Insolvency rules are changing, which should make things a lot more convenient for businesses suffering bad debts, as Paul Ward, Senior Manager at Bulley Davey explains
In the past if your business suffered a bad debt from an insolvent customer, the first you would officially hear of this was when you received an invitation from an Insolvency Practitioner (IP) to attend a meeting of the company’s creditors. The meeting was generally held in the IP’s office or a local hotel and chaired by a director of the insolvent company. It represented the only real opportunity for creditors to have their say, to put the directors on the spot and to find out where all the money had gone!
The general perception was that these meetings were well attended and useful for identifying what had gone wrong in the company. The reality was somewhat different. Creditors very rarely attended, with the general feeling being ‘I’ve lost money anyway, why lose more travelling to a pointless meeting?’ In a bid to address these concerns The Insolvency Service set about modernising the rules, which were introduced in 1986. Bulley Davey’s Paul Ward explains some of the changes brought about by the Insolvency (England and Wales) Rules 2016, which came into effect in the new financial year.
The first, and arguably the most significant step was to abolish the initial meeting of creditors. This has been replaced with a variety of ‘decision procedures’, including a virtual meeting, electronic or postal voting or even by way of deemed consent. For the majority of cases we handle it is likely that there will be a virtual meeting of creditors, where the creditors can dial into a conference call to raise questions of the director, in much the same way as they can currently at a physical meeting.
The main advantage from the creditor’s perspective is the ability to access the meeting from their desk, with all relevant documents relating to the insolvent company’s affairs available on a website. This will avoid the significant time and cost of travelling. Physical meetings won’t disappear completely. Creditors can still request a physical meeting where certain thresholds are met. In the case of some larger, more complex cases a physical meeting is likely to be more desirable from both a practical and effectiveness perspective.
The new rules also bring in other aspects surrounding communication with creditors. These include the ability to opt out of communications from the IP and the ability for the IP to merely post reports and notices onto a specific website, potentially saving significant costs to the benefit of the creditors.
At Bulley Davey we believe that over time these changes will increase creditor participation at the start of the process. We do, however, doubt that creditor engagement during the process will increase where periodic reports are merely placed on websites, as there will be no requirement to inform creditors that documents have been published. Either way, we are embracing these new rule changes and can only encourage anybody with an interest to fully participate in the insolvency process for the overall benefit of all creditors.
It should be stressed that the general duty of the IP to investigate the conduct of the directors and the affairs of the company do not change with the introduction of these new rules. We continue to encourage the input and engagement of creditors, which can be a valuable source of information when carrying out these tasks.
For more information visit www.bulleydaveydebthelp.co.uk or call Paul Ward or Michael Gregson on 01733 569494.