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 ever 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!