Wednesday, October 24, 2018

Personal data in the Statement of Affairs

IPs are cautious about unwittingly breaching the new Data Protection Act 2018 (DPA) that came into force in May this year and implemented the Global Data Protection Regulations (GDPR). That caution is especially apparent when it comes to the Statement of Affairs and what should, or should not, be included in it when sending it to creditors and Companies House. We regularly hear of creditors asking why their details have been issued “in contravention of GDPR”, often using templates that they have obtained from the internet to help them raise a GDPR breach. While IPs should take care, and we can understand a creditor’s concerns, this Blog post will explain why some disclosure is not a GDPR breach at all.

Section 8 of the Data Protection Act 2018 expands on the GDPR to say what, in English Law, the “lawful processing” of data is that would not require consent. It says:

“In Article 6(1) of the GDPR (lawfulness of processing), the reference in point (e) to processing of personal data that is necessary for the performance of a task carried out in the public interest or in the exercise of the controller’s official authority includes processing of personal data that is necessary for— 

  (a) the administration of justice, 
  (b) the exercise of a function of either House of Parliament, 
  (c) the exercise of a function conferred on a person by an enactment or rule of law,
  (d) the exercise of a function of the Crown, a Minister of the Crown or a government       department, or
  (e) an activity that supports or promotes democratic engagement.”

Under (c), if you are carrying out a required statutory function, therefore, the DPA restrictions regarding the use of personal data do not apply.

When it comes to sending the statement of affairs to creditors on behalf of the director to seek a decision on the appointment of a liquidator in a CVL, that is required to be done by rule 6.14, and section 99(2) says that “the statement of affairs must include the names and addresses of the company’s creditors”. Rule 6.4(3) requires you to split out the employees and consumer deposit creditors into separate schedules, but Rule 6.3(6) only excludes those schedules from the copy filed at Companies House. Therefore, the requirement to send a statement of affairs to creditors pre-appointment is the full statement of affairs, including full details of the names, addresses and amounts owed to employees and consumer deposit creditors, not the redacted version. As a result, since you are carrying out a required statutory function you do not need the permission of any individuals to include their personal data, i.e. names, addresses and levels of debt, in the statement of affairs and are not in breach of the GDPR.

In contrast, because the legislation only requires you to send the redacted version to Companies House, it is only the redacted version that is made available to the wider public, not the full version that you originally issued to creditors, including all the names, addresses and amounts owed to employees and consumer deposit creditors. 

Watch out also for rule 1.57 (2)(a), which says that you only have to provide a list of creditors when requested by a creditor until a copy has been filed at Companies House, so once you are in office and have filed the statement of affairs, creditors would only have access to the redacted version. It is then at this point that you would be breaching the GDPR if you sent creditors a copy of the full unredacted version of the statement of affairs, or made it available on a website, post appointment. There is, however, one exception to this, since rule 6.15(1) requires the liquidator to send a statement of affairs, or summary of it, to any creditors on appointment to whom the notice regarding the decision to appoint a liquidator under rule 6.14 was not sent. Again, there would be protection from sending out a copy of the full statement of affairs including the personal data of employees and consumer deposit creditors since it is being done as a result of a statutory requirement to do so.

Feedback from clients is that directors have been questioning the need to include personal data of employees and consumer deposit creditors in the unredacted statement of affairs sent to creditors, but if they fail to provide the full statement of affairs, it is an offence, punishable by a fine under section 99(3) and as stated above it is a statutory requirement that must be complied with.

There are a couple of other instances where you are required, by statute, to provide the creditors’ names and addresses. In the proposals for CVAs (rule 2.25(3)(d)) and IVAs (rule 8.22(6)), you have to include the statement of affairs, or a summary of it that includes the names and addresses of creditors. In both of those situations, therefore, you are not breaching GDPR by issuing the required information.

While that should reassure you that you are protected legally, we’ve been doing some thinking about how you might deal with this practically. After all, unless someone has quite detailed knowledge of Data Protection and Insolvency law or reads the odd excellent Blog article on the subject, they are likely to be alarmed to see their details circulated. It might help, therefore, to include a brief explanatory note when sending lists of creditors out in VAs or issuing statements of affairs in CVLs. On one hand, such a notice may simply bring the issue to the attention of creditors who had never considered it, but on the other hand it may help to explain the situation to those who have concerns so that they feel less inclined to write a strongly worded letter of protest.

You will also need to be careful how you deal with those who complain. They may not be too impressed with a legal answer, when they are already annoyed, however unjustified. It might help, instead, to email the explanation, but tell them at the start that it is a rather legalistic explanation and that you are happy to explain more on the phone. It may be that talking on the phone could allow you to explain how little impact the SA disclosure is likely to have at this stage. Realistically, the only harassment most creditors are likely to suffer is from ambulance chasers and other IPs trying to pinch the job off you! This could be a chance for you to gather more information about the case and ensure that the creditor understands your duty to do your best for all creditors, protecting you from the poachers.

Tuesday, September 11, 2018

Companies House delays

We continue to receive queries about delivery to Companies House, so we wanted to remind you about our Blog post on this subject, which you can find here.

In short, a document is not ‘delivered’ to Companies House until it is received by them in a format which is suitable for filing, meaning there are no mistakes or missing documentation. The problem is that you will not know that it has been delivered until it has actually been registered, as it could be rejected at any time during the registration process and we have been shown examples of Companies House taking 21 days to file documents.

The delays being seen with Companies House are frustrating in all case types, but they could potentially cause a more significant problem in Administrations since, depending on the exit route used, the effective date of cessation of the Administration can be when a notice is registered at Companies House. We can envisage a situation where Companies House could reject a notice of move from ADM to CVL so late that it cannot be re-issued before the Administration has automatically expired. This could end up with you having to seek directions from the Court as to what to do next, and there is no certainty that the court would be able to find a way to validate the conversion to CVL. The court might, for example, have to wind the company up so that the Official Receiver is appointed liquidator, which could make it difficult for you to get the appointment back.

As a result, we would remind you to ensure that you send in your conversion notices in plenty of time prior to the automatic expiry of the Administration. You should carefully check the format and content of the notice and the accompanying progress report to ensure that there are no reasons for Companies House to reject them.

Monday, September 03, 2018

Decisions to Establish a Committee

We have seen a couple of instances recently where only one or two creditors have voted at a decision by correspondence to fix the basis of the officeholder’s remuneration. As is required by the Rules (other than in CWUs) the officeholder invited creditors to establish a committee at the same time, also by way of a decision by correspondence. Unfortunately, the creditors who voted to approve the officeholder’s remuneration also voted in favour of the decision to establish a Committee. As a result, the creditors voted to establish a Committee, albeit with no nominations as to who is to act on the Committee.

It was not possible to rely on the decision of the creditors fixing the officeholder’s remuneration passed at the same time, since it would fall to the Committee to fix it once it had been established. This situation is covered by rule 17.5(4), which provides that where a decision has been made by the creditors to establish a Committee, but not as to its membership, the officeholder must then seek a decision from the creditors as to who is to act as the members of the Committee. If creditors nominate at least three creditors to act on the Committee during that second decision procedure, and they agree to act, then the Committee will be duly established. If, however, creditors do not nominate at least three creditors to act, then at that stage the officeholder can say that no Committee has been established and go on and seek a decision from the creditors to fix the basis of their remuneration. Note that the original fee “approval” obtained at the earlier decision procedure cannot be relied upon and a new decision is needed.

Rather than holding a further decision procedure to fix the basis of remuneration, when seeking the decision to nominate Committee members the officeholder can seek a decision to fix the basis of remuneration at the same time. The notice convening the decision procedure just needs to make it clear that the decision will only be sought if insufficient nominations are received for creditors to act on the Committee.

One other point to remember in all this is that once a creditor has voted at a decision procedure, other than a meeting, they cannot change their vote. As a result, even if you spot that the only votes you have from creditors during the first decision procedure are in favour of all the resolutions you sought, i.e. in favour of both the formation of a Committee and your fees, you cannot get them to change them and vote against the formation of the Committee.

Sunday, May 20, 2018

Stop Press! R3 Creditors Guide Microsite is back

The R3 Creditors Guide Microsite is back. The shiny, new version can now be seen, so our earlier warning to suspend any reference to it in your documents can now be ignored.

Well done to everyone involved in getting the new design operational.

Wednesday, March 28, 2018

Notices to creditors to opt out

In CVLs we have seen instances where the notice to creditors to opt out has just been put on a website and creditors have then been directed to it in the initial letter to them following the appointment of the liquidator.  We have sought clarification from Policy Division of the Insolvency Service (IS) as to whether that approach is permitted given that rule 1.39 says that “the office-holder must, in the first communication with a creditor, inform the creditor in writing that the creditor may elect to opt out of receiving further documents relating to the proceedings.” 

The IS have now responded to us and indicated that their view is that, because of the wording used in rule 1.39, the information about opting out cannot just be put on a website and must be included as part of the first communication with creditors.  Their reasoning for that approach is that “if a website is to be used then a notice must be sent to the creditors explaining how to get access etc (see rules 1.49 and 1.50).  That would mean that there are communications before the use of the website in which the option to opt out would need to be explained.”

The information on opting out can either be included in the body of the first letter to creditors, or sent as an enclosure to that letter.  While we have seen it most often in CVLs the comments in this Blog apply equally to other case types.

Wednesday, March 07, 2018

R3 Creditors’ Guide microsite

Some of you may have noticed that the R3 Creditors’ Guide, website is currently suspended for a redesign. We think that the site is a useful resource that, in conjunction with the SIP 9 Guides to Fees, helps to meet the SIP 9 requirement to inform creditors of their rights.

We are aware of at least one regulatory monitor asking why the link is included in circulars when the site is not operating. The simple answer from our perspective is that we expect the site to be up and running soon and it is not worth amending all of our standards to take it out, only to have to re-insert it afterwards. In most of the cases that the monitors will be reviewing at the moment, the link was working when the notice was issued.

However, to avoid upsetting anyone, we recommend that you delete the link to the creditor guide site from any standards as you use them, until it is up and running again. We will try to remember to Blog an update when it is back in action.

Tuesday, January 30, 2018

Remuneration and the new, improved 18 month rule

One of our abiding complaints about the old rules was the so-called 18 month rule, which restricted an office holder to scale rates if fees were not fixed by the creditors within 18 months of appointment. The New Rules still contain provisions which require an officeholder to fix the basis of their remuneration within 18 months of their appointment in order to avoid problems, although the effect of failing to do so depends on the case type involved.

Rule 18.22 deals with the position for Liquidators in CWUs and Trustees in BKYs. If the officeholder has not fixed their remuneration within 18 months of their appointment, then they are entitled to remuneration on the statutory scale. However, in an improvement over the old rules, if the officeholder considers that their remuneration using the statutory scale is not sufficient, or is inappropriate, then rule 18.24 allows them to ask the creditors to increase the percentage of realisations and/or distributions they can charge, or to change the basis of their remuneration. If the creditors do not pass the decision sought, or indeed instead of asking them, the officeholder can apply to Court.

The position is different for Liquidators in MVLs and CVLs, and Administrators, and it is covered by rule 18.23. That rule does not impose an 18 month deadline from appointment for the officeholder to fix the basis of their remuneration per se, but it does prohibit them from applying to Court to fix the basis of their remuneration more than 18 months after appointment. If creditors or a committee have not fixed the basis of an officeholder’s remuneration within 18 months of their appointment, then there is nothing to stop them from continuing to seek a decision from the creditors/committee once the 18 months has elapsed. However, there is no fall-back position for the officeholder if they do not do so, because the officeholder cannot use the statutory scale as rule 18.24 does not apply to such case types, and they are prohibited from applying to Court.

If you are approaching the 18 month date on a case without having fixed the basis of your remuneration, then you need to consider your strategy, which will depend on the particular circumstances of the case. If, for example, the only creditors are HMRC and/or banks that have a policy of not voting on decisions, then you might consider seeking a further decision from them to fix the basis of your remuneration, but making it clear in the documentation that if they do not do so, then you will have no alternative but to apply to Court to fix the basis of your remuneration which will, inevitably, increase the costs of the insolvency procedure. If, however, you are confident that the creditors or a committee will fix the basis of your remuneration once you have completed your investigations, or administration of the case, then you could decide not to take any action. Although the new rules are more helpful, you should be aware of the risk that if they do not vote, you may not have another method of fee approval. If you have creditors who will not vote, despite warnings, or who are deliberately taking advantage of the rules to be obstructive, you should apply to court early and avoid the risk of deadlock.