Friday, July 17, 2015

A fix for the 2015 Rules?

SIP 9 will shortly be released for consultation and this post is considering just one issue that we expect to be included in it, the attempted fix of the problem with CVL fee approval in the Insolvency (Amendment) Rules 2015 (“the Fee Rules”).

Prior to fixing basis of remuneration the Fee Rules require the “liquidator” to provide creditors with either a fee estimate where they want to be remunerated on a time cost basis, or details of the work that they propose to undertake where they want to be remunerated on a fix fee and/or % basis. That works fine in compulsory liquidations where the liquidator will convene a general meeting and provide the information with the notice of the meeting, but what about in CVLs where the IP is not in office as liquidator until the members’ meeting, which is held just prior to the section 98 meeting? It is not sufficient to just provide the information to any creditors attending the section 98 meeting as the Fee Rules refer to providing it to “each” creditor. At a stakeholders’ meeting discussing the complete overhaul of the Insolvency Rules 1986 that is expected next year (“the Modernised Rules”) the Insolvency Service apparently indicated that their intention was that the provisions should apply to “prospective liquidators” so that the estimates and information about work to be undertaken could be sent out when convening the section 98 meeting. If the intention of the Insolvency Service was to permit such an approach then the Fee Rules should have been drafted in that way. So far the Insolvency Service have not come out in public and said that such an approach is possible, but we now understand that SIP 9 will purport to “fix” the legislation by endorsing such an approach.

Whilst such a solution is eminently practical and pragmatic, we have a problem with it since a SIP cannot over-ride and seek to change the legislation, nor can guidance from the Insolvency Service, should any be forthcoming. It is for the Courts to interpret the Rules, and in our view unless or until the Courts indicate that the Fee Rules mean that a “prospective liquidator” as well as a “liquidator” can issue the fee estimate or information about work to be undertaken it would be dangerous to take the approach suggested by SIP 9 since if it is wrong then you do not have fee approval. That would then create all sorts of problems, and potentially could give rise to a bond claim. 

So what approach should you take? There are two potential approaches to take. The first is an approach that could annoy your regulator, which is to go down the “Centrebind” route and hold the section 98 meeting 7/10 days after the members’ meeting. That is unsatisfactory, as accepted practice is that a Centerbind should only be used where the company’s assets are at risk, not to help an IP deal with a problem with the Fee Rules. The second, and by far the safest approach, is to either hold a general meeting or seek a fee resolution by correspondence once you are in office as liquidator. That will lead to additional costs, but that is a consequence of poorly worded Fee Rules.

Finally, we hope that the Insolvency Service take note of the problem and address it by revising the wording of rule 4.127 within the Modernised Rules.