that property (i.e. other than money) is distributed to members or creditors or where there has been a S110 arrangement. Insolvency practitioners should also take note of the "standard contents" required in all documents delivered to the Registrar of Companies and other persons, as set out in Part 1 of the Rules.
Some effort has been made to reduce repetition of information in successive progress reports. For example, the following need only be reported once:
- a change in office-holder;
- details of an extension granted on an Administration;a statement that the Administrator (or other relevant insolvency practitioner) has decided not to seek approval of pre-Administration costs.
The new Rules repeat the requirements to include in progress reports a statement of the rights of creditors and, in MVLs of members, to request information about remuneration and expenses (under Rule 18.9) and to challenge the office-holder's remuneration and expenses (under Rule 18.34).
Rule 18.3(6) accommodates the significant change in the process of moving an Administration to CVL, which appears at Rule 3.60. The new Rules provide that the Administrator submits the notice of the move together with their final report to the Registrar of Companies and delivers a copy of the pack to creditors and others. Once the notice is registered, the former Administrator informs the Liquidator of "anything which happens after the date of the final progress report and before the registration of the notice which the administrator would have included in the final report had it happened before the date of the report" (Rule 3.60(5)).
Consequently, the liquidator's first progress report must include "a note of any information received by the liquidator from the former administrator" (Rule 18.3(6)).
Timing of Progress Reports
In principle, the new Rules make no changes to the timing of progress reports. However, certain events that result in adjustments to the reporting schedule under the old Rules will no longer apply under the new Rules.
Under the new Rules, the 6 or 12-monthly reporting schedule will not be affected by the following events:
- A change in office-holder
Under the new Rules, an incoming office-holder is required to deliver a notice to creditors (or to members in an MVL) "of any matters about which the succeeding [office-holder] thinks the creditors/members should be informed" (Rules 18.6(3), 18.7(4) and 18.8(3)). This is clearly not intended to comprise information to the extent of a progress report and therefore the original progress reporting schedule continues unaffected.
- Extension of an Administration
Under the new Rules, a progress report is no longer required in order to seek approval of an extension. The new Rules simply require the Administrator to send, along with the court application or the notice requesting creditors' consent, "the reasons why the administrator is seeking an extension" (Rule 3.54(2)). Thus, again, the absence of a progress report at this point means that the original progress reporting schedule continues unaffected by the request for an extension.
The time periods within which progress reports must be delivered to the Registrar of Companies and others also generally remain the same, although the new Rules' definition of "deliver" will need to be taken into account. Rule 1.42 et seq set out how delivery of documents by a variety of means is calculated. For example, a document sent by first class post is treated as delivered on the second business day after the day on which it is posted. Thus, in order to meet the 2-month timescale for delivering a progress report on a Bankruptcy to creditors, the report must have been posted at least 2 business days before the end of the 2-month period.
It is worth noting, however, that the new Rules enable office-holders to make documents such as progress reports immediately available on a website, provided that the intended recipients had been notified earlier that this method of delivery would be used (Rule 1.50). The use of websites in this way would eliminate the need to allow time for physical progress reports to be delivered.
Contents of Final Accounts and Final Reports
The abolition of final meetings in Liquidations and Bankruptcies necessitates a change in the final reporting processes. The new processes can be found at:
- Rule 5.9 and Rule 5.10 for MVLs;
- Rule 6.28 for CVLs;
- Rule 7.71 for Compulsory Liquidations; and
- Rule 10.87 for Bankruptcies.
In brief the office-holder issues a final account (for Liquidations) or a final report (for Bankruptcies) 8 weeks before proceeding to vacate office.
The removal of final meetings has resulted in changes to the Act: Sections 94, 106, 146 and 331. These Sections now describe some of the contents of final accounts and final reports. In Liquidations, it is an account of the winding up, showing how it has been conducted and the company's property disposed of and, in Bankruptcies, it is a report of the trustee's administration of the bankrupt's estate.
Rule 18.14 provides a list of other required contents of the final account or final report, although insolvency practitioners will also need to refer to the Sections and Rules mentioned above regarding the closure processes to determine what information in addition to the final account or final report must be delivered.
Rule 18.14 lists far fewer pieces of required information than that in the 1986 Rules (e.g. old Rule 4.126(1E)), although generally this is only because the new Rules do not describe in detail what receipts, payments and distributions must be separately specified. Final accounts and final reports (other than on the annulment of a bankruptcy order) will no longer require a statement that the account has been reconciled with that which is held by the Secretary of State.
The contents of final progress reports in Administrations are found in Rule 3.53 (which corresponds exactly to the 1986 Rule 2.110) but also in Part 18 of the Rules, as final progress reports must contain all relevant information required by progress reports in general. Rule 18.3(2) notes a further specific requirement of final progress reports: the amount paid to unsecured creditors by virtue of the application of S176A of the Act.
Rule 18.15 marks the start of the Chapters on remuneration. Note that this Chapter does not apply to the remuneration of a provisional liquidator, interim receiver or supervisor of a voluntary arrangement.
Rule 18.16 sets out the different bases on which remuneration of Administrators, Liquidators and Trustees may be fixed. The wording of the time costs basis has followed wording of the 1986 Rules, rather than that as amended by the Insolvency (Amendment) Rules 2015 ("2015 Rules"), i.e. the basis is described as "by reference to the time properly given by the office-holder and the office-holder's staff in attending to matters arising in the administration, winding up or bankruptcy" without the 2015 Rules' addition of "as set out in the fees estimate".
Rule 18.16 also sets out the information that must be delivered to creditors (other than in an MVL) prior to determination of the basis of remuneration, which remains as it is in the old Rules following the 2015 Rules. The definition of a "fees estimate" can be found at Rule 1.2.
Rule 18.16 also settles the issue that arose from the 2015 Rules regarding the ability of a Liquidator in a CVL to rely on a fees resolution based on information issued to creditors prior to the insolvency practitioner being appointed as Liquidator. Rule 18.16(10) states that "a proposed liquidator" may deliver the information "before becoming liquidator in which case that person is not required to deliver that information again if that person is appointed liquidator".
Note that deemed consent cannot be used to seek approval of the basis of remuneration of an office holder.
Procedure for Fixing the Basis of an Administrator's Remuneration
Rule 18.18 introduces some small changes to the procedure for fixing the basis or bases of an Administrator's remuneration. It is for the committee to determine the basis of remuneration, or, if there is no committee, the basis of remuneration must be fixed by a decision of the creditors by a decision procedure (except as follows);
Where the administrator has made a statement under para 52(1)(b) of Schedule B1 that there are insufficient funds for distribution to unsecured creditors other than out of the prescribed part and either there is no committee, or the committee fails to determine the basis of remuneration, the basis of the administrator's remuneration may be fixed by -
a) The consent of each of the secured creditors; or
b) If the administrator has made or intends to make a distribution to preferential creditors -
- the consent of each of the secured creditors, and
- a decision of the preferential creditors in a decision procedure.
Other Rules Relating to Remuneration
Subsequent Rules cover the following topics:
- Rule 18.19 - in a MVL it is for the company in general meeting to determine the basis of remuneration.)
- Rule 18.20 - in insolvent liquidations it is for the committee to determine the basis of remuneration or failing that the creditors by a decision procedure. However, where an administrator subsequently becomes liquidator, the basis of remuneration fixed for the administrator will continue to apply.
- Rule 18.22 - where in a bankruptcy or compulsory liquidation the creditors have failed to fix the basis of remuneration under Rules 18.20(3) or 18.21(3) or the basis is not fixed within 18 months after the date of the liquidator's or trustee's appointment the office holder is permitted to apply the Scale set in Schedule 11.
- If, in an administration or voluntary winding up, the basis of remuneration is not set under Rules 18.18 to 18.20 then the administrator or liquidator must apply to court for it to be fixed.
- The procedures for seeking a change to an approved rate, amount or basis are set out in Rules 18.24 to 18.28.
- Procedure for seeking a change in an approved basis, where there is a material and substantial change in circumstances is set out n Rule 18.29.
- Where the fees estimate is to be exceeded the office holder may not draw remuneration in excess of the total amount set out in the fees estimate without approval. Rule 18.30 sets out information to be made available when seeking further approval.
- Applications to court on the grounds that remuneration or expenses are excessive may be made by a creditor or member under Rules 18.34 to 18.37.
- Remuneration in relation to the realisation of secured assets is set out in Rule 18.38.
The new Rules in these areas are largely similar to the old Rules, although they cover some scenarios in addition to those described by the old Rules, but which will be rarely encountered (for example, see R18.27).
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