Out-Law News 1 min. read

Insolvency law changes will bring more transparency for creditors


Changes to UK insolvency laws which come into force next month will give creditors greater sight of the costs of insolvency practitioners (" IPs "), ultimately improving confidence in the insolvency process.

From 1 October, IPs will be required to provide a summary of their estimated costs and the work to be undertaken, and, where an hourly rate is proposed, an estimate of the amount of time they expect to spend working on that case before appointment. Once agreed, the amount set out in the estimate may only be increased by agreement between the IP and those that are owed money by the insolvent firm.

Further insolvency related changes, including changes to IP regulation and authorisation, the directors' disqualification regime and rules around personal bankruptcy and debt relief orders (DROs) in England and Wales will come into force at the same time. Several changes are being implemented following provisions in the Deregulation Act and the Small Business, Enterprise and Employment Act, both of which received royal assent in March.

Insolvency law expert Steven Cottee of Pinsent Masons, the law firm behind Out-Law.com, said that the package of changes should be "broadly welcomed".  With respect to the changesproviding for creditors to be given an up-front estimate of IPs costs at the start of an insolvency, he said:

"Whilst this may be difficult with larger, more complex insolvencies, the greater transparency that these changes provide should ultimately lead to creditors having more trust and confidence with the insolvency process."

These particular changes were prompted by a 2013 review of UK insolvency law by Elaine Kempson, an academic at Bristol University. Kempson said that the practice amongst IPs to charge by the hour without an indication of the work that would be done or the length of time that it was expected to take meant that unsecured creditors in particular did not have enough control over their fees.

The Government has also introduced a number of technical changes to the way in which IPs are authorised and regulated.  Further changes to be introduced around the company director disqualification regime will make it easier to disqualify directors of limited companies for conviction of company-related offences abroad, influencing or instructing other directors to behave improperly or those who have a track record of being involved in failing companies.  The Secretary of Statewill have a maximum of three years (rather than two years) after a company is declared insolvent to bring disqualification proceedings.

The threshold at which a creditor will be able to begin bankruptcy proceedings against an individual in England and Wales will increase from £750 to £5,000 on 1 October, the first such increase since the rules were introduced almost 30 years ago. The reforms will also extend the scope of the DRO regime, so that anyone with debts of no more than £20,000 and no more than £1,000 in assets will be able to enter the low-cost alternative to bankruptcy.

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