Contents

Executive Summary…………………………………………………………….4

Scotland………………………………………………………………………….4

Wales……………………………………………………………………………..5

Northern Ireland………………………………………………………………….5

How to respond………………………………………………………………….6

Additional Copies………………………………………………………………..6

Confidentiality and data protection…………………………………………….6

Help with queries………………………………………………………………...7

What happens next?...... 7

Proposals…………………………………………………………………………8

Background……………………………………………………………………….8

Structural changes……………………………………………………………….9

Creating a single set of Rules…………………………………………………..9

Recast of the Rules……………………………………………………………...9

Content changes………………………………………………………………..10

Language and consistency…………………………………………………....10

Communication and documents………………………………………………11

Policy Changes…………………………………………………………………12

Minor and technical changes………………………………………………….12

Liquidation committees……………………………………………………...... 13

Additional comments……………………………………………………………13

Comments or complaints on the conduct of this consultation………………14

Annexes…………………………………………………………………………..15

Annex 1:Working draft of new Rules (see separate file at……..…………..15

Annex 2: Explanatory Notes on draft Rules (see separate file at 15

Annex 3: List of consultation questions……………………………………….16

Annex 4: List of amending Statutory Instruments to the

Insolvency Rules 1986…………………………………………………………18

Annex 5: Consultation principles………………………………………………21

Executive Summary

1.This consultation sets out proposals in relation to the consolidation and replacement of the Insolvency Rules 1986 (the Rules) and includes at Annex 1 a working draft of the new Rules on which comments are invited.

2.The Rules have been extensively amended by numerous amending Instruments (23 since 1986) in order to reflect changes in primary legislation, case law and policy. Regular additions and deletions of text at different times has resulted in legislation which has been criticised in the House of Lords as an “impenetrable thicket”.

3.Rather than simply consolidatingthe existing Rules and their many amendments, we have been working to modernise and recast the Rules; taking the opportunity to reorder the whole structure on more logical and clear lines. The intention is to deliver a better product to the end users of the Rules, and we have worked closely with stakeholders to achieve this.

4.Stakeholders have also suggested a number of areas where the Rules should be changed. We issued a consultation on a number of proposals under the Government’s insolvency Red Tape Challenge initiative. This consultation is open until 10 October 2013[1]. The main changes involved in this initiative have been incorporated in this draft so that readers can see how the Rules would look after such changes were made. The Red Tape Challenge measures would also involve some changes to primary legislation, which, subject to the outcome of the consultation, will be done as soon as a legislative opportunity is available.

5.The draft also makes provision for debtors applying direct to an Adjudicator for their own bankruptcy. These rules complement the provisions of the Enterprise and Regulatory Reform Act 2013 on this, which are expected to be brought into effect in 2015/16.

6.This draft also incorporates some further technical changesput forward by stakeholders to make insolvency procedures fairer and more efficient. These are set out in paragraph 42.

7.We would like to hear your views on:

  • the language, style, arrangement and format of the draft rules; and
  • the technical changes

and look forward to hearing your response to the Red Tape Challenge measures. Views would also be useful on how long a transition to new rules would be helpful in order to ease the process of familiarisation.

8.An Impact Assessment has been prepared for the Red Tape Challenge measures and is available as part of the separate consultation document.

9.Comments on the draft rules in Annex 1 are invited by 24January 2014.A full list of the questions in this consultation is contained at Annex 3.

Scotland

10.Schedule 5 to the Scotland Act 1998 sets out “reserved“ matters which are outwith the legislative competence of the Scottish Parliament. The Schedule largely reserves business associations as well as aspects of insolvency and winding up, although there are specific exceptions to these general reservations. The effect of the reservations and exceptionscontained within the Schedule is that parts of insolvency law and practice are reserved to the UK Parliament, whilst other parts are within the legislative competence of the Scottish Parliament. Broadly speaking, the law relating to administration and company voluntary arrangements is reserved to the UK Parliament, as is the regulation of insolvency practitioners and enforcement matters such as director disqualification. Receivershipand all personal procedures are within the legislative competence of the Scottish Parliament. Responsibility for the law relating to winding up is divided between the two Parliaments.

11.Since devolution, the practice of the UK Government has been to legislate for Scotland in line with England and Wales in those areas that are reserved to it, unless underlying Scottish law or practice differs.

12.The Insolvency Rules 1986 apply in relation to:

  • companies which the courts in England and Wales have jurisdiction to wind up
  • individuals made bankrupt, subject to a debt relief order or who enter into an individual voluntary arrangement in England and Wales.

13.There are separate rules, the Insolvency (Scotland) Rules 1986, which apply to corporate insolvency procedures (i.e. company voluntary arrangements, administrations, liquidations and receiverships) in Scotland. The Scottish rules cover both reserved and devolved matters and amendments to them can therefore be made by both the UK Government, and the Scottish Ministers, depending on which Government has the competence to do so. Any changes to the Scottish rules proposed by the UK Government based on the amendments to the English and Welsh Rules as a result of this projectwill obviously have implications for Scottish businesses, insolvency practitioners, and courts and so will be the subject of discussion between government agencies in both jurisdictions.

Wales

14.Insolvency in Walesis reserved to the UK Parliament and therefore all of the proposals in this consultation document would apply to Welsh insolvencies.

Northern Ireland

15.Insolvency is fully devolved to the Northern IrelandAssembly and therefore none of the proposals in this consultation document would apply in Northern Ireland.

How to respond

16.When responding please state whether you are doing so as an individual or whether you are representing the views of an organisation. If responding on behalf of an organisation, please make it clear who the organisation represents and, where applicable, how the views of members were assembled.

17.This consultation was published on 26September 2013 and will close on 24 January2014. We encourage responses as early as possible to assist us in accelerating the process of considering replies.

18.A response can be submitted by email or letter to:

Jane Tranter

Policy Unit

The Insolvency Service

4 Abbey Orchard Street

London

SW1P 2HT

Telephone: 01509 264092

Email:

19.This consultation may be of interest to:

  • insolvency practitioners
  • the legal profession
  • directors
  • creditors
  • business and consumer groups

Additional copies

20.This consultation can be found at: You may make additional copies without seeking permission. Under Cabinet Office guidelines consultations are digital by default but if required printed copies of the consultation document can be obtained from:

BIS Publications Orderline

ADMAIL 528

London SW1W 8YT

Tel: 0845-015 0010

Fax: 0845-015 0020

Minicom: 0845-015 0030

Confidentiality and data protection

21.Information provided in response to this consultation, including personal information, may be subject to publication or release to other parties or to disclosure in accordance with the access to information regimes (these are primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act 1998 (DPA) and the Environmental Information Regulations 2004). If you would like information, including personal data that you provide, to be treated as confidential, please be aware that, under the FOIA, there is a statutory Code of Practice with which public authorities must comply and which deals, amongst other things, with obligations of confidentiality.

22.In view of this, it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic disclaimer generated by your IT system, will not, of itself, be binding on The Insolvency Service.

Help with queries

23.Questions about the policy issues raised in the document can be addressed to Jane Tranter at The Insolvency Service (contact details as above).

What happens next?

24.We will arrange some stakeholder events to discuss the draft. If you would like to be involved please let Jane Tranter at The Insolvency Service (contact details as above) know.

25.The Government will consider the responses received and will publish the way forwardonTheInsolvencyServicewebsiteat
Proposals

Background

26.The 1986 Rules provide a procedural framework for the Insolvency Act 1986, and set out the prescribed requirements to be followed for the majority of insolvency procedures, such as bankruptcy, administration, liquidation and voluntary arrangements. They came into force on 29 December 1986, and have been subject to regular amendment since that time to reflect changes in policy and case law.

27.We have anticipated in the draft rules the main proposals under the Government’s insolvency Red Tape Challenge initiative, including those which are dependant on changes being made to the Insolvency Act 1986. The insolvency theme was in the ‘spotlight’ on the Red Tape Challenge website from 23 August to 27 September 2012. We invited stakeholders to inform us where they thought overly bureaucratic burdens occurred in insolvency legislation by posting comments on the website or attending a stakeholder workshop. Over 100 suggestions were made, most of which we intend to take forward by amending primary and secondary legislation, subject to the responses to consultation. These would have a real impact on how insolvencies are administered; reducing burdens and increasing returns to creditors. In total, we estimate that the whole package of reforms would save creditors around £36m per annum.

28.The majority of the Red Tape Challenge measures will impact upon the Rules, either directly, or by supporting changes made to the Insolvency Act 1986.

29.The consultation on the Red Tape Challenge measures has not yet closed, but we thought it would be helpful for stakeholders to see how, if the measures are taken forward into legislation, some of the main proposals would fit in the rules. The following measures are included:

  • Removing creditors’ meeting as the default for decision making - new rules have been drafted coveringcompany voluntary arrangements, individual voluntary arrangements, administration and administrative receivership etc (where the new rules have not yet been drafted there is a note of the intended procedure, rather than draft rules).
  • Abolition of final meetings of creditors in bankruptcy and liquidation where an insolvency practitioner is the office-holder.
  • Removingthe requirement for the liquidator to chair voluntary liquidation meetings of creditors and allow a suitably experienced person within their firm to be chair in their place.
  • Allowingcreditors to opt out of receiving further communications from the office-holder (other than those relating to the payment of a dividend).

30.Other Red Tape Challenge measures which will have a significant impact on the rules are:

  • To allow office-holders to put all case information on a website without an order of court, while only informing creditors of this at the outset.
  • Enabling creditors to extend administrations for either 6 or 12 months, rather than the current 6 months.
  • Allowing office-holders to distribute in respect of low value claims without a proof of debt.
  • Simplifying proxies and broaden their use for ‘repeat’ creditors.
  • Removing the need for office-holders to distribute very small dividends to creditors.

31.Further detail around the changes proposed under the Red Tape Challenge is available in the consultation document – Changes to insolvency law to reduce unnecessary regulations andsimplify procedures.

32.As indicated above, not all of the proposed Red Tape Challenge measures have been fully worked through in the draft rules at Annex 1, and therefore that draft should be regarded as work in progress. We are aware that the draft contains some inconsistencies across the different insolvency procedures and we continue to address those.As we want to give stakeholders an early opportunity to comment on the draft rules we are publishing the working draft with this consultation.

33.The draft rules also include proposed rules relating to the debtor petition reform measures contained in the Enterprise and Regulatory Reform Act 2013which are planned for commencement in 2015/16, whereby applications by debtors for their own bankruptcy are made to the Adjudicator, rather than to the court. The Enterprise and Regulatory Reform Act has also repealed the provision for a bankrupt’s earlier discharge upon notice by the official receiver. This change will come into effect on 1 October 2013 and has been reflected in the draft Rules.

34.The Supreme Court recently considered the rules relating to what constitutes an administration expense and provable debt, in a case that dealt with how certain liabilities arising from pension legislation[2] should be treated on insolvency. This judgment, which has been widely welcomed, has provided clarity on where this type of liability (and those similarly created) fall within the order of priority in a liquidation or administration. In light of this judicial clarity, at this stage no amendment is proposed in these draft rules to the substance of either the expense rule, or the rule that defines ‘debt’ in administration and liquidation. We will continue to monitor the impacts of further judicial developments in this area and will consult, as necessary, on any legislative amendments that may be felt necessary.

Structural changes

Creating a single set of rules

35.The intention is to repeal the Rules and the 23 amending instruments and replace them with a single set of modernised rules that will be easier and quicker to use. A list of the amending instruments is at Annex 4.

Q1. / Do you agree that replacing the current instruments with a single set of rules will make the legislation;
  • less confusing?
  • easier to use?

Recast of the Rules

36.In addition toconsolidating the existing Rules/amendments, we have also taken the opportunity to reorder the whole structure of the Rules on more logical and clear lines. This follows comments we received from stakeholders and is intended to deliver a better product to the end users of the Rules.

37.The scheme of the existing Rules is that rules applicable to the different types of liquidation (members’ voluntary, creditors’ voluntary and winding up by the court) are amalgamated and, in the main, those which apply in the particular type of liquidation are designated in the heading to the rule. Stakeholder feedback has been that this arrangement is confusing.

38.We anticipate that the new rules will be easier to use as:

  • We have included an extensive list of definitions and clear guidance for interpretation at the beginning
  • Where procedures are common to different types of insolvency they are set out together for ease of reference, e.g. a common part for claims by and distributions to creditors
  • Theliquidation parts are written out in full for both voluntary winding up and winding up by the court.

Q2. / Do you think that all of the definitions included are clear?
Q3. / Are there any further definitions that should be included?
Q4.
Q5. / Is the guidance in Part 1 (e.g. about standard content of notices, delivery of documents) helpful?
Do you agree that grouping processes common to different types of insolvency procedures (common parts) is helpful to users?
Q6.
Q7. / Do you find the way that liquidation parts have been set out helpful?
Do you agree that the structure of the rules as drafted is clearer and more logical?

Content Changes

Language and consistency

39.We have aimed to make the Insolvency Ruleseasier to understand with plainer language, more modern terms, improved consistency in terms of language and order of provisions across insolvency procedures and clear delivery provisions. This will address the problems raised by some stakeholders who reported that it is difficult to determine whether differences between procedures in the current Rules are due to deliberate policy intention or the result of piecemeal drafting over 26 years.

Q8. / Do you think that the draft rules are easier to follow than the existing Rules?
Q9.
Q10. / Is the plainer, modern language used easy to understand?
Are there any examples where you believe that the language used could be made simpler?
Q11.
Q12. / Do you agree that the draft rules improve consistency across insolvency procedures?
Do you have any suggestions as to how consistency could be further improved?

Communication and documents

40.The new rules have been drafted on the presumption that processes will in due course be carried out electronically wherever possible. Therequired contents of particular documents are clearly set out in the body of the rules rather than being prescribed by a statutory formmaking it easier to enable documents to be delivered by electronic means, preparing the system for moving to electronic delivery of information when the forms would become redundant. Stakeholder feedback to date has been that statutory forms are still required at present. Our proposal is therefore to prescribe necessary forms in a separate instrument which can be amended more readily and will be subject to review. These forms will therefore set out the format in which the information prescribed by the rules must be delivered or filed. We are in discussion with HM Courts and Tribunals Service as to the provision to be made for existing statutory forms that originate from or are received by the court.

Q13.
Q14. / Do you agree that prescribing content instead of the form on which that information must be provided will make it easier to use electronic forms of communication?
Do you find the write–out of the contents requirements in the draft rules to be helpful?

41.Where postal delivery is used, it is currently mandatory to use first class post. We believe that removing this restriction will reduce the cost of administering insolvencies and increase returns to creditors. We estimate that around50% of existing postal deliveriescould be switched to second classpost leading to a saving of at least 10p per item. The impact of this measure will depend on the use made by office-holders and creditors of the proposals already being consulted on to modernise communications by greater use of websites, and to give creditors the choice to opt out of receiving further communications (e.g. where there is no prospect of a dividend being paid to them).