TECHNICAL UPDATE - APRIL 2015

The Small Business, Enterprise and Employment Act 2015 (“the Act”), which received Royal Assent on 26 March 2015, contains a number of changes and additions to the Insolvency Act 1986 (“IA 1986”). 

A summary of the changes, as they relate to insolvency proceedings, are highlighted below but for full details as to the newest additions to the IA 1986, please see s117 to s146 of the Act which can be located at:

All insolvency officeholders will be concerned about the increased uncertainty created by the recent case Re Calibre Solicitors (In Administration) concerning challenges to their remuneration and expenses.

The UK Government announced plans in parliament on 3 March 2015 requiring insolvency practitioners to provide an upfront estimate of their fees for creditor approval, where they are charging on a time-cost basis. The new rules are expected to be in force from October 2015 for English and Welsh regimes (although they will not apply to members’ voluntary liquidations).

The joint report from two parliamentary committees in respect of the City Link administration, concluding that the current system is too heavily skewed in favour of investors over workers, demonstrates the difficulty that directors have in the run up to an insolvency process. Neil Smyth, partner in the Restructuring & Corporate Recovery practice at international law firm Taylor Wessing, explains:

In Re Mark Irwin Forstater [2015] BPIR, the petitioning creditor presented a bankruptcy petition against the debtor, Mr Forstater, on 13 June 2014. It first came before the court on 30 July 2014, when it was adjourned to allow the  debtor to take legal advice. At the adjourned hearing on 12 August 2014, the debtor indicated that he intended to pursue an IVA. The hearing was adjourned again to await the outcome of a meeting of creditors. The meeting of creditors was itself adjourned for 14 days from 1 September 2014 to 15 September 2014.

Income payments orders (IPOs) are an essential tool for the trustee in bankruptcy in realising a bankrupt’s assets. Until recently, it had been assumed that, absent circumstances akin to fraud, a trustee in bankruptcy could not touch a bankrupt’s undrawn pension. However, in Raithatha v Williamson, the court decided that an income payments order may be made where the bankrupt has an entitlement to elect to draw a pension but has not exercised it at the time of the application. 

Drawn versus undrawn

The insolvency of Scottish Coal Company Ltd ("SCC") has given rise to two recent Scottish Court of Session cases regarding performance bonds – East Ayrshire Council ("EAC") v Zurich Plc (24 June 2014) and South Lanarkshire Council ("SLC") v Coface SA (27 January 2015). 

Since changes were made to the Bankruptcy Act 1985 (the “Bankruptcy Act”) in 2008 it has been possible for sheriffs to continue sequestration petitions for up to a maximum of 42 days.  This was a change from the previous position whereby sequestration petitions could only be dealt with by the grant of the award or dismissal, and was brought in in recognition of the common practice adopted by many sheriffs.

Employees who transfer to a new employer from a business that is under insolvency proceedings may be able to recover unpaid wages and other debts from the Secretary of State.

However, BIS v Dobrucki has confirmed that the Secretary of State will only pick up the liabilities of the old employer (the transferor).  It will not be responsible for liabilities that are incurred after the transfer has taken place; that is, any liability of the new employer (the transferee).

The background

The Small Business, Enterprise and Employment Act (the Act) recently received Royal Assent. The Act introduces a number of new provisions across a wide range of issues, including regulatory reform, public sector procurement and companies. In relation to the insolvency and restructuring sector, there are a number of provisions which are likely to garner significant interest in the coming months.