Tuesday, January 08, 2019

Board Meetings and Company Meetings

A very happy New Year to you all from Compliance On Call!

We often get queries relating to notices for board meetings, company meetings, quorums etc and our visits throw up examples of cases where incorrect notice has been given, or there has been no quorum at a meeting. Where it goes wrong, the result is that you may have invalid resolutions to wind up the company, appoint you as liquidator and approve your fees.

The problem lies in the fact that there have been 22 standard table/model Articles dating back to 1856! This includes the various separate model Articles for public and private companies effective from October 2007. Just to confuse the issue, some companies update their articles of association when new ones are issued, whilst others have their own or amended versions of the standard or model Articles.

While it should not be relied on as a get out of jail free card, the Duomatic principle, which is preserved by section 281(4) of the Companies Act 2006, may be able to help where incorrect notice of a general meeting has given. As a reminder, in the case of Re Duomatic Ltd [1969] 2 Ch 365, Buckley J upheld the common law principle of decision-making by shareholders by way of informal unanimous consent. He summarised the position as follows:-

“Where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be.”

We would stress though that if you find yourself needing to rely on the Duomatic principle, the shareholders’ consent must be unanimous. In addition, subsequent case law has held that if a registered holder of voting shares is unable to vote for any reason (for example they are deceased, or the shareholder is a dissolved company) the company will be unable to apply the Duomatic principle.

Furthermore, whilst is currently the case that the Duomatic principle can be used to assist shareholders in placing a company into an insolvency process, there is another argument that a company’s financial position may preclude the application of the Duomatic principle. This says that any decision taken would not be simply for the benefit of and protection of the members (a pre-requisite of application) because where the company is insolvent there is a common law duty to consider the creditors’ interests.

We have set out in the tables below the headlines for the standard Table A Articles for companies incorporated between 1 October 1977 and 30 September 2009, and the standard Model Articles for companies incorporated after 1 October 2009, covering quorum, notice and the related CA requirement to consent to short notice:-

Standard Table A articles for companies incorporated between 1 October 1977 and 30 September 2009

Commencement Date
Quorum for Board Meetings
Notice for Meetings
Short Notice
Quorum
Required
Distribution in Specie
1 October 1977
As fixed by the directors and unless fixed two
Annual general meetings - 21 days’ notice in writing

Extraordinary general meetings – 14 days’ notice in writing
Annual meeting – all members

Extraordinary general meetings – 95% of members
Public companies - 2 persons holding or representing 1/3 of the issued shares or 3 members

Private companies – 2 members 
Paragraph 135 with the sanction of an extraordinary resolution
2 February 1979
As fixed by the directors and unless fixed two
Annual general meetings - 21 days’ notice in writing

Extraordinary general meetings – 14 days’ notice in writing
Annual meeting – all members

Extraordinary general meetings – 95% of members
Public companies - 2 persons holding or representing 1/3 of the issued shares or 3 members

Private companies – 2 persons 
Paragraph 135 with the sanction of an extraordinary resolution
22 December 1980
As fixed by the directors and unless fixed two
Annual general meetings - 21 days’ notice in writing

Extraordinary general meetings – 14 days’ notice in writing
Annual meeting – all members

Extraordinary general meetings – 95% of members
2 members
Paragraph 135 with the sanction of an extraordinary resolution
3 December 1981
As fixed by the directors and unless fixed two
Annual general meetings - 21 days’ notice in writing

Extraordinary general meetings – 14 days’ notice in writing
Annual meeting – all members

Extraordinary general meetings – 95% of members
2 members
Paragraph 135 with the sanction of an extraordinary resolution
1 July 1985
As fixed by the directors and unless fixed two
Annual general meetings - 21 days’ notice

Extraordinary general meetings – 14 days’ notice
Annual meeting – all members

Extraordinary general meetings – 95% of members
2 members
Paragraph 117 with the sanction of an extraordinary resolution
1 August 1985
As fixed by the directors and unless fixed two
Annual general meetings - 21 days’ notice

Extraordinary general meetings – 14 days’ notice
Annual meeting – all members

Extraordinary general meetings – 95% of members
2 members
Paragraph 117 with the sanction of an extraordinary resolution
22 December 2000
As fixed by the directors and unless fixed two
Annual general meetings - 21 days’ notice

Extraordinary general meetings – 14 days’ notice
Annual meeting – all members

Extraordinary general meetings – 95% of members
2 members
Paragraph 117 with the sanction of an extraordinary resolution
1 October 2007 (Private Companies)
As fixed by the directors and unless fixed two
14 days’ notice
90% of members
Save in the case of a company with a single member, 2 members
Paragraph 117 with the sanction of an extraordinary resolution
1 October 2007 (Public Companies)
As fixed by the directors and unless fixed two
Annual general meetings - 21 days’ notice

Extraordinary general meetings – 14 days’ notice
Annual meeting – all members

Extraordinary general meetings – 95% of members
2 members
Paragraph 117 with the sanction of an extraordinary resolution

Standard Model Articles for companies incorporated after 1 October 2009  

Commencement Date
Quorum for Board Meetings
Notice for Meetings
Short Notice
Quorum
Required
Distribution in Specie
1 October 2009 – Private Ltd (by Shares)


As fixed by the directors and unless fixed two
14 days’ notice
(28 days required for a written resolution unless otherwise specified in the articles)
90% of members
Save in the case of a company with a single member, 2 members
Paragraph 34 with the sanction of an ordinary resolution
1 October 2009 – Private Ltd (by Guarantee)
As fixed by the directors and unless fixed two
14 days’ notice
(28 days required for a written resolution unless otherwise specified in the articles)
90% of members
Save in the case of a company with a single member, 2 members
N/A
As fixed by the directors and unless fixed two
(note that there can never be less than two directors)
Annual general meetings - 21 days’ notice

Extraordinary general meetings – 14 days’ notice
(28 days required for a written resolution unless otherwise specified in the articles)
Annual meeting – all members

Extraordinary general meetings – 95% of members
2 members
Paragraph 76 with the sanction of an ordinary resolution
28 April 2013
-Private Ltd (by Shares)
As fixed by the directors and unless fixed two
14 days’ notice
(28 days required for a written resolution unless otherwise specified in the articles)
90% of members
Save in the case of a company with a single member, 2 members
Paragraph 34 with the sanction of an ordinary resolution
28 April 2013 – Private Ltd (by Guarantee)
As fixed by the directors and unless fixed two
14 days’ notice

(28 days required for a written resolution unless otherwise specified in the articles)
90% of members
Save in the case of a company with a single member, 2 members
N/A
28 April 2013 – Public Ltd
As fixed by the directors and unless fixed two (note that there can never be less than two directors)
Annual general meetings - 21 days’ notice

Extraordinary general meetings – 14 days’ notice

(28 days required for a written resolution unless otherwise specified in the articles)
Annual meeting – all members

Extraordinary general meetings – 95% of members
2 members
Paragraph 76 with the sanction of an ordinary resolution

Remember though, as indicated above, the individual companies may have amended the Articles that they use. They may be using an earlier version or may have adopted a more recent version by resolution. You should therefore always check which version of the Articles are being used and whether they have been amended at any time.

By way of example, we saw one company where the quorum for the board meeting to pass a resolution to wind the company up or put it into administration was 3 directors. Unfortunately, the company had never had three directors, although the Articles said that it had to. New directors had to be appointed by the members. There also had to be a minimum of three members…and guess what? There had never been more than two members.

You may also get the situation where there is a deadlock caused by a minority shareholder and in a very recent example, the company had a 80% shareholder who wanted to pass a resolution to wind up the company but the other 20% shareholder refused to participate in a meeting. Without a quorum no resolution could be passed and so the majority shareholder could only seek to transfer some of his shares to a family member (which is possible provided that the directors agree to the transfer and the articles of association allow it), or alternatively petition for the winding up of the company.

Friday, December 14, 2018

Bonding – A Reminder

We have seen some instances recently where the bond has not been obtained or released at the correct time or, the IP has not properly documented their reasons for obtaining a bond at a particular level. As this is always a good time for housekeeping at Compliance on Call, we thought that we would take the opportunity to remind you about a few of the basics.

Calculation of Initial Bond

Paragraph 4, Schedule 2 of the Insolvency Practitioners Regulations says that you should bond for “the value of the insolvent's assets, as estimated by the insolvency practitioner at the date of appointment, but ignoring the value of any assets -

(a) charged to a third party to the extent of any amount which would be payable to that third party; or

(b) held on trust by the insolvent to the extent that any beneficial interest in those assets does not belong to the insolvent.”

This means that, apart from any amounts needed to pay preferential creditors or unsecured creditors under the prescribed part, or otherwise by way of a dividend, you do not need to bond for charged or third party assets.

In Voluntary Arrangements, you are required to bond for the total value of the assets proposed to be paid into the arrangement (irrespective as to whether those assets are in the Nominee’s or Supervisor’s possession) which would include the total of the proposed monthly payments.

To ensure that you can properly demonstrate that you have complied with the regulations and the terms of your bond policy, you should place a bond calculation sheet on file. This should include reference to excluding charged and third party assets, except to the extent that the charged assets are needed for preferential creditors or the prescribed part. Remember that you can be criticised by your regulator for bonding at a higher value than necessary as this will increase costs to the estate.

Where your bonding requirements exceed the specific penalty sum automatic limit stipulated in your policy you should obtain the agreement of your insurer, before accepting the appointment, that they will cover you for the required sum. Evidence of this agreement should be placed on file.

In some instances, you may accept an appointment where the only asset (or one of the assets) is speculative in nature, such as an antecedent recovery or a misfeasance claim. In these instances, it may be appropriate to bond for the minimum amount (or an amount excluding the value of any speculative claim). However, if you do so, you should ensure that you have noted on your bond calculation the reasons for your decision not to include the claim in your bonding calculations.

Review of and Calculation of any Increases in the Bond

The terms of your bonding policy, and the Insolvency Practitioner Regulations, state that where the IP forms the opinion that the value of the assets of an estate exceeds the current specific penalty sum, the level of the bond must be increased in the month in which they formed that opinion.

On appointment you will have only been able to obtain a bond to cover the value of the assets of which you were aware of and may have been working off very limited information. It is therefore important that, once your initial bond is in place, you conduct regular reviews of the level of your bond and consider; what monies you have received to date, what you anticipate the value of any remaining assets are and, whether an increase is needed.

We recommend that these reviews are conducted on a quarterly basis so that you can ensure that you are complying with the terms of your policy (see timings below). You should also conduct additional reviews of the bond on receiving a valuation of an asset, on receipt of any unanticipated sums, on discovery of new assets, on identifying any claims against the insolvent or other parties, on issuing proceedings against the insolvent or other parties, on obtaining judgement against the insolvent or other parties and on enforcing judgement against the insolvent or other parties.

Your periodic reviews should be evidenced on file and, as with the initial bond calculation, where the collection of any additional assets or monies identified are dependent upon the outcome of a claim or settlement negotiation and you consider that it may not be appropriate to increase the bond, you should ensure that you have noted the reasoning behind your decisions on your bond calculation.

Where, after review, your bonding requirements now exceed the specific penalty sum automatic limit stipulated in your policy, or the amount agreed prior to your appointment, you should, as soon as is reasonably practicable, inform your insurer of the increased amount, which will normally be covered upon its inclusion in your next bond return (check your policy for confirmation of this). Evidence of your compliance with the policy terms should be placed on file.

Relevant Dates

Your bond cover schedule must state;

· The date of your appointment
· The date that you formed the opinion that the current level of bond was not adequate
· The date of your release

Remember that, where in corporate insolvencies under the England and Wales rules your release is dependent upon you delivering or filing a notice and final report with the Registrar of Companies, you are not able to rely on your normal deemed delivery provisions per Part 1, Chapter 9 of the Insolvency Rules and must wait until the document has been uploaded onto the Register to check the date stamped on the notice. This is the date of delivery to the Registrar of Companies and will be the date of your release.

Submissions to your Bond Provider and Regulator

The date you send your cover schedule detailing all of your appointments, releases and increases to your bond provider and regulator in each particular month is important, and the deadlines are set down by regulation and your insurance policy.

The deadline for submission to your insurer is set out in the Insolvency Practitioners Licence Bond issued by your insurer. For example, with AUA Insolvency Risk Services this is the 15th day of the following month. Contrast this with Paragraph 13, Schedule 2 of the Insolvency Practitioners Regulations 2005 which states that; “Every insolvency practitioner shall submit to his authorising body not later than 20 days after the end of each month during which he holds office in a case, the information submitted to a surety or cautioner in any cover schedule related to that month ……”. It obviously makes sense however to submit the schedule and copy schedule to your bond provider and regulator at the same time.

Though some bond terms allow you to submit the particulars in respect of a case in the following month’s cover schedule, where it was not practicable to do so in the preceding month, the regulators will expect you to bond in the month of your appointment.

As well as being a regulatory issue, late notification of appointments, increases and releases may invalidate any claims on that case. You will therefore need to seek specific agreement from your insurers to their acceptance of the late notification. In the hopefully, very rare instances that there has been a late notification, you should ensure that this agreement is placed on file together with a note to explain why the notification was late, what you have done to rectify the situation in this case and, what controls you have put in place to prevent a reoccurrence in other cases.

VAT on Bonds

In our blog here, we discussed the Dear IP 37 article which gave HMRC’s opinion that you should charge VAT on bonds.

We still do see some instances where VAT has not been charged on the bond. You should charge VAT on bonds (and all other recharged expenses) unless you have some pretty weighty tax advice that contradicts HMRCs view that you feel you can safely rely on.

HMRC did confirm that where Insolvency Practitioners’ fees are exempt from VAT in voluntary arrangements and Scottish trust deeds, the exemption will also apply to the recharging of bonds premiums and other disbursements.

Please remember that bonding issues are a reoccurring theme at regulatory roadshows and always feature prominently on visits. Tight internal controls and periodic staff training to remind everyone of the requirements are therefore important to ensure and demonstrate compliance.

Finally, all of us at Compliance on Call would like to wish you and your loved ones a very merry Christmas and a happy and prosperous New Year.

Thursday, November 22, 2018

Personal data in the Statement of Affairs – Again

Since we posted our blog on 24 October, the Insolvency Service have commented on this matter in Dear IP 82 and said;

“It is therefore the view of the Insolvency Service that a fully completed statement of affairs should be circulated to creditors. In terms of individual cases, it is expected that the insolvency practitioner as office holder would use his/her discretion and where it may not be appropriate to share some creditors’ names and addresses with other creditors, then they should not do so. Insolvency practitioners should ensure that case notes fully explain any decisions in this regard.”

Unfortunately, and not for the first time, we cannot agree with the Insolvency Service on this matter, even though at first sight it is an attractive solution to the growing problem of complaints from creditors about including their personal data in the statement of affairs. This is firstly because, in bankruptcy and compulsory winding up there is no obligation to send a statement of affairs to creditors and secondly because, irrespective of the views of the Insolvency Service, we do not believe that an office holder is able to use their discretion to override legislation. Although there is a chance that even an incorrect statement like that might allow the regulators to turn a blind eye to incorrect disclosure, we must advise you to follow what the rules say, as this is the approach we would expect the Courts to take. To show that this is not just an unreasoned rant, we have set out the detailed statutory provisions below.

CVA’s & IVAs

Rules 2.6 (CVA) and 8.5 (IVA) state that the statement of affairs must contain….

“(c) the names and addresses of the preferential creditors, with the amounts of their respective claims
(d) the names and addresses of the unsecured creditors, with the amounts of their respective claims.”

A statement of affairs under rule 2.11 (CVA with a moratorium) must contain the same information as required by rule 2.6.

Rules 2.9 (CVA) and 8.15 (IVA with an interim order) state that the nominee’s report must be filed with the Court under sections 2(2) (CVA) and 256 (IVA) accompanied by…. “(c) a copy of the statement of the company’s affairs or a summary of it.” So arguably a summary statement of affairs excluding the personal details of any creditors only needs be submitted to the Court. Rule 8.19(4)(c) says much the same for the documents to accompany a nominee’s report using the non-Court route. “Summary statement of affairs” is not defined in this context, but the wording used is different from that set out below in the context of sending documents to members/creditors for a decision procedure.

In a CVA rules 2.25(3) & (4) state that in the case of members/creditors, the nominee must deliver to every person whom the nominee believes to be a member/each creditor, a notice of a decision procedure, which must “….. be accompanied a copy of the statement of affairs, or if the nominee thinks fit a summary, including a list of creditors with the amounts of their debts”.

In an IVA rule 8.22(6)(b) states that the notice of the decision procedure must be accompanied by …. “(b) a copy of the statement of affairs, or a summary including a list of creditors with the amounts of their debts.”

So, while a summary statement of affairs can be sent to creditors and members, we believe that the reference to a “list of creditors” means that it must include creditors’ personal details, i.e. their names and addresses. In contrast, given the different wording used it appears that if you file a summary of the statement of affairs in Court you may not need to include the names and addresses of creditors.

Rules 2.6 (CVA) and 8.6 (IVA) allow the nominee, the directors/debtor or any person appearing to the Court to have an interest, to apply to the Court for direction that specified information be omitted from the statement of affairs as delivered to the creditors where disclosure of that information would be likely to prejudice the conduct of the CVA/IVA or might reasonably be expected to lead to violence against a person. If the nominee had the discretion suggested in Dear IP, there would be no need for a rule allowing them to apply to Court for such a direction.

So, there is no provision for use of discretion in a either a CVA or an IVA and the only way an individual’s personal details can be omitted from the statement of affairs sent to creditors (and members) would be pursuant to a Court order following an application under rule 2.6 or 8.6 as appropriate. Note that in the case of a CVA the statement of affairs does not need to be sent to the registrar on approval of the arrangement. Also note that in both cases the supervisor/liquidator is not required at any stage to “list” the creditors and to do so, say within a progress report setting out those to whom dividends have been paid or the creditors who have not lodged claims, would be a breach of GDPR.

Administration and Creditors Voluntary Winding up (including conversion from an MVL)

In Administrations (rule 3.30) and CVLs (rule 6.4), the requirements are different and the names and postal addresses of the creditors must be set out in the statement of affairs. That is, however, subject to rule 3.30(6) (Administrations) and rule 6.4(4) CVLs, which state that where the particulars relate to creditors who are either-

     (a) employees or former employees of the company; or
     (b) consumers claiming amounts paid in advance for the supply of goods or services

the statement of affairs itself must state separately for each of (a) and (b) the number of such creditors and the total of the debts owed to them. That information should be included in the summary of liabilities page. Those rules go on to say that for each of (a) and (b) above the particulars must be set out in separate schedules to the statement of affairs.

The particulars of creditors required to be included in the statement of affairs by the rules are;

     (a) the name and postal address of the creditor;
     (b) the amount of the debt owed to the creditor;
     (c) details of any security held by the creditor;
     (d) the date on which the security was given; and
     (e) the value of any such security.

In Administration rule 3.32 states that the Administrator must not deliver to the Registrar of Companies the schedules required by rule 3.30(6)(b) (i.e. (a) and (b) as detailed above). Rule 3.35 also states that the statement of affairs which is required to be submitted with the Administrator’s statement of proposals to the Registrar, creditors and members, should exclude the schedules required by rule 3.30(6)(b) or the particulars relating to individual creditors contained in any such schedule. Similarly, where a statement of affairs has not actually been lodged, then rule 3.35 makes it clear that the list of creditors to be provided with the proposals should also exclude that information as well.

So, in administration no personal details of employees or consumer deposit creditors should never be provided to creditors or the Registrar.

However, in a CVL (including a conversion from an MVL – rules 6.11 or 6.12) rule 6.14 does not specify the exclusion of the schedules from the requirement to send the statement of affairs to creditors prior to the appointment of a liquidator by the creditors. As a result, the full statement of affairs, including the schedules of employees or consumer deposit creditors must be sent. Following the appointment of a liquidator by the creditors, however, rule 6.3(6) states that the liquidator must not deliver those schedules to the Registrar.

So, in a voluntary winding up the personal details of employees or consumer deposit creditors should be provided to the creditors pre-appointment, but not to the Registrar, or indeed the creditors, post appointment, except in the narrow circumstances of rule 6.15(1), as mentioned in our original Blog post.

MVLs

In an MVL there is no requirement to provide a statement of affairs to creditors or the Registrar. The statement of assets and liabilities required under rule 5.1 only requires a summary of the unsecured liabilities of the company and does not require a list of creditors to be prepared and filed.

Compulsory Winding up

In a compulsory winding up, rule 7.41 requires the names and postal addresses of the creditors to be set out in the statement of affairs. Rule 7.41(4) then goes on to indicate that where the particulars relate to creditors who are either-

     (a) employees or former employees of the company; or
     (b) consumers claiming amounts paid in advance for the supply of goods or services

the statement of affairs itself must state separately for each of (a) and (b) the number of such creditors and the total of the debts owed to them. That information should be included in the summary of liabilities page. That rule goes on to say that the particulars required by rule 7.41(2) must be set out in separate schedules to the statement of affairs.

The particulars of creditors required to be included in the statement of affairs by the rule are;

     (a) the name and postal address of the creditor;
     (b) the amount of the debt owed to the creditor;
     (c) details of any security held by the creditor;
     (d) the date on which the security was given; and
     (e) the value of any such security.

Rule 7.41(8) states that the Official Receiver must not deliver to the Registrar of Companies the schedules required by rule paragraph 4(b) (i.e. (a) and (b) as detailed above).

Nowhere in the legislation is there a requirement for a liquidator in a Compulsory Winding Up other than the Official Receiver to file a statement of affairs with the Registrar or, deliver one to the creditors. To do so would be a breach of GDPR. This does not mean that the liquidator cannot provide creditors with a summary statement of affairs with his or her first report, provided that names and addresses of individual creditors are not given.

Bankruptcy

In a Bankruptcy the rules require the names and postal addresses of the creditors to be provided in the statement of affairs submitted by the bankrupt to the Official Receiver, and it is the Official Receiver who must file the verified statement of affairs in the Court. The Official Receiver, but not an IP acting as Trustee, is able to apply to Court for an Order under rule 10.57, where he thinks that disclosure of the whole or part of the statement of affairs would be likely to prejudice the conduct of the Bankruptcy or might or might reasonably be expected to lead to violence against a person. That Order could be that the statement of affairs (or any part of it) must not be filed with the Court or must be filed separately and not open to inspection otherwise than with permission of the Court.

As with a Compulsory Winding Up, nowhere in the legislation is there a requirement for the Trustee to deliver a statement of affairs to the creditors. To do so would be a breach of GDPR. This does not mean that the trustee cannot provide creditors with a summary statement of affairs with his or her first report, provided that names and addresses of individual creditors are not given.

Right to list of creditors

In Administrations, CVLs, Compulsory Winding Ups and Bankruptcies rule 1.57 gives creditors the right to require the officeholder to provide them with a list of the names, addresses and amounts owed to creditors. The first thing to note is that this applies only to officeholders, so only applies post-appointment. There is no indication in the rules that the list of creditors provided should not include employees or consumer deposit creditors, so that information must be provided if a list of creditors is requested. Having said that, rule 1.57(4) does give the officeholder discretion to omit the name and address of a creditor if they think that its disclosure would be prejudicial to the conduct of the proceedings or might reasonably be expected to lead to violence against any person. While the officeholder is being given discretion, it is very limited in its application and would not automatically permit the exclusion of the names and addresses of employees or consumer deposit creditors by the officeholder unless the criteria specified is met.

The other point to note is that where a statement of affairs has been filed with Court or delivered the Registrar of Companies, or the information is available for inspection on the Bankruptcy file, then the creditor has no such right. In practice, therefore, it is unlikely that an officeholder will ever need to provide a list of creditors in a CVL since a statement of affairs is invariably delivered to the Registrar of Companies early, but the officeholder may need to do so in Administrations and Compulsory Winding Ups where the directors do not co-operate and creditor petition Bankruptcies where the bankrupt does not co-operate. In cases where the officeholder has to provide a list of creditors then they will probably be providing more information than would have to be included in a statement of affairs that is filed with the Registrar of Companies, but potentially less than they need send to creditors when seeking appointment in a CVL.

Summary

So, to summarise. If we look at the statement in Dear IP again and apply the details above, we find the following:

“It is therefore the view of the Insolvency Service that a fully completed statement of affairs should be circulated to creditors.” – That is incorrect in most case types;

“In terms of individual cases, it is expected that the insolvency practitioner as office holder would use his/her discretion and where it may not be appropriate to share some creditors’ names and addresses with other creditors, then they should not do so.” – This is inappropriate advice to use unspecified “discretion” to disregard a statutory requirement, such as in CVLs pre-appointment. There is, however, limited statutory discretion where the officeholder is asked to provide a list of creditors in cases where a statement of affairs has not actually been lodged.

“Insolvency practitioners should ensure that case notes fully explain any decisions in this regard.” – This is likely to be as much use a chocolate fireguard when you try to explain to a Court, as a statutory officeholder, that you used “discretion” to disapply provisions of the very statute that you derive your authority from.

Isn’t it about time that the Insolvency Service wrote the rules to say what they want them to say, rather than trying to amend them by interpretation, without the benefit of Parliamentary scrutiny, after the fact? If they want the rules, which they wrote, to say something else, then surely it is up to them to change them!

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.