Andrew Foyle: New Acts will make insolvency more modern and user-friendly

Andrew Foyle is Partner and Solicitor Advocate at Shoosmiths in Edinburgh: www.shoosmiths.co.uk
Andrew Foyle is Partner and Solicitor Advocate at Shoosmiths in Edinburgh: www.shoosmiths.co.uk
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The Insolvency (Scotland) (Company Voluntary Arrangements and Administration Rules 2018 and the Insolvency (Scotland) (Receivership and Winding Up) Rules 2018 both come into force on 6 April, replacing the current 1986 rules. In my opinion, they signify the biggest revolution in insolvency practice in Scotland in a generation.

Their imminent introduction means that insolvency practitioners have had much preparatory work to do. However, I look forward to these significant changes.

Totalling more than 300 pages, the new rules require careful scrutiny by practitioners. There’s not the scope here to reflect on every change but it is worth reflecting on how the new rules will also affect creditors engaging in the insolvency process.

Interestingly, the rules are ­retrospective and will affect both ongoing insolvencies instituted ­prior to the coming into force of the rules and new cases from 6 April. That said, Schedule 2 contains a number of transitional provisions including for cases that straddle the two sets of rules. For example, where a meeting is to be held after the date of commencement pursuant to notices issued prior to commencement.

Beyond those cases where transitional arrangements apply, the new rules align very closely with the equivalent English rules and will be welcomed by institutional creditors operating cross-border.

For creditors, there are a number of changes to be noted. The new rules now allow for ­electronic communication with creditors and members where actual or deemed consent for electronic communication is given. Notably, an electronic communication will not be deemed delivered instantaneously and will only be deemed delivered at 9am on the next business day. This is significant where deadlines are involved.

The rules also allow for certain ­documents to be made available on websites for access by stakeholders, and for creditors to opt out of correspondence if they so wish.

Unless specifically requested by the creditors, there is no longer a requirement for a physical creditors meeting and approval of the office holder’s remuneration can be deferred at the end of each accounting period without the need for court approval. This removes the need for authorisation by creditors’ committee or a formal application to the court.

The forms within the 1986 rules have been replaced with “standard information” which must be provided. The format in which that information is to be provided is no longer prescribed. This opens the door to a more user-friendly, plain English.

Dividends for small debts (defined as debts of £1,000 or less) may be paid by the insolvency practitioner without the need for a formal claim by the creditor and provided there is compliance with certain formalities. This will be welcomed by smaller trade creditors, for whom the time and effort of completing a claim form was often not worthwhile.

It’s clear that the new rule changes are substantial. In my opinion, those experienced with the English rules (brought into force two years ago) will have a significant advantage due to the similarity of the rules in a number of respects. Certainly, the experience of my colleagues in England in this field has been broadly positive since the rules were introduced down south.

For creditors, the rules feel more user-friendly and modern. Use of electronic communication and dispensing with compulsory creditors’ meetings (which in my experience were rarely of real value) are to be welcomed.

The retrospective nature of the rules is also helpful. There will now be a single set of rules regardless of the age of the insolvency (albeit the transitional arrangements in Schedule 2 will require extra care to be taken to ensure that all paperwork is correct).

The rules are to be welcomed. They have been drawn up to ­better reflect our contemporary working practices, more closely align insolvency practice north and south of the border, and are more accessible for creditors and other stakeholders.

They will largely achieve those aims and in time the new rules will certainly make a positive impact on the administration of corporate insolvency in Scotland.

Andrew Foyle is partner and solicitor advocate at Shoosmiths in Edinburgh: www.shoosmiths.co.uk