Live Session 1 - Failure to comply with duties, powers and Insolvency Rules 2016

Question 1

What can creditors or members do if they are not happy with the way the administrator acts or proposes to act

Answer 1

Creditors and members can apply to Court where they consider that the administrator proposes to act in a way that UNFAIRLY harms members/ creditors generally, or is not performing their functions as quickly & as efficiently as practicable

Question 2

What is the criteria for the Court to consider making an order

Answer 2

Harm itself is not sufficient to support an application - it must be UNFAIR as compared with other creditors/ members

Question 3

What powers does the Court have if creditors or members unhappy with conduct of administrator

Answer 3

Court has wide powers to:

1. Call a meeting of creditors
2. Regulate administrator in exercise of function
3. Remove administrator from office
4. Order an administration to do/ not to do something.

Question 4

What happens if administrator causes harm to the company itself

Answer 4

The OR, administrator, liquidator or contributories have rights to request the Court to examine the conduct of the administrator when he is alleged to have:

1. Misapplied or retained money or property of the company
2. Has become accountable for money/ other property of the company
3. Has breached fiduciary or other duty
4. Is guilty of misfeasance.

Question 5

What general power does the administrator have

Answer 5

General Power: To do anything necessary or expedient for the management of the affairs, business and property of the company.

Has the same powers as an Admin Receiver per Schedule 1 - power to manage and trade the business

Question 6

What other powers does the administrator have

Answer 6

1. To remove and appoint directors - note that directors can only act with consent of the administrator
2. Call meetings of members and creditors
3. Apply to Court for directions
4. To make distributions to:
   i) Secured creditors
   ii) Preferential creditors
   iii) unsecured creditors under prescribed part
5. Other distributions to unsecured creditors will require leave of Court
6. To dispose of floating charge assets as if they were not subject to a charge - note that the floating charge holder has same rights to the sale proceeds as they had to the disposed property
7. Apply to Court to dispose of fixed charge assets so long as:
   i) The disposal promotes the purpose of the administration
   ii) Condition of sale that charge holder receives net sale proceeds and any additional sums so to give them the amount fixed at court as the net market value of the property
8. Bring actions against Directors
   i) Transactions at undervalue
   ii) Preferences
   iii) Extortionate credit transactions
9. Enforce compliance from directors and others
10. Demand continuous supply from utility companies
11. Bind the company into contracts with third parties.

Question 7

What does the administrator not have the right to do

Answer 7

Administrator does not have the right to bring actions against directors for:

1. Misfeasance
2. Fraudulent trading
3. Wrongful trading
4. Phoenix Companies

Question 8

What is the purpose of the new Insolvency Rules 2016

Answer 8

1. To modernise and clarify language (gender, use “must” where it places an obligation on the IP
2. Cut red tape and cut unnecessary costs and therefore improve return to creditors

Question 9

What is the form and content of documents required

Answer 9

1. Notice and statements must be in writing.
2. In writing includes e-mail and hard copy
3. If electronic, must be in a format widely readable and capable of being printed
4. Documents must be authenticated
   i) hard copy - signature and if on behalf of a corporate body it must say so
   ii) e-mail - must contain a statement of identity which recipient has no reason to doubt.

Question 10

Insolvency Rules 2016 introduce option for creditors to opt out of correspondence, explain how

Answer 10

1. Office holder must notify creditor of right to opt out in first communication to creditors - and must state exceptions to the process.
2. Creditor can elect to opt out in writing to the office holder. Must be dated and authenticated.
3. Notice is effective from time received by office holder
4. Creditor can revoke opt out in writing at any time.

Question 11

How long does the opt out last

Answer 11

Creditor opt out applies to consecutive office holders and consecutive appointments (i.e Admin to CVL)

Question 12

What are the exceptions and qualifications to the opt out process

Answer 12

1. Does not apply to notice of distributions
2. Court can order that all creditors who opt out be notified of a specific issue
3. The opt out means that creditors won’t receive notification of creditor decision making process.
4. However, creditors who opt out of receiving correspondence are still eligible to participate in decision making process.
5. The Act/ Rules can require that all creditors are notified of specific issues.
6. Notice of change of office holder is required to be sent to all creditors - this is to provide creditor with contact information should they wish to opt back in
7. All documents and reports required to be sent to all creditors will also be sent to the opted out creditors

Question 13

Can an IP use websites to communicate

Answer 13

Office holder can post items on website in lieu of delivery.

To do so, notice must be given to everyone entitled to receive documents stating that future documents will be made available on website without notice to the recipient and that office holder will not be obliged to deliver documents unless requested to do so.

Question 14

What else must be included in the notice stating that documents will be published on website

Answer 14

Notice must provide all contact details for individuals wishing to request a hard copy.

Must also include a statement that says the recipient may at any time request hard copies of any or all of:

1. All documents currently on website
2. All future documents to be posted to website
3. The address or website and any access passwords.

Question 15

When can’t a website be used to communicate

Answer 15

1. Where personal service/ delivery is required
2. Notice of intended dividends
3. Specific correspondence rather than general documents

Question 16

What are the safeguards for using website

Answer 16

1. Documents added must remain online until IP vacates
2. Recipient has the right to receive hard copies - to be delivered within 5 days of request
3. Document must be in such a format that it can be downloaded in a reasonable time

Question 17

What are the new options for the creditors decision making process

Answer 17

Minimises the need to hold physical meetings of creditors which were often poorly attended and added little value.

3 Options.

1. Deemed consent
2. Creditors’ decision procedure
3. Hold meeting

Intention is that physical meeting is last resort

Question 18

How does the deemed consent option work

Answer 18

Note - this can’t be used for IP’s remuneration

Relevant creditors - those eligible to vote and who have not opted out of correspondence are given notice of

1. Matter needing decision
2. Decision office holder proposes to make
3. Decision date

Question 19

What information must the notice to creditors of deemed consent procedure contain

Answer 19

Notice must contain statement that:

1. Objecting creditors must notice of objection to the office holder no later than the decision date.
2. Objecting creditors must provide proof of claim
3. Creditors who are owed less than £1,000 who have not delivered a proof will not be eligible to object
4. Opted out creditors remain eligible to vote if they have proved their claim or submitted a valid proof.
5. It is the office holders responsibility to aggregate objections to see if 10% threshold has been achieved.
6. If 10% threshold met for objections, deemed consent procedure will terminate without a decision being made.
7. If a decision on the same matter is sought again a different decision procedure will be used.

Question 20

What is the 10% threshold for objections

Answer 20

Tonya’s 10’s.

10% by value of creditors; or
10% by total number of creditors; or
10 individual creditors

Question 21

What is the decision date for deemed consent procedure

Answer 21

This can be set at the office holders discretion, but must not be less than 14 days after notice is given.

Question 22

How can an office holder seek fee approval

Answer 22

Can not use deemed consent procedure. Must use a creditors’ decision procedure.

Question 23

What is a creditors’ decision procedure

Answer 23

Office holder requiring a decision has discretion as to which procedure to use, except that a physical meeting of creditors cannot be called unless requested by:

10% of creditors by value; or
10% of total number creditors; or
10 individual creditors

Question 24

What are examples of a creditors’ decision procedure

Answer 24

1. Correspondence
2. Electronic voting - notice of meeting must explain how to access system and provide access rights/ login details
3. Virtual meeting - phone/ video conference - notice of meeting must include dial in details/ access code/ password
4. Any other decision making process which enables creditors who are entitled to participate in the making of a decision to participate equally.
5. Physical meeting - only if 10% by number or value or 10 individual creditors request.

Question 25

When can creditors request a physical meeting if they don’t want a deemed consent/ creditors decision process. What must administrator do and when

Answer 25

1. Creditors must request physical meeting within 5 days of receiving notice
2. Officer holder must convene meeting no later than 3 days after 10% threshold has been met.