Never before have we received so many phone calls or e-mails on something that affects IPs, not even SIP 16 generated this much comment or discussion.
We have so far found four areas where the Amendment Rules are either unclear, inconsistent, or give rise to unintended consequences. The first two are so new that we have not yet had an opportunity to raise them with The Insolvency Service:
1. The approach taken to advertising general meetings of creditors in bankruptcies differs from that in liquidations. In liquidations you are required to gazette all such meetings as a result of the changes made to rule 4.54(6). In bankruptcies though the changes of the wording to rule 6.81(4) bizarrely gives two levels of discretion; a discretion to give notice of the meeting by advertising as well as written notice and a requirement to gazette if you decide to exercise that discretion; and then, if you gazette, a further discretion to “advertise in such other manner as the convenor thinks fit.” We wonder if it was deliberate to have different approaches between bankruptcies and liquidation.
2. The requirement to hold an annual meeting of creditors in CVLs is set out section 105 of the Act, but in contrast to final meetings there are no specific rules dealing with notice requirements of annual meetings. As a result, rule 4.54 applies for notice of annual meetings, and following the revision to rule 4.54(6) you have to gazette such meetings. Presumably this is the law of unintended consequences at work, but luckily this won’t have any effect for 12 months since the amendment only applies to cases that commenced on or after 6 April 2008, and in the interim The Insolvency Service may give some clarification, or amend the rule.
The next two were in our recent update and have already been raised with the Insolvency Service:
3. Rule 11.2 has been amended so that the requirement to gazette the notice of intended dividend “shall not apply where the responsible insolvency practitioner has previously, by notice, invited creditors to prove their debts.” Whilst we believe that the use of the word “notice” indicates that the invitation can now be by way of a circular notice given the removal of the phrase “previously by public advertisement” used in the current rule 11.2(1A), and the use elsewhere in the Amendment Rules of the phrase “gazetted a notice” or even the word “gazetted” to denote the need to gazette, The Insolvency Service have indicated that their intention for the practical application of the rules is that they expect IPs to gazette the invitation to submit claims. Consequently, to avoid potential problems with your regulators we would recommend that you comply with the Service’s request and gazette your invitation to creditors to lodge claims, and that you do so on appointment in cases where you believe it likely that there will be a distribution to non-preferential unsecured creditors either by way of the prescribed part or otherwise.
4. There is a technical glitch in the amendment to rule 4.106(1) in that it only refers to gazetting for CVLs and MVLs after a meeting appointment by reference to section 109(1), but makes no reference to gazetting after a first meeting appointment in Compulsory winding up. This contrasts with the amendment to rule 6.124(1) which specifically requires gazetting in similar circumstances in bankruptcy. We have checked with the Insolvency Service and understand that they would like IPs to gazette in the same way for appointments made at meetings in compulsory liquidations, although the legislation is not likely to be amended until next year.
We intend to raise the first two points above when the dust has settled in a few weeks or so. We would also welcome receiving details of any other problems or inconsistencies you spot.
We are a little concerned that it has been so easy to find fault in what is supposed to be the first of a raft of consolidating legislation over the next couple of years. While we realise that drafting legislation to cover every eventuality is almost impossible and that such drafting is a thankless task at the best of times, we have to ask whether the same standard is to be expected from the other revisions. It may be possible for The Insolvency Service to cover a few inconsistencies by asking you to go beyond the legislation or read the legislation as they intended rather than the way it was written, but if there are similar problems with later consolidations, this will soon get out of hand. From your point of view, although it may be quite entertaining to see the regulators struggle to enforce what their regulator meant rather than what the legislation said, it creates another level of uncertainty that you will not need. For the regulators, they will find it almost impossible to take action against an IP for not gazetting notice of intended dividend for example. We cannot see the argument that The Insolvency Service wanted it done but the legislation, which they drafted, is uncertain is likely to carry much weight if it came to Judicial Review. From our point of view, it means that we have already had to spend several hours helping unravel the uncertainty. We appreciate though that you will each have spent far longer amending your systems and procedures and standard documents to reflect the changes, with the possibility of more changes to come when the various uncertainties are clarified, but don't forget to pass on the cost savings for not having to advertise to the creditors!
