[15-05-2006] Dear IP 19
Dear Insolvency Practitioner 31 October 2005
In this the nineteenth letter of the "Dear IP" series I should like to deal with the following matters:
1. Insolvency (Northern Ireland) Order 2005
2. Bankruptcy (Financial Services and Markets Act 2000) Rules (Northern Ireland) 2005
3. Insurers (Winding- up) Rules (Northern Ireland) 2005
4. Declining cases from the Unrealised Assets Register
5. Status of Student Loan debts in Bankruptcy
6. Payment of liquidation expenses and payment of preferential creditors where the companies have granted floating charges over their assets
7. Tax on Bank of Ireland Interest
8. Interest Payable to Creditors
9. Requests for Payments of Dividends
1. INSOLVENCY (NORTHERN IRELAND) ORDER 2005
The Insolvency (Northern Ireland) Order 2005 (S.I 2005/1455 (N.I. 10)) received Royal Assent on 7 June 2005. The order falls into four main areas:
Corporate insolvency; the abolition of Crown preference; individual insolvency (bankruptcy and IVA's) and the provisions relating to the financial regime of the Insolvency Service.
Work is underway to make the rules and other secondary legislation necessary to implement the Order's provisions. It is expected that the Order's provisions and the rules and other secondary legislation will be commenced early in 2006.
The corporate insolvency provisions are aimed at facilitating the rescue of viable companies, and if that is not practicable, or would not provide the best outcome for creditors, achieving a better result for the company's creditors as a whole than would be likely if the company were wound up. The Order seeks to achieve this through restricting the use of administrative receivership in favour of administration, which is a collective procedure and
takes account of the interests of all creditors. The Order introduces a streamlined system of administration by providing out-of-court routes into administration for floating charge holders, companies and their directors and introducing an overall time- limit for the process, imposing a new duty on the administrator to perform his or her functions as quickly and efficiently as reasonably possible, as well as reducing time limits generally.
The abolition of Crown preference will remove the Government's right to claim unpaid taxes ahead of other creditors and will bring real benefits to unsecured creditors, including many small firms.
The individual insolvency provisions will provide a fresh start for those who have failed by reducing the discharge period to a maximum of 12 months for most bankrupts. This is set against the need to protect the public against the small minority of bankrupts who abuse their creditors. This counterbalance is achieved through the new Bankruptcy Restrictions Order regime. The provisions will also ensure that those who can pay their creditors, do so. Income payment orders (and new income payments agreements) will run for three years, notwithstanding discharge. The Act also limits the period within which a trustee must deal with a bankrupt's interest in the sole or principal residence of the bankrupt or the bankrupt's spouse (or former spouse) to three years in most cases.
Modernisation of the financial regime of the Insolvency Service will bring increased transparency and simplicity to the fee structure while reforms to the Insolvency Account will mean that creditors, including many small firms, receive the maximum possible investment return.
2. BANKRUPTCY (FINANCIAL SERVICES AND MARKETS ACT 2000) RULES (NORTHERN IRELAND) 2005 (S.R. 2005 No. 398)
These Rules were made by the Lord Chancellor on 18 August 2005 and came into operation on 19 September 2005.
These Rules modify the Insolvency Rules (Northern Ireland) 1991 to lay down requirements as to the form and service of a demand served by the Financial Services Authority on an individual in Northern Ireland under section 372(4)(a) of the Financial Services and Markets Act 2000.
3. INSURERS (WINDING UP) RULES (NORTHERN IRELAND) 2005 (S.R. 2005 No. 399)
These Rules were made by the Lord Chancellor on 18 August 2005 and came into operation on 19 September 2005. They revoke and replace the Insurance Companies (Winding up) Rules (Northern Ireland) 1992.
Their effect is to supplement the Insolvency Rules (Northern Ireland) 1991 where an insurance company is being wound up.
4. DECLINING CASES FROM THE UNREALISED ASSETS REGISTER
There has been a misunderstanding on the part of some practitioners that declining a case from the Unrealised Assets Register would mean losing their place on the rota. This is to confirm that that is not the case- a practitioner may decline the offer of a case from the Unrealised Assets Register without incurring any penalty or affecting his position on any rota.
5. STATUS OF STUDENT LOAN DEBTS IN BANKRUPTCY
A student or former student may have a liability to repay a loan taken under,
1. Regulations made under the current Education (Student Support) (Northern Ireland) Order 1998 (S.I 1998 No. 1760) (N.I. 14))
or
2. Regulations made under the former Education (Student Loans) (Northern Ireland) Order 1990 (S.I. 1990 No. 1506 (N.1.11))
Change in status in bankruptcy of a liability to repay a loan made under regulations as under the current Education (Student Support) (Northern Ireland) Order 1998.
The Education (Student Support) (Amendment No. 2) Regulations (Northern Ireland) 2004 (S.R. 2004 No. 517) came into operation on 15 January 2005.
Regulation 8 of these regulations replaces regulation 40 in the Education (Student Support) Regulations (Northern Ireland) 2003 (S.R 2003 No. 298)
The result is that, with effect from 15 January 2005, in the case of bankruptcies which commenced* on or after 15 January 2005, any liability to repay a loan under the Education (Student Support) (Northern Ireland) Order 1998 is no longer a provable debt in bankruptcy and will no longer be written off on the bankrupt's discharge.
Change in status in bankruptcy of a liability to repay a loan made under regulations as under the former Education (Student Loans) (Northern Ireland) Order 1990.
On 6 April 2005 the Higher Education (Northern Ireland) Order 2005 (S.I. 2005 No. 1116 (N.I. 5)), responsibility for which falls to the Department for Employment and Learning, received Royal Assent.
Article 11 of this Order came into operation on 13 April 2005.
With effect from that date, in the case of bankruptcies which commenced* on or after 13 April 2005 any liability to repay a loan under the Education (Student Loans) (Northern Ireland) Order 1990 is no longer a provable debt in bankruptcy and will no longer be written off on the bankrupt's discharge.
Loans received after the date of commencement - it remains the case that loans received after the date of commencement cannot be treated as after acquired property and should not be taken into account when assessing whether or not to seek an Income Payment Order/Agreement.
*as defined by Article 252 of the Insolvency (Northern Ireland) Order 1989
6. PAYMENT OF LIQUIDATION EXPENSES AND PAYMENT OF PREFERENTIAL CREDITORS WHERE COMPANIES HAVE GRANTED FLOATING CHARGES OVER THEIR ASSETS
The following is adopted from a statement issued on behalf of HM Revenue and Customs and the DTI Insolvency Service ( "The Crown Departments"). The original statement can be seen on the DTI Insolvency Service website at www.insolvency.gsi.gov.uk.
A House of Lords judgement on 4 March 2004 in re Leyland Daf Limited alters the way in which liquidators of companies may attempt to recover the payment of liquidation expenses and pay the (liquidation) preferential creditors, where the companies have granted floating charges over their assets.
In cases where the company has granted a floating charge, the costs and expenses of the liquidation will rank after sums payable to both the preferential creditors and to holders of a floating charge and will not be payable ahead of the floating charge security. The implications of this decision for insolvency practitioners are that they face the prospect of not being paid their costs and expenses in respect of the winding up.
The Crown departments in England and Wales, whilst understanding the predicament that the insolvency practitioners may find themselves in, have made it clear that they cannot deviate from the underlying principles of this judgement. They have however indicated that, in practice they will take no action to disturb cases where costs/ fees etc. were paid before the date of the House of Lords judgement. If, however, other creditors take such action which then results in payment of a Crown dividend, the payment will be accepted. In all other instances they expect the terms of the judgement to be strictly applied.
The DTI Insolvency Service is currently attempting to have provision included in the forthcoming Company Law Reform Bill which would counteract the effects of the Leyland Daf Limited decision.
7. Tax on Bank of Ireland Interest - Bankruptcy
From 1 April 2005 tax due on interest credited to bankruptcy estate accounts will no longer be paid on a quarterly basis but calculated annually on the final quarter date (February/March) and, if appropriate, taken on that date. If interest has been stopped at an earlier date for closure purpose, tax will be calculated at that time.
8. Interest payable to creditors
Practitioners are reminded of the requirement under Article 300 (4) of the 1989 Order to pay interest to creditors where surplus funds remain after the payment of all debts. The interest payable should be calculated from the date of adjudication to the date of the payment of the final dividend at the rate specified in Article 300 (5). These provisions should not be confused with interest payable under Rule 6.110 on debts for periods before the bankruptcy.
9. Requests for payment of dividends
Practitioners are asked to ensure that when completing forms P90/L45 - Application for the issue of payment of dividends - that the rate of the dividend being paid is included on the form.
WR NESBITT
Director of Insolvency
