The first report on the operation of the Insolvency (England and Wales) Rules 2016 (“the Rules”) was published on 5 April 2022.

Overview of findings

The Review has concluded that “the Rules as a whole are operating correctly and achieve the goals that were set for them”. It has further concluded that “the insolvency regime, taken as a whole, remains fit for purpose”.

 

 

The Review has noted that many respondents to the Call for Evidence highlighted a number of common issues with the Rules. While some of these were explained away as being down to misunderstandings or not causing truly widespread difficulty, the Government will be correcting some of the technical errors identified by responses to the Call for Evidence (listed below).

 

Further review

The Government will also be reviewing a larger number of specific areas (also listed below) in due course, with the Review noting that “where policy changes are identified and it is appropriate to do so, public consultations will be issued setting out the Government’s proposals” although “it is not expected that any of the work that we have identified will necessarily lead to consultations or other public documents, as preliminary reviews may conclude that (despite any initial views expressed in this report) the Rules should not be changed”. Some of the areas the Government will review include the rules on renumeration, changes to the CVL process (including but not limited to: use of statutory declarations; timing and content of the information provided to creditors; pre-appointment expenses), and the appropriate scope for insolvency applications in light of Manolete Partners plc v Hayward and Barrett Holdings Ltd & Ors [2021] EWHC 1481 (Ch). The Government has stated that it considers the latter two issues to be the most pressing for further review.

 

 

Background to the Review

 

The Insolvency (England and Wales) Rules 2016 came into force on 6 April 2017. They aimed to consolidate, modernise and simplify the earlier Insolvency Rules 1986 and the accompanying legislation that had developed in the intervening thirty-year period. At the same time, new rules and policies were introduced to support changes to the insolvency regime that had been made in the Deregulation Act 2015 and the Small Business, Enterprise and Employment (‘SBEE’) Act 2015.

 

The Rules included a requirement, introduced by the SBEE Act, for the Insolvency Service to carry out a review of the secondary legislation and publish a report setting out the conclusions of that review. The report must be published within five years of the date that the Rules came into force.

 

As part of this review, the Service has published a Call for Evidence in March 2021 to gather information on the operation of the Rules. At the time, we said that it is clear that some areas of the 2016 Rules have hindered – rather than helped – to provide a better framework for the UK’s insolvency regime, for three main reasons: 1) significant issues related to clarity and consistency; 2) the lack of flexibility around how an IP conducts a decision-making procedure; 3) the Rules having damaged – rather than improved – creditor engagement. R3’s full response to the Call for Evidence can be found here.

 

Summary of the Review’s findings

 

The Government’s Review has concluded that the Rules as a whole are operating correctly and achieve the goals that were set for them. They provide appropriate detailed procedures to support the Insolvency Act 1986, as well as consolidating and modernising the preceding secondary legislation; implementing policies contained in two other acts of Parliament (the Deregulation Act 2015 and the SBEE Act 2015); and introducing other modernisations such as electronic communication between officeholders and creditors:

 

• The majority of respondents were content that the Rules provide an appropriate framework for the UK’s insolvency regime and that the framework is clear (while at the same time, there remain a number of individual rules and areas which could be improved upon or clarified);

 

• Most respondents agreed that the updated language employed by the Rules improves upon that used in the Insolvency Rules 1986; that the Deregulation Act and SBEE Act policies have been fully and clearly implemented; and that the implementation of other new policies is clear.

 

• Respondents were less confident that the new policies introduced by the Rules were in all cases positive and effective, with the abolition of prescribed forms for example attracting a fair degree of negative comment.

 

Although the Review acknowledged that “a considerable number of issues” were raised in responses to the Call for Evidence, it concluded that “the insolvency regime, taken as a whole, remains fit for purpose”.

 

That said, the Government will be correcting some of the technical errors identified by responses to the Call for Evidence. It will also be reviewing a larger number of specific areas in due course, with the Review noting that “where policy changes are identified and it is appropriate to do so, public consultations will be issued setting out the Government’s proposals” although “it is not expected that any of the work that we have identified will necessarily lead to consultations or other public documents, as preliminary reviews may conclude that (despite any initial views expressed in this report) the Rules should not be changed”.

 

Issues with the Rules

 

The Review noted that “a considerable number of issues were raised on technical points in the Rules”, which can be grouped into the following categories:

 

• Clarity and consistency of the Rules:  while a number of respondents raised issues related to clarity and consistency, the Review concluded that “the Rules clarify and provide detail to the Act, and that the law should be read holistically. When read in this manner, apparent discrepancies often fall away and the correct interpretation is clear”.

 

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  • The Government, will however, review the rules on renumeration at a further date and will examine what changes need to be made to the CVL process.

 

• Omissions, errors and unnecessary rules: the Review said that some of the concerns raised in relation to these were due to misunderstandings, while others have been resolved through other legislation such as the Insolvency (England and Wales) (Amendment) Rules 2017.

 

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  • The Government, will, however, correct some of the errors identified (see table below).

 

• Removal of prescribed forms: while this was an issue that “attracted a fair degree of negative comment”, the Review concluded that the decision to abolish prescribed forms was the correct one because:

 

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  • Removing prescribed forms avoids the risk that a person who has clearly provided all of the necessary information will nevertheless be considered not to have complied with the Rules purely because the information was not provided in a particular form;

 

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  • It has enabled practitioners and other organisations to devise replacement templates that are tailored to their particular needs and system requirements;

 

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  • The removal of forms has not caused any gap in what information is legally required, nor does there appear to be truly widespread difficulty;

 

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  • Reversing that decision would result in additional costs to the insolvency sector to implement further changes, as well as to the public purse.

 

• The creditor opt out process: the overwhelming response was that the creditor opt out is rarely used, with estimates that less than 1% of creditors chose to exercise the option and represent a burden on officeholders.

 

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  • The Government will give further thought to whether there should be any changes to, or removal of, these provisions in a future amendment to the Rules or primary legislation.

 

• Electronic communication: the Review concluded that there is an argument therefore for the Rules to be updated to reflect electronic filing and that any future developments in this area will be kept under consideration.

 

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  • Minor changes to the Rules could be made to facilitate the transfer and use of electronically sealed documents where, for example, the court is currently required to send multiple copies even where transferring documents by email.

 

• Insolvency applications and claim forms: potential changes in this area, following the court’s ruling in Manolete Partners plc v Hayward and Barrett Holdings Ltd & Ors [2021] EWHC 1481 (Ch), will be reviewed.

 

• Pre-appointment work: as part of the review of the CVL process, the Government will consider issues around:

 

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  • Whether the payment of pre-appointment expenses in a CVL should be allowed in the winding up on a similar basis to their treatment in an administration;

 

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  • The lack of clarity as to whether it is possible for a proposed liquidator in a CVL to seek approval of their (payable) pre-appointment expenses and liquidator’s remuneration by convening a separate decision alongside the deemed consent procedure used to appoint them as liquidator.

 

• Fee estimates: while the Review acknowledges that producing fee estimates may take longer than was originally envisaged, the Government remains of the view that officeholders will have the professional skill and judgement to provide sufficient information about the likely remuneration and costs of a case, meeting the requirements set out in legislation, the statements of insolvency practice, and published guidance.

 

• Creditor approval of proposals and fees: the Review concludes that the overall efficiencies provided for by the Insolvency Act and Rules across all such cases outweigh the difficulties that can occur in a minority of them.

 

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  • However, the Government will amend rule 15.11(1) to be clearer that where the Insolvency Act 1986 or the Rules require a decision from creditors who have been paid in full, notices of decision procedures must still be delivered to those creditors, and will review other minor changes that can help to make the reporting process more efficient.

 

• Decision-making processes: despite criticisms in the response, the Review concluded that “feedback from stakeholders shows that there is some engagement with the new processes”.

 

• Creditor committees: where minor procedural changes will make committees more efficient and aid engagement with creditors, the Government will consider them for inclusion in a future amendment to the Rules.

 

• Data disclosure issues: the issues raised will remain under consideration for amendment in future updates to the Rules.

 

• Claims and dividends

 

• EU exit

 

• Restriction on calling physical meetings of creditors: despite this being outside of the scope of this review, the feedback from respondents has been noted for consideration for future changes to the Rules.

 

• Creditor engagement: the Review notes that other significant changes affecting the insolvency landscape, while made in the public interest, have affected creditors’ prospects of recovering money through an insolvency process, including the reintroduction Crown Preference through the Finance Act 2020, the new powers of the Pensions Regulator under the Pension Schemes Act 2021, and restrictions on creditor action during the pandemic under the Corporate Insolvency and Governance Act 2020.

 

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  • The Review concludes that taken in this context, the introduction of decisions by correspondence and deemed consent may encourage creditor engagement precisely because they reduce the need to spend time and money actively interacting with officeholders in cases of lesser interest.

 

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  • In response to criticisms of information overload for creditors, the Review concludes that “the decision-making process is now necessarily more complex than in the past”.

 

Corrections

 

The Review has stated that the Government will be correcting some of the errors and “similar straightforward issues in the Rules”.

 

These relate to the following Rules:

 

Rule(s)	Action
e.g. 7.22	Remove the need for multiple copies of electronic documents to be provided by the court
8.24	Amend to reflect the current Centre of Main Interests test
10.87	Clarify the requirement to file the notice to creditors at court
15.11	Clarify when notices must be sent to creditors who have been paid in full
18.3	Clarify rule 18.3(1)(b)

 

Areas for further review

 

In addition to the above corrections, the Government has identified a larger number of specific areas for further review, and potentially, inclusion in future updates to the Rules. The Government considers the CVL process and the scope of insolvency applications to be the most pressing of the latter, reflecting the numerous representations made in response to the Call for Evidence regarding those issues.

 

The areas that have been identified for further review are:

 

Rule(s)	Action
Part 1 Ch. 9	Extending delivery of documents through websites to non-officeholders
1.35	Determine the appropriate scope for insolvency applications in light of Manolete Partners plc v Hayward and Barrett Holdings Ltd & Ors [2021] EWHC 1481 (Ch)
E.g. 1.37	Whether the opt out provisions should be amended or revoked
2.448.31	Whether the current “must not” is clear or should be amended
3.24	Consider removing the time and date of an administration appointment from the notice of same
Part 6	Review the CVL process, including but not limited to: use of statutory declarations; timing and content of the information provided to creditors; pre-appointment expenses
6.14(6)(a)15.4(b)	Whether use of the word “between” is sufficiently clear
6.16	Consider removing the requirement for an administrator who then becomes liquidator to provide information to new creditors that is readily available at Companies’ House
7.5210.67	Whether the time periods for nominating a liquidator or trustee, in compulsory liquidation or bankruptcy, should be amended
8.22	Whether the decision date for an IVA proposal should be extended
14.3	Consider adjusting the proof of debt rules so that employees do not need to submit a claim where the Redundancy Payments Service has already provided full details of the debt
14.23	Address the issue of statutory interest that is not paid in administration being “lost” if the company subsequently enters liquidation (linked to section 189 of the Insolvency Act 1986)
E.g. 14.31	Whether information currently required to be sent with notices, such as information on small debt provisions or the option for creditors to opt out of receiving correspondence, should be permitted to be placed on a website
15.13	Consistency in whether meetings and other decision procedures should have to be gazetted
15.41	Whether, and if so how, the treatment of companies incorporated outside the UK should be harmonised
Part 17	Consider changes suggested to make committees more efficient and aid engagement with creditors
18.24 –18.27	Review the rules on remuneration for clarity. Alongside this, consider suggestions made in respect of reporting requirements in the Rules.
21.421.5	Consider expanding the “confirmation” of Creditors’ Voluntary Liquidations to cover debtor petition bankruptcies, voluntary arrangements, and administrations that are entered via the out-of-court procedure
-	Consider adding a rule requiring Companies House to be notified of a change of supervisor in a CVA
-	Give further consideration to whether the company limits should be amended to provide greater protection for companies against creditors pursuing relatively small debts
-	Whether rules are needed to govern the consolidation of two or more bankruptcy petitions presented against the same debtor
-	Whether creditors whose debt qualifies as “small” under the Insolvency Act 1986 should be permitted to vote in a decision procedure without proving their debt
-	Produce a brief summary of the structure of the Rules
Various	Whether the use of “business days” in the rules should be further harmonised
Various	Update anachronistic references to “registrars”
Various	Remove or update highlighted references to repealed legislation
Various	Remove any unnecessary disparities between the rules for different insolvency procedures
Various	Whether the disclosure of personal information required by the Rules should be amended, to provide greater privacy and/or to reflect the frequent use of email as opposed to physical addresses for communication purposes
Various	Examine in greater detail proposals in relation to security deposits, special manager and officeholder resignations, and placing IVA information on credit reports
Various	What future changes can be made to improve creditors’ experiences