[15-05-2006] Dear IP 26
Dear Insolvency Practitioner,
In this, the twenty sixth letter of the "Dear IP (NI)" series, I should like to deal with the following issues:
1. The Insolvency (Amendment) Rules (Northern Ireland) 2008 - Change To Rule 4.238.
2. Substantial property transactions involving directors.
3. Progress reports in an administration, following an extension.
4. Protective awards when a company is in liquidation.
5. Commencement of Article 150ZA of the Insolvency (Northern Ireland) Order 1989 and the Insolvency (Amendment) Rules (Northern Ireland) S.R. 2008 No. 118.
6. Winding-up resolutions - changes made by the Companies act 2006.
7. Book debt proceeds subject to floating charge security being paid to and retained by banks.
8. IVA Forum - straightforward consumer IVA protocol.
9. Floating charges and application of the prescribed part.
10. Company Voluntary Arrangement (CVA) moratorium: changes to Companies Act 2006 "small" companies definition.
11. New address for all VAT returns and payments.
12. Trustee / Liquidator Remuneration.
13. Repayment of Deposit on Debtors Petition
14. IP Portal
15. The Insolvency (Voluntary Winding Up) (Forms) Regulations (Northern Ireland) 2008, S.R. 2008 No.261.
16. Your comments or suggestions.
1. THE INSOLVENCY (AMENDMENT) RULES (NORTHERN IRELAND) 2008 - CHANGE TO RULE 4.238
The Insolvency (Amendment) Rules (Northern Ireland) 2008 (S.R. 2008 No.), which came into operation on 6 April 2008, also substituted a new version of Rule 4.238 in the Insolvency Rules (Northern Ireland) 1991.
Rule 4.238 creates the first of three "excepted cases" to the prohibition under Article 180 of the Insolvency (Northern Ireland) Order 1989 whereby directors or shadow directors of a company in the 12 months prior to its entering insolvent liquidation are not allowed to be directors of, or to act in connection with the promotion, formation or management of another company with the same or a similar name ("a prohibited name") or to carry on business otherwise than by a company under such a name.
Under Rule 4.238 there is a requirement for notice, to include certain particulars, to be given to the creditors of the insolvent company and published in the Belfast Gazette.
The Rule has been amended to address the issue that arose in the case of re First Independent Factors and Finance Limited v Churchill [2006] EWCA Civ 1623, where the Court of Appeal in England and Wales held that a notice given under the corresponding Rule applying in England and Wales, Rule 4.228 of the Insolvency Rules 1986, to avoid the prohibitions on the re-use of a company name under section 216 of the Insolvency Act 1986, could not be given where an individual was already a director of the successor company that wished to acquire the business of the insolvent company and adopt the prohibited name. The judgment had significant implications for management buy-outs in insolvency situations. Although the Court of Appeal decision is not binding in Northern Ireland it was thought likely to be persuasive, given the identical nature of the provisions in Northern Ireland, should a similar case be brought before the courts in Northern Ireland.
In addition to addressing the above issue, the new Rule 4.238 goes further and provides for a number of other scenarios where an individual may avoid the Article 180 prohibitions by giving of the requisite notice under Rule 4.238.
The Rule now allows a person to carry on the business of the insolvent company using a prohibited name other than through a limited company where the relevant notice is given. The Rule also provides that the prescribed notice may be given before the insolvent company enters insolvent liquidation (for example, where the insolvent company is in administration and it is likely, or possible, that it will subsequently go into insolvent liquidation). A time limit is set within which this must be done. In cases where the insolvent company is not in insolvent liquidation and also in any case where the acquiring company has not yet adopted a prohibited name, notice can be given where the director of the insolvent company is already a director of the acquiring company.
However, notice under Rule 4.238 must always be given before a director acts in a way that would be prohibited by Article 180. The Rule introduces a new prescribed form, Form 4.75, for the provision of the requisite notice to creditors.
2. Substantial property transactions involving directors
Sections 190-196 of the Companies Act 2006 ('the Act') deal with substantial property transactions involving directors. They came into force on 1 October 2007 and replace Articles 328-330 of the Companies (Northern Ireland) Order 1986. As before, the provisions require that any arrangement under which a director, or a person associated with a director, acquires a substantial asset, must have shareholder approval, failing which the transaction is voidable at the instance of the company.
However, there is an exemption to the above for transactions entered into by companies that are subject to certain insolvency procedures. Previously, this exemption applied only to insolvent liquidations, but by virtue of section 193 of the Act this exemption has, with effect from 1 October 2007, been extended to companies in administration.
Insolvency practitioners should note that the new exemptions do not extend to administrative receivership, so the position regarding disposals to directors, or companies controlled by directors of the vendor company where the vendor company is in receivership, remains the same.
Any enquiries regarding the above should be directed to Jack Reid, Department of Enterprise Trade and Investment, Insolvency Service, Legislation Unit, Ormeau Avenue, Belfast, BT2 8NJ; telephone: 028 90548543; email: jack.reid@detini.gov.uk
3. Progress reports in an administration, following an extension
Rule 2.048 of the Insolvency Rules (Northern Ireland) 1991 states that the administrator's progress reports must cover the six months commencing on the date that the company entered administration and for every subsequent period of six months. Rule 2.113 states that a further progress report, from the date of the most recent progress report (if any) or the date the company entered administration, must be prepared in support of an application to extend the administration. Insolvency practitioners are reminded that, if any application for an extension has been made, the next progress report should be prepared within the original six-monthly reporting cycle from the date that the company entered administration, not six months from the date of the further progress report in support of the extension.
Any enquiries regarding the above should be directed to Jack Reid, Department of Enterprise Trade and Investment, Insolvency Service, Legislation Unit, Ormeau Avenue, Belfast, BT2 8NJ; telephone: 028 90548543; email: jack.reid@detini.gov.uk
4. Protective awards when a company is in liquidation
Subject to the qualification that decisions made in English courts are not binding on the courts in Northern Ireland, practitioners may be interested in the progress of a case being taken to decide on admissibility of protective award payments in a liquidation.
The case is that of Day v Haine and another [2007] All ER (D) 298 (Oct). The court held that protective awards made pursuant to section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992 were not debts provable in the liquidation of a company in circumstances where they were made after the date of liquidation.
The equivalent in Northern Ireland to section 189 of the Trade Union and Labour Relations (Consolidation) Act 192 is Article 217 of the Employment Rights (Northern Ireland) Order 1996.
This case went to the Court of Appeal in England and Wales who ruled that a Protective award is a provable debt in an insolvency.
5. Commencement of Article 150ZA of the Insolvency (Northern Ireland) Order 1989 and the Insolvency (Amendment) Rules (Northern Ireland) S.R. 2008 No. 118.
Article 150ZA of the Insolvency (Northern Ireland) Order 1989, which was introduced by the Companies Act 2006 following the House of Lords decision in re Leyland Daf, came into force on 6 April 2008. The new Article gives liquidators priority over assets subject to a floating charge for the payment of their general expenses, so far as the assets of the company are otherwise insufficient to meet them, although rules may be made to restrict its application. Generally speaking, the new Article applies to companies that enter liquidation on or after 6 April 2008.
The Insolvency (Amendment) Rules (Northern Ireland) 2008 ("the Rules"), which also came into operation on 6 April 2008, restrict the application of Article 150ZA only with respect to litigation expenses, defined as expenses of a liquidation which are incurred in the preparation of, or during the course of, any legal proceedings which exceed, or are likely to exceed, a cumulative value of £5,000. Such litigation expenses shall not have the priority provided by Article 150ZA over any claims to property comprised in or subject to a floating charge and shall not be paid out of such property unless and until approved or authorised by the preferential creditors, the floating charge holder(s) or the court, in accordance with the conditions set out in new Rules 4.228B to 4.228E.
The Rules amend Rule 4.228 to ensure that proceeds of any legal actions, which the liquidator has power to bring in his own name or in the name of the company, will be available to pay the expenses of the liquidation. They also provide for the recovery of expenses and costs relating not only to the conduct but also to the preparation of any legal proceedings. Included within this, whilst not expressly referred to, are any proceedings taken under Article 207 of the Insolvency (Northern Ireland) Order 1989. The existing provision is extended so as to apply to proceeds arising out of any awards made under arbitration or dispute resolution procedures or of any compromise or settlement of any legal action or dispute reached prior to a judgment or award being made.
Correspondingly, also included as expenses of a liquidation are those expenses properly incurred in the preparation or conduct of arbitration or dispute resolution procedures and negotiations leading to a settlement or compromise of any legal action, arbitration, or dispute resolution procedure.
New Rules 4.228A to 4.228E are inserted into the principal Rules, the Insolvency Rules (Northern Ireland) 1991, and set out the conditions with which the liquidator must comply in seeking and obtaining authorisation or approval and the conditions with which the preferential creditors and/or floating charge holders must comply in granting or refusing the liquidator's request.
Additionally the Rules provide for the liquidator to make an application to court for the approval or authorisation of such amount of litigation expenses as the court thinks fit where the specified creditor(s), that is the creditor(s) from whom authorisation or approval would be sought, is, or is intended to be, a defendant in the legal proceedings to which the expenses relate. An application may also be made to court where the specified creditor(s) has declined to authorise the amount requested, has approved or authorised an amount less than that requested by the liquidator (which he considers to be inadequate), or made an application to the liquidator for further particulars which in the liquidators opinion is unreasonable.
Where the circumstances are such that the liquidator forms the view that the approval or authorisation is urgent, he may apply to court for approval or authorisation either without seeking it from the specified creditor(s) or, if sought, prior to the expiry of the prescribed time limit.
Any enquiries regarding the above should be directed to Jack Reid, Department of Enterprise Trade and Investment, Insolvency Service, Legislation Unit, Ormeau Avenue, Belfast, BT2 8NJ; telephone: 028 90548543; email: jack.reid@detini.gov.uk
6. Winding-up resolutions - changes made by the Companies act 2006
The Companies Act 2006 has made various changes to the rules relating to company meetings and resolutions. Insolvency practitioners should note that some of these changes affect the resolutions that need to be taken to put a company into liquidation. Some of the new provisions are subject to contrary provision in the company's articles, and some of them are not.
With effect from 1 October 2007, article 70(1)(c) of the Insolvency (Northern Ireland) Order 1989 was repealed. This was the article which provided that a company may be wound up voluntarily 'if the company resolves by extraordinary resolution to the effect that it cannot by reason of its liabilities continue in business and that it is advisable to wind up'. Accordingly, with effect from that date any winding-up resolution, whether or not the company is insolvent, needs to be taken as a special resolution under article 70(1)(b). This is not subject to any contrary provision in the company's articles.
Furthermore, the period of notice required for a meeting of a private company at which a special resolution is to be proposed was reduced from 21 days to 14 days under section 307(1) of the Companies Act 2006 ('the Act'), also with effect from 1 October 2007. However, under section 307(3) of the Act the company's articles of association may specify a longer period of notice.
Meetings of a private company may be called on shorter notice where a majority of the members who hold 90% of the voting rights agree. However, the company's articles of association may specify a higher threshold. For a public company, a 95% majority is required.
With effect from the same date, references to extraordinary resolutions in article 140 of the (Northern Ireland) Order 1989 (powers of liquidator in voluntary winding up) were replaced by references to special resolutions.
Any enquiries regarding the above should be directed to Jack Reid, Department of Enterprise Trade and Investment, Insolvency Service, Legislation Unit, Ormeau Avenue, Belfast, BT2 8NJ; telephone: 028 90548543; e-mail: jack.reid@detini.gov.uk
7. Book debt proceeds subject to floating charge security being paid to and retained by banks
Following the Privy Council's Brumark decision of June 2001, in February 2002 the Crown Departments (now the Insolvency Service's Redundancy Payments Directorate (RPD), and Her Majesty's Revenue & Customs (HMRC)) issued a joint statement setting out their position as a result of that judgment.
In June 2005 the House of Lords approved the Brumark decision in the Spectrum case and a further Crown statement was issued.
Banks' position post Brumark/Spectrum
Since the Brumark and Spectrum judgments insolvency practitioners have brought to the Crown Department's attention some instances where book debt proceeds had been received by the banks and despite requests from the insolvency practitioners for the monies to be remitted to them in order to distribute the funds to preferential creditors the banks have declined to do so. One of the bank's grounds for not remitting the funds is that the insolvency practitioner has no locus standi to seek/demand the return of the funds. As such the Crown Departments are actively taking this matter forward as the Crown Departments do have locus standi (in cases where there is a joint crown debt, RPS is taking the lead in seeking recovery of the funds).
The Crown Departments want to be made aware of all such cases where funds that should be used to pay preferential claims are paid to floating charge-holders, whether or not the payment was made direct to the floating charge-holder or by the insolvency practitioner. The notification to the Crown Departments should be made as soon as possible in order to ensure that any action is not prejudiced under the Limitation Act 1980.
In cases where both RPS & HMRC have a preferential claim, or only the RPS has such a claim, insolvency practitioners should contact:
Peter Curran or Patricia Baird, Redundancy Payments Service, Room 203, Adelaide House, 39-49 Adelaide Street, Belfast, BT2 8FD; telephone: 028 90257957 / 90257553; fax: 028 90257555.
E-mail: peter.curran@delni.gov.uk
E-Mail: patricia.baird@delni.gov.uk
If only HMRC is a preferential creditor the contact is:
Maddy Butler, HMRC, Queens Dock, 2nd Floor, Liverpool, Merseyside L74 4AA.
Tel: 0151 703 8394, fax: 0151 7038459.
E-mail: maddy.butler@hmrc.gsi.gov.uk
8. IVA Forum - straightforward consumer IVA protocol
Individual Voluntary Arrangements (IVAs) were introduced in England & Wales in 1986 and in N.I. in 1991 as an alternative to bankruptcy. They were originally aimed at individuals with complex affairs, for example professional persons or traders. Since their introduction, the credit market has expanded significantly and currently they are mainly used by people with much simpler financial affairs. A stakeholder working group was established to see how the IVA regime could be improved and this has resulted in a straightforward consumer IVA protocol. The aim has been to achieve this using a standard framework, providing a balance between the needs of the debtor for some form of debt resolution and the rights of the creditors.
A forum was held on the 29 January 2008 at the ICAEW's Great Hall, and was attended by 180 delegates. The purpose of the forum was to present a final version of the protocol (and supporting documents) to stakeholders. There was overwhelming support for the protocol and it was agreed that it should be adopted with effect from 1 February 2008.
The protocol is essentially a voluntary code of conduct for those organisations and bodies involved in managing and agreeing IVAs. It should provide greater transparency for creditors and debtors alike by using standard clauses and a consistent format.
The presentation to delegates at the forum, a full copy of the protocol and associated documents and how the protocol will be reviewed can be found on the Insolvency Service website:
http://www.insolvency.gov.uk/insolvencyprofessionandlegislation/policychange/foum2007/plenarymeeting.htm
Any enquiries regarding the above should be directed to Tom Roulston or Cabrini Deighan Department of Enterprise Trade and Investment, Insolvency Practitioner Compliance, Training and Audit, Ormeau Avenue, Belfast, BT2 8NJ; telephone: 028 90548543;
E-mail: tom.roulston@detini.gov.uk
E-mail: cabrini.deighan@detini.gov.uk
9. Floating charges and application of the prescribed part
The decision of the companies court (part of the High Court in England and Wales) in the case of Thorniley v Revenue and Customs Commissioners (Ch D (Companies Ct)) (also known as Airbase (UK) Limited, Re (Ch D (Companies Ct))) has clarified the position regarding the "prescribed part" of the company's assets set out in section 176A of the Insolvency Act 1986 (in Northern Ireland Article 150A of the Insolvency (Northern Ireland) Order 1989, from which unsecured creditors must be paid in priority to floating charge holders. The court has confirmed that the remaining, effectively unsecured amounts due to the floating charge holder(s) do not constitute "unsecured debts" for the purpose of section 176A(2) (in Northern Ireland, Article 150A(2)), and cannot partake of the prescribed part. Any shortfall relating to a floating charge over the company's assets should be excluded from distributions from the prescribed part.
In arriving at this conclusion the court considered the construction and wording of section 176A (in Northern Ireland, Article 150A), particularly subsection 176A(2)(b) (in Northern Ireland, Article 150A (2) (b). This provides that the liquidator, administrator or receiver "shall not distribute [the prescribed part] to the proprietor of a floating charge except in so far as it exceeds the amount required for the satisfaction of unsecured debts".
Any enquiries regarding the above should be directed to Jack Reid, Department of Enterprise Trade and Investment, Insolvency Service, Legislation Unit, Ormeau Avenue, Belfast, BT2 8NJ; telephone: 028 90548543; email: jack.reid@detini.gov.uk
10. Company Voluntary Arrangement (CVA) moratorium: changes to Companies Act 2006 "small" companies definition
Section 382 of the Companies Act 2006, which sets out the conditions that a company must satisfy to qualify as "small", have been amended with effect from 6 April 2008. Schedule A1 to the Insolvency (Northern Ireland) Order 1989 has also been amended, with effect from the same date, to remove references to Article 255 of the Companies (Northern Ireland) Order 1986 and insert references to section 382 of the Companies Act 2006.
A company now qualifies as small in a year in which it satisfies two or more of the following requirements:
1. Turnover Not more than £6.5 million
2. Balance sheet total Not more than £3.26 million
3. Number of employees Not more than 50
Following the amendment to schedule A1 to the Insolvency (Northern Ireland) Order 1989, the criteria allowing a company to enter into a moratorium under Article 14A of the Order now reflect the new requirements for qualification as a small company set out above.
Any enquiries regarding the above should be directed to Jack Reid, Department of Enterprise Trade and Investment, Insolvency Service, Legislation Unit, Ormeau Avenue, Belfast, BT2 8NJ; telephone: 028 90548543; email: jack.reid@detini.gov.uk
11. New address for all VAT returns and payments
Insolvency practitioners are asked to note that with effect from 16 June 2008 all VAT returns and payments for both solvent and insolvent taxpayers are to be sent to the following address:
VAT Controller
VAT Central Unit
BX5 5AT
The address on the back of the VAT returns will also be updated to reflect the new details.
Any enquiries regarding this article should be directed to Maddy Butler, HM Revenue & Customs, Debt Management & Banking, Queens Dock, Liverpool L74 4AA; telephone: 0151 703 8394
12. Trustee / Liquidator Remuneration
When completing payment requisitions for remuneration on the Portal please indicate in the description box whether the fees are determined on a time basis; as a percentage of the value of assets realised or distributed or on the basis of an amount fixed by the creditors. This is required to comply with a recommendation following the audit of the Insolvency Account by the N I Audit Office.
13. Repayment of Deposit on Debtors Petition
Rule 6.222 of the Insolvency Rules (NI) 1991 defines the order of priority of expenses payable out of a bankrupt's estate including at 6.222 (1) (c) (ii) any repayable deposit lodged by the petitioner. In a debtor's petition this should be repaid if the deposit was made from third party funds. A deposit paid by a debtor petitioning for their own bankruptcy should not be refunded to them but should be treated as an asset forming part of their estate. Please note that the refund of any deposit takes priority over the remuneration of the trustee.
14. IP Portal
IP's are reminded that all documentation (including Receipts and Payments Accounts) should now be submitted through the IP Portal. Pages 16 and 17 of the IP Portal User Guide provide instruction on how IP's can submit documents electronically through the IP Portal to specific Bankruptcy, Liquidation and IVA case records. Where documents are submitted electronically there is no longer any need to distribute a Case Note or deliver hard copies to the Insolvency Service.
15. The Insolvency (Voluntary Winding Up) (Forms) Regulations (Northern Ireland) 2008, S.R. 2008 No.261.
The Regulations will come into operation on 1st August 2008. They prescribe forms to be used by a liquidator to give notice of his appointment, both by publication in the Belfast Gazette and by delivery to the Registrar of Companies, in the case of a voluntary winding up.
The Regulations revoke and replace the forms in the Companies (Forms) (Amendment No.3) Regulations (Northern Ireland) 1991.
16. Your comments or suggestions
We would be very pleased to receive any comments or suggestions as to information or articles that you would like to see included in future editions of Dear IP, or general comments as to layout and style, in order to inform our ongoing monitoring of the effectiveness of the publication.
Any such comments should be sent to Chris Nesbitt, Department of Enterprise Trade and Investment, Insolvency Service, Policy Unit, Ormeau Avenue, Belfast, BT2 8NJ; telephone: 028 90548504; email: chris.nesbitt@detini.gov.uk
WR Nesbitt
DIRECTOR OF INSOLVENCY
