Insolvency Rules 2016 – Transitional measures

Opting out and deemed consent are two of the new concepts introduced by the Insolvency Rules 2016. Take notice of the restrictions on the use of deemed consent.

I’ve worked through the Insolvency Rules 2016 many times now in order to update the RMCSC Insolvency Guidelines. It is possible to confirm both that the search function on documents held electronically is much faster and easier to use than the index of a hard copy reference book and that the new structure of the Insolvency Rules 2016 (separate sections for issues that are unique to each type of insolvency and general sections for matters shared by all types of insolvency), is straightforward and again easy to use once you know the layout of the Insolvency Rules 2016 themselves.

The RMCSC summary index of the Insolvency Rules 2016 can help with this process. Read more here

Opting out. S246C and S248A Insolvency Act 1986, 1.36 – 1.39 Insolvency Rules 2016.

Creditors remain the key decision makers in insolvency but from 6 April 2017 insolvency office holders must, in the first communication with creditors, give creditors the choice of opting out of receiving notices that have to be sent to them under the Insolvency Act 1986 or the Insolvency Rules 2016.

It is for the office holder to give this notice to creditors, so information about opting out is not to be sent to creditors in pre appointment communication.

Creditors can choose to opt out or revoke the decision to opt out at any time but either decision must be advised to the office holder in writing. A creditor who has chosen to opt out must be treated as an opted out creditor as soon as reasonably practicable after the opt out decision has been delivered.

After 6 April 2017 notices to be sent to creditors as a class should no longer be sent to creditors who have opted out, with the following exceptions:-

  • Notice of change of liquidator
  • Change of contact details for the liquidator
  • Notice of dividend or intended dividend
  • A notice to be sent to all creditors as a result of an order of the court
  • If in the Insolvency Act 1986 opted out creditors are not expressly excluded from receipt of a notice then this notice is to be sent to all creditors including opted out creditors.

It seems that it will be necessary to have more than one list of creditors for appointments after 6 April 2017 – a master list of all creditors will be needed for notices that are to be sent to creditors whether or not they have opted out, a list of creditors who have not opted out, who will continue to receive progress reports, for example, and a list of creditors who have opted out, with details of the opting out, so that information about creditors can be reviewed.

Administration of creditors’ lists is likely to become an important process in insolvency systems in order to demonstrate compliance with the opting out legislation.

Deemed consent; appointment of liquidators and remuneration. S246ZF and S379ZB Insolvency Act 1986, 15.7, 18.18(2), 18.20(2) and 18.21(3) Insolvency Rules 2016.

Under IR6.14(2) a liquidator may only be appointed in a creditors’ voluntary liquidation by means of a virtual meeting or by deemed consent. As remuneration may not be approved by deemed consent, this leads to the conclusion that if remuneration is to be approved at the same time as a liquidator is appointed then the appointment will have to be by virtual consent.
Consideration of deemed consent and the definition of a ‘decision procedure’ (by which remuneration must be approved) may however lead to further conclusions.

‘Any other decision making procedure which enables all creditors who are entitled to participate in the making of the decision to participate equally’ is included as a decision procedure under IR15.3(e). Creditors surely participate equally in deemed consent so could this mean that deemed consent could be included as a decision procedure that may after all be used to approved remuneration?

I have queried this with the Insolvency Service who quoted from the Insolvency Rules 2016 and repeated that only a decision procedure may be used to approve remuneration, without other comment. I would not advise any insolvency practitioner to use deemed consent for the approval of remuneration after 6 April 2017 as this would seem to be contrary to the intention of the new legislation. It is however an example of the uncertainties arising as a result of the Insolvency Rules 2016.

The focus so far has been on changes to the Insolvency Rules but there will be unavoidable changes to the Insolvency Act 1986 as a result of the Insolvency Rules 2016.

Caroline Clark’s insolvency career started over 30 years ago and since 1994 she has specialised in insolvency compliance and regulation.

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Contact: Caroline Clark
E: Caroline Clark @ RMCSC
M: 07854 967976