The Insolvency (Amendment) Rules (Northern Ireland) 2006

Explanatory Note

(This note is not part of the Rules)

These Rules make a number of changes to the Insolvency Rules (Northern Ireland) 1991 (S.R. 1991 No. 364) (“the 1991 Rules”).

The changes to the 1991 Rules, the majority of which are set out in Schedule 1 of these Rules, are generally consequential on amendments made to the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)) by the Insolvency (Northern Ireland) Order 2005 (S.I. 2005/1455 (N.I. 10)).

The main amendment is the substitution of Part 2 of the 1991 Rules by the provisions set out in Part 2 of Schedule 1. This Part of the Schedule sets out the detailed rules for the administration procedure that was introduced as Schedule B1 to the Insolvency (Northern Ireland) Order 1989 by Article 3(2) of the Insolvency (Northern Ireland) Order 2005 in substitution for Part III of the Insolvency (Northern Ireland) Order 1989. The substituted Part 2 of the 1991 Rules draws substantially on the existing rules but makes new provisions in consequence of the revised and extended administration procedures introduced by the Insolvency (Northern Ireland) Order 2005. In particular, under Schedule B1:

• In addition to the existing route into administration by court order new entry routes will be provided for companies and their directors and for holders of qualifying floating charges, and these will be outside of the court.

• Administration will be subject to new time limits to ensure that the process is conducted quickly and efficiently. Administrators will have to send copies of their proposals to creditors within 8 weeks, and hold a creditors' meeting within 10 weeks. There will also be a time limit of 12 months as the initial maximum duration of the whole administration procedure and the administrator must fulfil his duties as soon as reasonably practicable. The administrator will be able to extend any of the time limits with the permission of the court, or with the consent of creditors.

• The administrator will be required to rescue the company, as a going concern, wherever this is reasonably practicable. In those cases where it is not possible, the objective will be to provide a better result for the creditors of the company as a whole than would be achieved in an immediate winding up and only where this is not possible will he or she realise property to make a distribution to secured or preferential creditors.

• The administrator will have powers to make payments to preferential and secured creditors in all circumstances, and to unsecured creditors with the permission of the court.

• The administrator will, on the filing of an appropriate notice, be able to move the company from administration into creditors' voluntary liquidation so that payments can be made to unsecured creditors without the leave of the court or, alternatively, to move from administration to dissolution in those cases where there are no further assets to be distributed.

Parts 1, 3, 4, and 10 of Schedule 1 make a number of amendments to the provisions in the 1991 Rules that relate to company voluntary arrangements, receiverships and liquidations, and rules of general application. These changes are consequential on the Insolvency (Northern Ireland) Order 2005 making a share of any assets subject to a floating charge known as the “prescribed part” available for unsecured creditors. These amendments concern the provision of information for creditors, the powers for receivers to deal with the “prescribed part” and applications to disapply the “prescribed part”. There are a number of minor amendments that are consequential on the introduction of the new administration procedure and the abolition of Crown preference by the Insolvency (Northern Ireland) Order 2005.

A modified Rule 12.03(2)(b) provides that any obligation arising as a result of an order made in family proceedings or any obligation arising under a maintenance assessment made under the Child Support (Northern Ireland) Order 1991,with the exception of lump sums or costs, is not provable in bankruptcy. Thus, lump sum and costs are now provable in bankruptcy proceeding whilst periodical payments continue to be non-provable.

Rule 4.096 in the 1991 Rules dealing with mutual credits and set-off has been replaced with a new version designed to provide greater detail and clarity of meaning for the user to reflect applicable case law, and to bring the rule on set-off for liquidation into line with new Rule 2.086 dealing with set-off in administration.

Rules 4.134, 4.135, 4.156, 6.135 and 6.136 are amended and Rules 4.134A, 4.134B, 4.156A, 6.135A and Schedule 4 are inserted to make provision as to the payment of remuneration to liquidators and trustees consequent on the amendments made to the Insolvency Regulations (Northern Ireland) 1996 (S.R.1996 No. 574). Originally the Rules made provision for the payment of remuneration of liquidators and trustees in certain circumstances on the basis set for the official receiver under the Insolvency Regulations (Northern Ireland) 1996. The official receiver’s entitlement to remuneration in those circumstances is revoked by the Insolvency (Amendment) Regulations (Northern Ireland) 2006 with the result that the substance of the revoked provisions in now repeated in the Insolvency Rules (Northern Ireland) 1991. Transitional provisions provide for the application of the former basis for remuneration to cases already on foot at the date these Rules come into operation.

Part 5 of Schedule 1 makes a number of amendments to the provisions of the 1991 Rules, which relate to individual voluntary arrangements. In particular, a number of amendments are made as a consequence of substituting a new Article 235 and the introduction of Articles 237A to 237G into the Insolvency (Northern Ireland) Order 1989. These principally relate to the introduction of a new “fast-track” individual voluntary arrangement, which will be available only to undischarged bankrupts and in which only the Official Receiver will act as nominee or supervisor. It also contains more detailed rules applying to annulment in cases where an individual voluntary arrangement has been approved and implemented.

Part 6 of Schedule 1 makes a number of amendments to the provisions of the 1991 Rules, which relate to bankruptcy. In particular—

• Rules and references to summary administration are omitted;

• Rules in relation to income payments agreements are included;

• Rules relating to discharge from bankruptcy are amended;

• Rules to deal with a bankrupt’s interest in a dwelling-house are revised; and

• Rules are introduced to implement the provisions on bankruptcy restrictions orders (This term is defined in Schedule 5 to the Insolvency (Northern Ireland) Order 2005 to include interim bankruptcy restrictions orders and bankruptcy restrictions undertakings).

Article 342 of the Insolvency (Northern Ireland) Order 1989 permits the court to make an order, on the application of the official receiver or the trustee of the bankrupt’s estate, for the redirection by a postal operator of a bankrupt’s post for a period not exceeding three months.

A new Rule, 6.227A, provides for procedure on an application for such an order and Form 6.83 is revised.

Postal redirection orders are typically sought only in cases of non-cooperation or where the applicant believes that a bankrupt has not made a full disclosure of his affairs (for example, in an attempt to conceal assets).

Part 7 of Schedule 1 introduces Part 6A into the 1991 Rules which relates to the registers by which individual voluntary arrangements are recorded and bankruptcy restrictions orders will be recorded.

Part 8 of Schedule 1 makes a number of amendments to the 1991 Rules which relate to court procedure and practice.

Part 9 of Schedule 1 amends, to take account of House of Lord’s criticism in Re Park Air Services Limited [2000] 2 AC 172, the formula quoted in Rule 11.13 of the 1991 Rules for use in a bankruptcy or winding-up to calculate the discounted value of a debt due for payment on a date subsequent to that on which a dividend is paid.

Schedule 2 makes a number of amendments to Schedule 2 to the 1991 Rules. New forms are introduced and other forms are revised in consequence of the matters set out in Schedule 1. Minor amendments are made to a few forms unrelated to the changes made by the Insolvency (Northern Ireland) Order 2005.

The costs to business of the commencement of the provisions of the Insolvency (Northern Ireland) Order 2005 are set out in the Regulatory Impact Assessment prepared for that Order. Copies of the assessment are available from the Insolvency Service, Fermanagh House, Ormeau Avenue, Belfast BT2 8NJ.