Changes to the Insolvency Act 1986 ("Act")
SBEEA 2015 makes a host of supplemental amendments to the Act, the general effect of which is remove references to creditors' meetings and replace them with the alternative decision processes.
As a consequence:
- S.98 of the Act is abolished in its entirety (requirement to summon a creditors meeting to place a company into CVL); and
- S. 99 of the Act (directors to lay statement of affairs before creditors) is amended to -
"(1) The directors of the company must, before the end of the period of 7 days beginning with the day after the day on which the company passes a resolution for voluntary winding up:
- Make out a statement in the prescribed form as to the affairs of the company; and
- Send the statement to the company's creditors."
- S. 100(1) of the Act is amended to:
"(1) The company may nominate a person to be liquidator at the company meeting at which the resolution for voluntary winding up is passed.
(1A) The company's creditors may in accordance with the rules nominate a person to be liquidator.
(1B) The directors of the company must in accordance with the rules seek such a nomination from the company's creditors."
- The amendments therefore require the directors to use either the deemed consent procedure or a virtual meeting seeking a decision on the appointment of a liquidator; and
- S.114 (2) of the Act (no liquidator appointed or nominated by the company) is amended to:
It is important to note that members meetings are unaffected by the introduction of the 2016 rules as they are governed by the Companies Act 2016 ("CA 2006") (Rule 15.41 Insolvency Rules 2016). There is also a useful reminder in rule 15.41 that resolutions can be written resolutions to avoid holding a members meeting.
The new procedure (below) should be used to place a company into CVL unless the current procedure has been commenced prior to 6 April 2017.
Procedure under new rules
Members resolution to wind up
Prior to commencing the CVL process the members must, in accordance with the provisions of the CA20006, pass a resolution to wind up the company whether at a members meeting or by written resolution.
In addition the following needs to be considered when holding the meeting or passing the resolution -
- The members must nominate someone to be the Liquidator(s100 (1B) of the Act); and
- The members may appoint someone to be Liquidator. (s100 (1) of the Act)
If the members do not appoint someone at the members meeting the directors remain in charge until a liquidator is appointed by the creditors subject to the restrictions imposed by s114 of the Act.
There is no need for the members to appoint a liquidator prior to the creditors decision but if they do the members liquidator equally has limited powers as they do currently.
Information to send to creditors prior to appointment by creditors
- Rule 6.14 (2) IR2016 - The directors have to deliver a notice to creditors seeking their decision on the nomination of the liquidator by either -
- Deemed consent procedure; or
- A virtual meeting.
- Rule 6.14 (3) IR2016 - The decision date should be -
- No earlier than three business days after the notice is delivered; and
- No later than 14 days after the resolution to wind up.
- Send creditors a statement of affairs-
- S99(1) of the Act within a period of 7 days beginning with the day after the day on which the company passes a resolution for voluntary winding up; and
- No later than 1 business day before the decision date (r. 6.14(7) IR2016).
- The form of the statement of affairs is governed by r.6.3 and 6.4 IR2016 and needs to be verified by a statement of truth (s99 2A of the Act) i.e. no longer a requirement for it to be sworn.
Proving in order to participate in a decision process - rule 5.28 IR2016
- The creditor has delivered to the convenor a proof of debt. This includes small debts (less than £1,000);
- The proof must be received by the convenor -
- By 11.59pm on the decision date; or
- 4PM the day before a virtual or physical meeting;
- The proof has been admitted for voting purposes.
- Proxies for virtual or physical meetings need to given to the convenor or chair before the meeting starts.
Deemed Consent procedure - s.246ZF of the Act
- Notice must be sent to all creditors entitled to vote;
- The procedure is deemed to be duly initiated and conducted even if not everyone to whom the notice is to be delivered has received it (r. 15.15 IR2016);
- The convenor must advertise the deemed consent procedure in the London Gazette (r.5.13(5) IR 2016);
- The decision (appointment of Liquidator) is deemed to take place on the decision day as specified in the notice to creditors unless 10% in value of creditors object.
- Given the ability to submit a vote until 11.59 on the decision date appointments will therefore be deemed to take place after this deadline expires;
- If the objection threshold is reached the decision must take place at a physical meeting;
- not earlier than 3 business days after the notice (seeking deemed consent) was delivered; and
- not later than 14 days after the objections threshold is reached;
- Instead of objecting to the decision making process creditors can requisition a physical meeting if -
- 10 creditors request it;
- 10% of the total number of creditors request it; or
- 10% in value of creditors request it.
Virtual Meetings - s. 246ZE of the Act
- A virtual meeting is a meeting without physical attendance where the parties communicate remotely. In other words there is no option to attend a physical place for the meeting and it will be conducted by telephone, skype, video conference etc. (r. 15.2(1) IR2016);
- The notice convening the meeting must state -
- How to access the virtual meeting; and
- The meeting may be suspended or adjourned by the chair of the meeting (and must be adjourned if resolved at the meeting;
- For the decision to be made the convenor must receive at least one valid vote at the meeting (r. 15.9(3) IR2016);
- A decision will be made if the majority in value vote in favour of it (r. 15.34 IR 2016);
- There is no "connected creditor" rule for appointment of a liquidator in a CVL.