The Small Business Enterprise and Employment Act 2015, the Deregulation Act 2015 and various pieces of secondary legislation are to reform insolvency law and practice.
Here, insolvency law expert James Robbins explores some of the changes coming in to force in October 2015.
Increase of the bankruptcy threshold
Creditors will now only be able to issue bankruptcy proceedings against individuals that owe them at least £5,000. The threshold increases from £750 which was set nearly 30 years ago, and means that creditors owed less than £5,000 will now have to look at other options to enforce their debts.
Fee estimates for insolvency practitioners
In order to improve transparency and give creditors an early indication of fees, administrators, liquidators and trustees in bankruptcy taking appointments after 1 October 2015 will now have to provide fee estimates to creditors, where they are to be paid on a time cost basis.
The fee estimates will include details of the work they propose to undertake, the time they anticipate each part of the work will take, as well as other expenses that are likely to be incurred. The fee estimates will have to be approved by creditors and further requests for approval will have to be made where the fees have or are likely to exceed the original estimate.
Guarantee of essential IT and utility supplies
Section 233 of the Insolvency Act 1986 protects companies against suppliers of essential utilities terminating supplies in the event of insolvency. The revised sections 233 and 233A extend the existing rules to include private suppliers and to include IT supplies.
Suppliers will also be prevented from including provisions in contracts which allow them to increase the cost of supplies after a company goes in to administration or a voluntary arrangement. Insolvency practitioners will therefore have to bear in mind that they may receive more favourable rates in administrations than liquidations.
Claims by office holders
Administrators will now be able to bring claims against directors and others involved with the management of an insolvent company for wrongful and fraudulent trading – something which was previously reserved only for liquidators.
Administrators and liquidators may now assign claims for wrongful and fraudulent trading, transactions at an undervalue, and preferences to third parties. This will allow them to sell claims without the expense, risk and time of pursuing it themselves, and may well lead to more claims being brought.
The period in which the Secretary of State may bring disqualification proceedings has been extended from two to three years from the start of the insolvency process.
The courts may now – on application by the Secretary of State – make compensation orders against directors if the judge concludes that the conduct giving rise to the disqualification order caused losses to the company’s creditors. The Secretary of State may also accept compensation undertakings from directors without applying to court.
For more information, or to find out more about insolvency law, please call James Robbins on 01772 258321