The Insolvency (Amendment) Rules 2005

Explanatory Note

(This note is not part of the Rules)

These Rules make a number of changes to the Insolvency Rules 1986 (S.I. 1986/1925) (“the 1986 Rules”).

The following Rules which relate to mutual credit and set-off have been revised and new Rules substituted:—

• Rules 2.85 and 4.90.

The substituted Rules are designed to provide greater detail and clarity of meaning for the user to reflect the applicable case law and bring the rule on set-off for liquidation into line with the rule in administration. The main points to note are:—

“Mutual dealings” that are not to be included in the set-off account are defined; these include any debt acquired by a creditor by way of an agreement entered into after one of the dates set out in Rules 2.85(2)(e) and 4.90(2)(d). If a creditor acquires, or re-acquires, a debt after one of those dates, as a result of an agreement entered into at an earlier date, then such a debt would be considered a “mutual dealing” for the purposes of the set-off account.

Set-off in liquidation proceedings and administration proceedings are harmonised so that all amounts due to and from a company are “mutual dealings” to be included in, or excluded from, the set-off account, as applicable.

The provision of a meaning for the term “sums due” drawing on the definition of “debt or liability” in Rule 13.12(3).

For the purposes of calculating the set-off account, the Rules which relate to the quantification of debts (Rules 2.81, 2.86 to 2.88, 2.105, 4.86, 4.91 to 4.93 and 11.13) are extended to cover debts owed to a company, as well as debts owed by a company. Accordingly, debts owed to the company that are contingent or payable at a future time are to be included in the set-off account and liquidators and administrators will be able to place a value on such debts.

Rules 2.78 and 4.83 provide the means of appeal if a mutual third party disagrees with an administrator’s or liquidator’s valuation of a debt that third party owes to a company.

Where, after the calculation of the set-off account an amount is owed to the company arising from a contingent debt or a debt payable at a future time, such an amount only has to be paid to the liquidator or administrator if and when it becomes due and payable.

An amendment to Rules 2.105 and 11.13 (and, consequentially, to Rule 2.88(7)) to the formula for use in calculating the discounted value of a debt which is not due for payment at the date of payment. This change responds to criticism made by the House of Lords in Re Park Air Services Limited [2000] 2 AC 172.

As a result of the changes made to the law on administration by the Enterprise Act 2002 (c. 40) a company can move between liquidation and administration or between administration and liquidation. Both of these procedures enable creditors to prove their debts at the date of the administration or liquidation respectively. By way of clarification of the existing rules, the amendments provide that the relevant date is the date of the first insolvency procedure commenced. The Rules affected are:—

• Rules 2.86, 2.87, 2.88, 2.89, 4.91, 4.92, 4.93 and 4.94.

Following amendments made in the Insolvency (Amendment) Rules 2004, post 1st April 2004, provisions relating to the calculation of the remuneration of a non official receiver liquidator or trustee, are set out in the Rules. There was no intention to change the substance of the provisions in force pre 1st April 2004 (which were set out in Regulations 33, 34 and 36 of the Insolvency Regulations 1994)—the amendments introduced in the Rules were simply intended to restate the substance of the legislation that had previously been set out in the Regulations. The Rules affected are:—

• Rules 4.127B, 4.148A, 4.218 and 6.224.

Following changes introduced by section 99 of and Schedule 7 to, the Courts Act 2003, from 1st April 2004 High Sheriffs no longer carry out writs of execution emanating from the High Court and have been replaced by High Court Enforcement Officers. The changes in the Courts Act 2003 have not altered the requirement to serve notice of insolvency proceedings on the enforcement officer executing a warrant. There are numerous references to “sheriff” and “under-sheriff” in the Rules and Forms which are amended consequently upon these changes. The Rules and Forms affected are:—

• Rules 1.40, 2.7, 2.20, 2.27, 7.36, 12.19.

  • Forms 6.9, 6.24A.

In order to assist the identification of a company entering into liquidation and to bring certain Rules and Forms into line with requirements elsewhere in the Rules, the following Rules and Forms are amended to require the inclusion of a company’s registered number in liquidation proceedings:—

• Rules 4.11 and 4.51 −CVL.

• Forms 4.6, 4.11, 4.12, 4.13, 4.14.

Section 371 Insolvency Act 1986 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. Postal redirection orders are typically sought only in cases of non-cooperation or where the applicant believes that a bankrupt has not make a full disclosure of his affairs (for example, in an attempt to conceal assets).

Applications for such orders have become increasingly rare—in part due to practical procedural difficulties that are seen to exist following the judgment of the European Court of Human Rights in the case of Foxley v UK [2000] BPIR 1009 and the Vice-Chancellor’s comments in the domestic case of Singh v Official Receiver [1997] BPIR 530:—

• A new Rule, 6.235A, provides for procedure on the application for such an order and Form 6.80 is revised.

Miscellaneous amendments are:—

• A new sub-rule is added to Rule 2.67 to state expressly that the expenses of the administration per Rule 2.67(1) are expenses of the former administrator for the purposes of paragraph 99(3) of Schedule B1 to the Insolvency Act 1986.

• Rules 2.106 and 2.107 are amended to clarify that in circumstances where an administrator had made a statement under paragraph 52(1)(b) of Schedule B1 to the Insolvency Act 1986 if it falls to the creditors to fix or increase the administrator’s remuneration, those creditors comprise the secured creditors (with the inclusion of 50 per cent of the preferential creditors where a distribution is made etc to preferential creditors).

• Rule 2.108 is amended to provide that where the administrator feels that the quantum of remuneration fixed by the secured/preferential creditors under Rule 2.107(2) is insufficient, he may apply to the Court to have it increased.

• Rule 4.7 is amended to clarify the circumstances in which a winding up petition can be presented following the discharge of administration.

• A new sub-rule is added to Rule 4.12 (mirroring the wording in Rule 2.4(4)) to provide that the affidavit in support of a winding-up petition must include a statement as to the (non) applicability of the EC Regulation. This will then reflect the requirement of the winding up petition (Form 4.2). In order to harmonise with the administration procedure, the prescribed form of affidavit (Form 4.3) is deleted.

• Rule 4.26(3) and (4) is amended to provide that a copy of the provisional liquidation order must be sent to the registrar of companies by the provisional liquidator (whether the official receiver or otherwise). A new statutory form (Form 4.15A) is introduced for this purpose.

• The duty to send a copy of the notice to the official receiver in Rule 4.125(4) is replaced by the Secretary of State. Insolvency practitioners will be advised of the actual address by the Insolvency Service: it will be the same as that to which the receipts and payments account under Regulation 14(3) is to be sent. Rule 6.137(4) is similarly amended for bankruptcy.

• Rule 4.184(1) is amended to provide expressly that it relates to creditors' voluntary winding-up as well as winding up by the court.

• Before the changes to the Insolvency Service’s financial regime introduced on 1st April 2004, voluntary liquidators had to bank with the Insolvency Services Account (ISA). Consequently, a voluntary liquidator was required to send two copies of his receipts and payments account (i.e. the original plus a copy) to the registrar of companies. The registrar forwarded the copy to the Insolvency Service who used it for monitoring compliance with ISA usage.

Post 1st April 2004, voluntary liquidators no longer have to bank with the ISA. Although the requirement to submit receipts and payments accounts to the registrar of companies does remain, there is no longer any need for a copy to be sent to the Insolvency Service as there is no ISA monitoring issue to pursue. The duplicate copy sent to the registrar of companies is thus redundant and a waste of resource.

The requirement to send the duplicate receipts and payments account is set out in Rule 4.223-CVL(4) and must be sent in Form 4.68.

Sub-rule (4) is redundant and is deleted. Consequential amendments are made to Form 4.68.

• Rule 5.60 was amended by the Insolvency (Amendment) Rules 2004: one of the amendments being the deletion of Rule 5.60(4). However, Rule 5.60(5) still has a reference to (4). Rule 5.60(5) is amended to remove the reference to the redundant (4).

• Following amendments introduced in the Insolvency (Amendment) Rules 2003, from 1st April 2004, the Individual Insolvency Register (“IIR”) has replaced the former “bankruptcy register”. The official receiver’s obligation to enter details of bankrupts on the bankruptcy register was set out in Rule 6.223(B)(1). From 1st April that Rule has been revoked and its substance replaced by Rule 6A.4(2).

The reference to Rule 6.223(B)(1) in Rules 6.34 and 6.46 is replaced by reference to Rule 6A.4(2) in both instances:—

• Rule 6.42 is amended to provide that a debtor is only required to file one copy of the SA with his petition; and that the court is to send that copy to the official receiver if a bankruptcy order is made.

• Rule 6A.2(1) is amended to provide that for individual voluntary arrangement (“IVA”) or fast track voluntary arrangement (“FTVA”) details of a debtor’s gender, date of birth and any previous name must be recorded in the IIR. This brings information recorded on the IIR for IVA/FTVA in line with that recorded in bankruptcy cases and improves the service offered to users of the IIR.

Rule 12.3(2)(a) is amended to provide that, with the exception of lump sum and costs, any obligation arising as a result of an order made in family proceedings is not provable in bankruptcy. Thus, lump sum and costs are now provable in bankruptcy proceedings whilst periodical payments continue to be non-provable.

• Under the Insolvency Act 1986, a bankruptcy debt is defined in section 382 as being any debt or liability to which (bankrupt) is subject at the date of the bankruptcy order, and or to which the bankrupt may become subject after the bankruptcy order by reason of an obligation incurred before the bankruptcy order. Thus any lump sum, costs or arrears of periodical payments were bankruptcy debts. However, by virtue of Rule 12.3(2)(a) any “obligation arising under an order made in family proceedings or under a maintenance assessment made under the Child Support Act 1991” was not a debt that could be proved in the bankruptcy, and by virtue of Section 281(5)(b) those debts were not released on the bankrupt’s discharge.

Miscellaneous amendments are:—

• The reference to RSC Order 11 in Rule 12.12(1) is replaced by reference to CPR Part 6 paragraphs 6.17 to 6.35 to make it clear that those procedural rules relating to service out of the jurisdiction are not to be applied in relation to insolvency proceedings. Rule 12.11 is also amended by the inclusion of a reference to Rule 12.12 to further enforce the point that insolvency proceedings have their own free-standing rules dealing with service outside the jurisdiction.

• The reference to the Supreme Court Act 1981 and the County Courts Act 1984 in Rule 12.15 is replaced by reference to the Courts Act 2003.

Minor amendments are made to the following Forms:—

• 2.8B	Content of paragraph 8 (which provides that the notice had been sent to those persons detailed in Rule 2.20(2)) is deleted and its substance restated as a side-note. This remedies the existing problem that, as paragraph 8 comes before the statutory declaration, copies of the form had to be sent under Rule 2.20(2) before the statutory declaration had been made.
• 2.11B and 3.1A	Revised to remove reference to the company’s trade classification number.
• 2.13B	(i) Revised wording to reflect requirement of paragraph 48(1) of Schedule B1 that statement of affairs must be submitted within 11 days of receipt of the notice: reference to a final date for submission is deleted. (ii) Revised wording of the Note at the foot of the form to reflect the requirements of Rules 2.32(1)—administrator having to form a view as to the reasonableness of the expenses incurred in preparing the statement of affairs prior to payment—and Rule 2.28(4)—no requirement for instructions to be sent with the forms for the statement of affairs.
• 2.14B, 3.2, 4.17, 4.18 and 4.19	Page A1—summary of liabilities—revised to reflect how the prescribed part should be applied to unsecured creditors. Form 4.19 only—date to which statement of affairs can be made revised on front page to reflect requirement of Rule 4.34(4)-CVL i.e. that it may be to a date not more than 14 days before that on which the resolution for voluntary winding-up is passed.
• 6.28	(i) References to “HIGH COURT OF JUSTICE” on the front page and on the schedule page deleted. (ii) Affidavit revised to include specific lines for debtor’s name, occupation and address; (iii) Additional information requested to incorporate substance of current questionnaire booklet (which is completed by a bankrupt after the making of the order).
• 6.83	Revised to delete reference to the dwelling house vesting in the trustee and to clarify that the form complies with the requirements of Rule 6.237 and is simply to notify interested parties of the trustee’s interest in the named dwelling house under section 283A of the Act.
• 6.84	Revised wording in side-note (e) to remove reference to “registered title” of the property. Form 6.84 is sent in accordance with Rule 6.237B which only relates to unregistered land.

No regulatory impact assessment has been prepared in relation to these Rules as they will not impose any significant costs on business.