Insolvency Rules: a positive realignment

After more than 30 years without significant alteration, the forthcoming major changes to the Insolvency Rules in Scotland are to be welcomed. The Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018 and the Insolvency (Scotland) (Receivership and Winding Up) Rules 2018 both come into force on 6 April 2019, replacing the current 1986 Rules.

Weighing in at a combined 300 pages, an in-depth line-by-line examination of the new rules is beyond the scope of this article. However, there are a number of changes of which practitioners need to be aware, including the fact that the new rules align the Scottish insolvency regime much more closely with that in England.

Notably, the rules are retrospective. This means that they will affect both ongoing insolvencies instituted prior to the coming into force of the rules and new cases from 6 April onwards. Schedule 2 contains a number of transitional provisions that should be read carefully for cases that straddle the two sets of rules, for example where a meeting is to be held after the date of commencement pursuant to notices issued prior to commencement.

Principal changes

Beyond those cases where the transitional arrangements apply, the new rules will look very familiar to those acquainted with the equivalent English rules. The following are the most notable changes from the 1986 Rules:

• The rules now allow for electronic communication with creditors and members where actual or deemed consent for electronic communication is given. Significantly, an electronic communication will not be deemed delivered instantaneously. It is deemed to be delivered at 9am on the next business day. This will be important where deadlines are involved. 
• The rules allow for certain documents to be made available on websites for access by stakeholders. Where an office holder wishes to use this method, they must notify the stakeholders and the document must remain on the website for at least two months beyond the end of the insolvency process. 

Unless specifically requested by the creditors, there is no longer a requirement for a physical creditors’ meeting. 

Approval of the office holder’s remuneration can be deferred at the end of each accounting period without the need for court approval. This removes the need for authorisation by creditors’ committee or a formal application to the court. 

The definition of “accounting period” under the 1986 Rules will remain in force for liquidations commenced prior to the coming into force of the new rules. For liquidations commenced after 6 April 2019, the first accounting period is now defined as six months from the date of appointment of the liquidator (as opposed to the current formulation: “date of commencement of winding up”). Whilst the second accounting period remains six months from that date, all subsequent periods shall be in 12-month blocks instead of the current six months. 

The forms within the 1986 Rules have been replaced with “standard information” which must be provided. The format in which that information is to be provided is no longer prescribed. 

Creditors will be permitted to opt out of further correspondence, although they may revoke their opt-out at any time. 

The rules have clarified that statutory interest shall be payable in members’ voluntary liquidations, thus clarifying a previous uncertainty in the law. 

Dividends for small debts (defined as £1,000 or less) may be paid by the insolvency practitioner without the need for a formal claim by the creditor and provided there is compliance with certain formalities. In certain circumstances, the office holder may also dispense with the need for evidence to be provided along with claims. 

Positive impact

The above are the headlines. The new rules are substantial and will require careful consideration by anyone engaged in this field. Those experienced with the English rules (brought into force two years ago) will have a significant advantage, as the rules in a number of respects are very similar. 

For practitioners in insolvency, the new rules will require an overhaul of styles and templates. The retrospective nature of the rules is helpful, as there will be a single set of rules regardless of the age of the insolvency. However, the transitional arrangements in sched 2 will require a degree of extra care to be taken within the first few weeks and months to ensure that the paperwork is correct. 

In my opinion, the rules coming into force are more contemporary in feel and more user-friendly than their predecessors. Given time, the new rules are likely to make a positive impact on the administration of corporate insolvency in Scotland.