The New Insolvency Rules for Scotland Judith Howson 13 March 2019 - - PowerPoint PPT Presentation

The New Insolvency Rules for Scotland

Judith Howson – 13 March 2019 Restructuring & Debt Advisory Breakfast Briefing

This morning we will cover

• An introduction to the New Rules
• Summary of the Key Changes introduced by The Insolvency

(Scotland) (Company Voluntary Arrangements and Administration) Rules 2018 (“CAR”) and The Insolvency (Scotland) (Receivership and Winding up) Rules 2018 (“RWUR”)

• General & concluding thoughts
• Look at where and how the language has been modernised
• Look at some of the new concepts
• Derivation and Destination Tables
• Transitional and Saving Provisions
• Statement of Insolvency Practice
• How to prepare
• Questions & Appendices

1

• Most significant change to insolvency working practices in Scotland

in over 30 years

• Commencement date is 6 April 2019
• Enacts provisions of Small Business Enterprise and Employment Act

2015 and Deregulation Act 2015

• Two sets of rules – Scotland has a partially devolved corporate

insolvency regime

• Over 300 pages across the two sets of rules
• Attempts to bring Scotland’s corporate insolvency regime in line with

England and Wales

• Not long to get ready and a lot to learn

2

Introduction to the new rules

• Modernisation of language / gender neutral / reduction of repetition
• Consolidation
• Improvements in creditor engagement
• Reduce regulatory burden and costs on individual cases
• Removal of requirement for prescribed statutory forms which

removes the requirement for amendments via statute in the future 3

Introduction to the new rules

• The removal of annual/creditors meetings
• Remote attendance at meetings which are held
• A move to decision making procedures
• Electronic communication
• Use of websites
• Provisions as regards small claims of creditors
• Opting out for creditors
• Remuneration and Accounting periods
• A move away from prescribed forms to standard content for gazette

notices and to the Registrar of Companies and the Accountant in Bankruptcy 4

Summary of key changes

• Advertising
• Statement of Affairs
• Statement of Concurrence
• Verification by Affidavit
• Closure
• Interest

5

Summary of key changes

• Annual meetings in winding up proceedings are now no longer

required

• Final meetings are abolished
• The holding of meetings are no longer the default position, in order to

seek a decision from creditors, (however, members meetings remain) for example section 98 IA86 completely repealed

• Alternatively deemed consent or a qualifying decision-making

process for creditors 6

The removal of annual/creditors meetings

• A meeting summoned by an office-holder will require to

accommodate remote attendance so that those attending do not need to be in the same place

• Remote attendance will allow attendees their right to speak and

vote, even if not physically present, by the use of the appropriate technology e.g gotomeeting.com 7

Remote attendance at meetings which are held

s246ZE IA86

• Office holders can no longer hold physical creditors’ meetings in the

first instance, they must initially use:

• Deemed Consent
• A Decision Procedure

Correspondence Electronic Voting Virtual Meeting Physical Meeting Any other decision making procedure which enables all creditors who are entitled to participate in the making of the decision to participate equally. 8

A move to decision making procedures

Deemed Consent (s246ZF IA86 & R5.7 CAR & R8.7 RWUR)

• Allows office-holder to make a decision and advise creditors what this

decision is

• Deemed Consent process cannot be used for the approval of

remuneration or a Company Voluntary Arrangement or where Court rules

• Deemed Consent cannot be used again for same decision once
• bjected to
• Office-holder needs to send a notice to creditors that deemed

consent procedure will be used

• A decision via deemed consent is confirmed if no objections are

received 9

A move to decision making procedures

Deemed Consent (R5.7 CAR & R8.7 RWUR)

• In order for a creditor to object they must:
• Put the objection in writing
• Complete a Statement of Claim form and supporting

documentary evidence

• Send these both in by the decision date
• 10% in value of creditors is the appropriate number for the
• bjection threshold to be reached
• Convener will count up the total aggregated objections
• If 10% threshold reached – must go to a decision procedure for

creditors and deemed consent procedure is terminated 10

A move to decision making procedures

Deemed Consent (R5.7 CAR & R8.7 RWUR)

• What is the objection threshold?
• 10% in value of creditors
• If 10% or more in value of creditors object

– must use a decision procedure 11

A move to decision making procedures

Correspondence (R5.3 (a) CAR & R8.3 (a) RWUR)

• This is a decision making procedure
• No detailed provisions in CAR or RWUR

12

A move to decision making procedures

Electronic Voting (R5.2 to R5.4 CAR & R8.2 to R8.4 RWUR)

• Any electronic system which enables a person to vote without

the need to attend a particular location to do so

• Creditors need to be provided with information on how to access

the voting system, including any password required

• Voting should be open between notice being delivered and the

decision date

• During the period open for voting, the system should not reveal

any information to creditors regarding the vote cast by any other creditor 13

A move to decision making procedures

Virtual Meeting (R5.2 to R5.5 CAR & R8.2 to Rule 8.5 RWUR)

• 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)

• Must provide information to creditors when providing notice of

decision procedure as to how to access the virtual meeting including any telephone number, access code or password required 14

A move to decision making procedures

Physical Meeting (R5.2 to R5.6 CAR & R8.2 to Rule 8.6 RWUR)

• A meeting where the creditors are invited to be present together

at the same place (whether or not it is possible to attend the meeting without being present at that place)

• Request may be made before or after the notice of the decision

procedure or deemed consent procedure has been delivered,

• Must be made not later than five business days after the date on

which the convener delivered the notice of the decision procedure or deemed consent procedure (unless rules say

• therwise)

15

A move to decision making procedures

Physical Meeting (R5.2 to R5.6 CAR & R8.2 to Rule 8.6 RWUR)

• Onus on convener to check whether any requests for a physical

meeting have been submitted before the five business days deadline

• If requests are received the aggregate must meet or surpass one
• f the following thresholds:

10% of creditors (any class) or contributories 10% of the total number of creditors (any class) or contributories 10 creditors (any class) or contributories THE 10/10/10 Rule 16

A move to decision making procedures

Physical Meeting (R5.2 to R5.6 CAR & R8.2 to Rule 8.6 RWUR)

• If requests do reach one of the 10/10/10 rules, the decision

procedure is superseded and the physical meeting needs to be called – notice needs to be sent within 3 business days of threshold being breached

• Convener can allow a creditor to attend a physical meeting

remotely if a request is received prior to the meeting 17

A move to decision making procedures

R5.8 CAR & R8.8 RWUR

• Notice needs to be given to the creditors of the decision procedure
• Rules lay down the content of the notice
• Must be delivered to every creditor entitled to receive notice
• Convener must authenticate and date the notice

Above is NOT required if Court rules that advertisement only is appropriate as its not cost effective to serve individual notices given the assets available and extent of creditors (R5.12 CAR & R8.12 RWUR) 18

How do we get to the decision date?

Notice of Decision Procedures or Deemed Consent R5.11 CAR & R8.11 RWUR Administration – 14 days CVA - 7 days Receivership – 14 days CVL – 14 days, 7 days or 3 business days Compulsory winding up – 14 days Subject to the rules on postage (R1.38 CAR & R1.38 RWUR) 19

How do we get to the decision date?

R5.2 CAR & R8.2 RWUR

• Decision is treated as made at 23.59 on the decision date

R5.9 CAR & R8.9 RWUR

• Votes must be received by the convener on or before decision date

(and time)

• Must be accompanied by statement of claim and documentary

evidence

• One valid vote required on or before decision date (and time) for

decision to be made 20

How do we get to the decision date?

R5.33 to R5.35 CAR (virtual meetings or remote attendance of a physical) & R5.40 to R5.42 CAR (company meetings) R8.36 to R8.38 RWUR (virtual meetings or remote attendance of a physical) & R8.44 to 8.46 RWUR (company meetings)

• Rules the same
• Excluded creditor – a person who has taken all steps necessary to

attend a virtual meeting or has been permitted by the convener to attend a physical meeting remotely and has not been able to attend the whole or part of the meeting 21

Excluded Creditors

Options for Chair of the meeting:

• continue the meeting
• declare the meeting void and convene the meeting again
• declare the meeting valid up to the point where the person was

excluded and adjourn the meeting

• suspend the meeting for up to one hour
• An excluded person can request details of what occurred during the

exclusion not later than 4pm on the business day following the day on which the exclusion is claimed to have occurred 22

Excluded Creditors

• There is ability for the excluded person to make a complaint to the

chair or convener if they feel they have been adversely affected by the exclusion

• Must be done as soon as reasonably possible and not later than 4pm
• n the business day following the day on which the exclusion is

claimed to have occurred 23

Excluded Creditors

R1.41 to R1.46 CAR & R1.41 to R1.46 RWUR

• Encourages the use of email, particularly where prior to an insolvency

appointment the company and creditor were used to corresponding in this way – implied consent or

• Specific consent – creditor gives actual or deemed consent to

receiving electronic delivery and this consent has not been revoked before the document is sent 24

Electronic Communication

Electronic

• A document is to be treated as delivered by electronic means to an

electronic address where the sender can produce a copy of the electronic communication which contains the document showing the time and date the communication was sent and the electronic address to which it was sent 25

Electronic Communication

• A document sent electronically is treated as delivered to the

electronic address to which it is sent at 9.00 a.m. on the next business day after it was sent

• Office-holder must also advise where recipient may obtain a hard

copy and if so requested must furnish within five business days of the request 26

Electronic Communication

R1.41 to R1.46 CAR & R1.41 to R1.46 RWUR

• Permits using a website to deliver a particular document
• Permits general use of a website to deliver documents for duration of

the insolvency process

• Must advise by notice how the website can be accessed and the

information downloaded and provide a password

• Office-holder must also advise where recipient may obtain a hard

copy and if so requested must furnish within five business days of the request

• Must be available until two months after end of the insolvency or the
• ffice-holder’s release

27

Use of websites

R3.118 CAR & R7.34 RWUR

• A small claim is one which does not exceed £1,000
• Office-holder can rely on the information contained in the Statement
• f Affairs or company accounting records
• Still need to notify the creditor
• Cannot rely on Statement of Affairs or company accounting records if

creditor advises that the sum noted is incorrect or not owed 28

Small claims of creditors

R3.118 CAR & R7.34 RWUR

• No Statement of Claim required to be submitted
• Creditor can still rank for and receive a dividend
• However, must submit a Statement of Claim if the creditor with a small

claim wishes to participate in a decision procedure 29

Small claims of creditors

R1.33 to R1.35 CAR & R1.33 to 1.35 RWUR

• Creditors may, at any time, elect to opt-out of an insolvency process

(this lasts in any consecutive insolvency proceedings for the same company)

• Creditor who opts out will no longer receive correspondence from the
• ffice-holder
• Creditors who do this may also opt back in (revoke opt out)

30

Opting out for creditors

R1.33 to R1.35 CAR & R1.33 to 1.35 RWUR

• Creditors must be provided with information as to how they opt out in

first communication with creditors

• Opting out does not exclude a creditor from voting in a decision

procedure and participating in a dividend distribution 31

Opting out for creditors

In compulsory winding up and CVL:

• No longer a requirement for the liquidator to make a claim for

remuneration every six months

• R7.11 RWUR says ‘MAY’
• No longer a requirement for the liquidator to apply to Court for an

extension

• Liquidator instead notifies creditors in a progress report of their

intention not to claim remuneration at that time (R7.7 & R7.8 RWUR) 32

Remuneration and accounting periods

• Statutory forms and notices have been abolished
• Major departure from the set order we are used to
• Replaced by Standard Contents for:

Forms Notices Documents Advertisements There will be general information required in all insolvency procedures and depending on the insolvency procedure there may also be specific information that needs to be included 33

Standard Contents

• More flexibility to the office-holder
• Discretion for office-holder to advertise as they think appropriate in

certain circumstances Examples

• CVL (R8.13 RWUR) – Must advertise in Gazette if decision is being

sought by a meeting as soon as reasonably practicable after notice is delivered to creditors but any other advert is as the convener thinks fit 34

Advertising

Examples

• Compulsory winding up (R5.21 RWUR) - following appointment of the

interim liquidator, the interim liquidator delivers notices to the creditors and contributories and MAY advertise in the Gazette and otherwise as they see fit (only MUST if Court permits or gives direction to do so) within 28 days

• Same duty is outlined in R5.26 RWUR for liquidator following a section

138 IA86 appointment in accordance with R5.23 RWUR by deemed consent procedure or a decision procedure 35

Advertising

• Personal information in respect of employees, ex-employees and

consumer customers must be detailed in a separate schedule to the Statement of Affairs

• This separate schedule must not be filed in the Sederunt Book but a

summary can be

• This is with the aim of protecting privacy and identity theft

36

Statement of Affairs

• These are now available to Receivership and Liquidation processes
• Rules are the same as Administrations

37

Statement of Concurrence

• Statement of Affairs in Receivership and Liquidation processes will no

longer require to be verified as true by affidavit

• Going forward it will be verification by a statement of truth

38

Verification by Affidavit

• Final meetings abolished
• Final reporting process now different

MVL (R3.11 to R3.12 RWUR)

• Prepare a draft final account, specify a date for final account
• Members have eight weeks prior to the date specified for delivery
• f the final account:

To object to the release of the liquidator 39

Closure

• CVL – Prepare final account (R4.30 RWUR)
• Compulsory Winding up – Prepare final account (R5.33 RWUR)

In both CVL and Compulsory winding up Creditors have 28 days after delivery of the notice: To object to the release of the liquidator Thereafter forms submitted to companies house to confirm position and dissolve company 40

Closure

Interest R7.26 RWUR:

• In terms of MVLs the argument of the last 18 months or so is settled by

this rule which is located in Part 7 of RWUR which is a common part applying to all winding up processes

• The effect is that statutory interest will be payable on claims within

MVLs from 6 April 2019 from date of appointment if debt outstanding / will become payable

• During due diligence and MVL planning, ensure all claims are paid

prior to MVL where possible to avoid this additional cost and erosion

• f shareholder funds

42

Interest

Modernisation of Language

• Gender neutral – for example chair as opposed to chairman / no ‘he’
• r ‘she’
• Common Part – uses the word office-holder
• Appointed person – someone qualified to act as an insolvency

practitioner or person experienced in insolvency matters and is an employee of office-holder who has been authorised to act by the

• ffice-holder
• Convener – office-holder or other person seeking a decision
• Business day – is any day other than Saturday and Sunday, Christmas

Day, Good Friday or any Bank Holiday in the UK (Section 251 IA86) 43

General and concluding thoughts

Modernisation of concepts

• Provisions for delivery by document exchange (R1.39 CAR & R1.39

RWUR)

• Provisions for personal delivery of documents (1.40 CAR & R1.40

RWUR)

• Standard fee for copies – 15 pence per A4 or A5 page or 30 pence

per A3 page

• Standard contents

44

General and concluding thoughts

Derivation and Destination Tables

https://www.aib.gov.uk/news/releases/19191919/0202/in solvency-scotland-rules-table-destinations 46

General and concluding thoughts

Transitional and Saving Provisions

• Electronic communications only apply to cases from 6 April 2019
• Website new rules apply to all cases
• Opting out of creditors will not apply to cases prior to 6 April 2019
• Statement of Affairs new rules only apply to cases from 6 April 2019
• Meetings convened prior to 6 April 2019 continue to be administered

under the old rules 46

General and concluding thoughts

The Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018: http://www.legislation.gov.uk/uksi/2018/1082/made The Insolvency (Scotland) (Receivership and Winding up) Rules 2018: http://www.legislation.gov.uk/ssi/2018/347/contents/made 47

General and concluding thoughts

Statement of Insolvency Practice (SIP) Anticipated to be a new SIP 6 – Deemed Consent & Decision Procedures SIP 8, 10 & 12 then withdrawn SIP 9 may be amended (but no fee estimates in Scotland) Keep an eye on developments as nothing finalised yet New ICAS checklists expected 48

General and concluding thoughts

From 6 April 2019, there will be a significant change to Scottish insolvency processes This poses a compliance risk to office-holders and their staff across the whole insolvency case portfolio

• New work packs and letter packs /update existing
• New check lists
• New templates
• New Sederunt Book indexes
• New SIPs
• Consider Website providers

48

How to prepare

• Upgrade current Insolvency Case Management System to include a

Virtual Meeting portal

• Check what other software updates your software provider is

planning to help prepare and what will be required of you

• Update case diaries/Review files for transitional and savings provisions
• Train your staff on the changes
• Do you have resource to do this internally or externally

Familiarise yourself with both sets of rules – specific and common parts take some getting used to 48

How to prepare

49

Questions?

And also: Kirkintilloch, Hamilton, Falkirk and Dumbarton

Appendices

Timeline for Deemed consent in terms of Rule 4.14 of The Insolvency (Scotland) (Receivership and Winding Up) Rules 2018 49

Appendix 1

Notice of decision procedure dispatched to creditors Deemed delivery to creditors If more than 10% in value of creditors object up to 23.59 on decision date then go to a decision procedure If no / less than 10% in value of creditors object by 23.59 on decision date take forward deemed consent procedure Resolutions passed by members to wind up company All paperwork regarding appointment of liquidator completed by the convener

On the business day following the decision date 4 business days for second class postage – 2 business days for first class postage R1.38 , 1 business day for email notification R1.41 Minimum of 3 business days notice for creditors to consider and object R4.14 and R8.11 Minimum of 3 business days for decision procedure and to be called within 14 days of receipt of qualifying objection. Postal rules apply here again per R1.38 and R1.41 Ideally on same day as deemed consent procedure to avoid Centrebind This timeframe will range from 4 business days if email notification and short notice provisions are used to 28 days if members require 14 days notice and centrebind procedure utilised

Timeline for Deemed consent or decision procedure in terms of Rule 5.22

• f The Insolvency (Scotland) (Receivership and Winding Up) Rules 2018

49

Appendix 2

Date of Winding up order Notice to Creditors and Contributories requesting proposals for alternative liquidator R5.22(2) Deemed receipt by Creditors Interim Liquidator must receive alternate proposals within 5 business days R5.22(5) Circular out to creditors on decision process/deemed consent procedure Deemed receipt by creditors of circular Decision Procedure continues if no objections or request for physical meeting Decision Date – Not more than 60 days from date of Winding Up Order R5.22(7)

As soon as practicable on receipt of Winding up order 4 business days for second class postage – 2 business days for first class postage R1.38 5 business days R5.22 (5) Move by liquidator to instigate decision process / deemed consent procedure 4 business days for second class postage – 2 business days for first class postage R1.38 At least 14 days notice to creditors of decision date R5.22(10), but not later than 21 days of date for receiving proposals Not more than 21 days R5.22 (9) Not more than 28 days s138(3) IA Within 5 business days creditors can utilise 10/10/10 requirements to request physical meeting to be called R8.8 (3)(i) In this period, any creditor can object to the proposed decision (appointment of liquidator in this scenario). If =>10% in value of the creditors

• bjects then a QDP requires to be utilised
• Correspondence
• Virtual Meeting
• E-Voting