Reforms to corporate insolvency law will give indi
Various legislative reforms have come into force which make a large package for insolvency practitioners to get to grips with
The corporate insolvency reforms contained in the Enterprise Act 2002 came into force on 15 September 2003. Two of the main reforms relate to the abolition of Crown preference and the setting aside by the government of a portion of floating charge proceeds (the “prescribed part”) for the benefit of ordinary (unsecured) creditors, which will include the Crown. The Crown preference is abolished in all insolvencies with effect from 15 September 2003. The Insolvency Act 1986 (Prescribed Part) Order 2003 sets out what the prescribed part is to be. Subject to the company having a minimum net property realisation of £10,000, the prescribed part will be 50% of the first £10,000 and 20% of the balance subject to an aggregate cap of £600,000. This will apply only to the realisation proceeds of floating charges created after 15 September 2003. It will not apply where the realisation is made under a floating charge existing on 15 September 2003. There is also a provision in the Act for the administrator to seek not to make such a distribution where he believes the costs would be disproportionate to the benefits (section 176(5)).
At the same time the Enterprise Act 2002 (Consequential Amendments) (Prescribed Part) (Scotland) Order 2003 amends the Insolvency (Scotland) Rules 1986 to give effect to amendments relating to company voluntary arrangements, receivership, and court windings up where the prescribed part will come into play and to introduce additional forms. Amendments are also made to the Receivers (Scotland) Regulations 1986. These amendments concern the provision of information for creditors, the powers for receivers to deal with the prescribed part, and applications to disapply the prescribed part.
Finally, the Insolvency (Scotland) Amendment Rules 2003 make further amendments to the Insolvency (Scotland) Rules 1986 with a wholesale substitution of Part 2 of the existing Rules with a new Part 2 dealing with the new administration procedures including new forms, the impact of the EU Insolvency Regulation, and other consequential amendments. It should be noted that applications for the appointment of an administrator, however made (court, directors or creditor) will require to be accompanied by a statement of the proposed administrator (or each of them in a joint appointment) in the required form, stating:
- his/their consent to act;
- details of any prior professional relationship with the company; and
- that in his/their opinion it is reasonably likely that the purpose of administration will be achieved.
Where a non-court appointment is made out of hours, the notice of appointment is to be sent by fax to the court and a fax transmission report provided recording date and time of transmission. The appointment takes effect from then, but will cease be valid if all of the above as well as a statement of the full reason for out of hours lodging are not lodged on the next day the court is open for business.
This is not the place to detail all the provisions of these orders, or of the 30 or so new forms which are introduced with which insolvency practitioners and their advisers will have to become familiar.
As if all this were not enough the Proceeds of Crime Act 2002 provisions on confiscation and insolvency were brought into force on 24 March 2003. The Act broadly continues the confiscation and restraint regime put in place by earlier legislation but with modifications. Part 9 of the Act deals with the priority between the confiscation, restraint and recovery regime and formal insolvency proceedings, the basic rule being that the first in time prevails. If an individual is adjudged bankrupt or subject to an award of sequestration at a time when a restraint order has previously been made or an enforcement receiver, enforcement administrator or director’s receiver has previously been appointed in any UK jurisdiction in relation to any of his property, that property is excluded from his estate for the purposes of the bankruptcy. Where an interim receiver or trustee is appointed when any property is subject to such restraint orders, the powers conferred on the trustee cannot be exercised in relation to that property. However any surplus remaining after satisfying the confiscation order or discharging the restraint order vests in the trustee as part of the bankrupt estate.
The Finance Act 2003 contains provisions which modify the rules relating to the taxation of companies in administration and came into effect at the same time as the corporate insolvency provisions of the Enterprise Act 2002.
All in all a prospect of severe indigestion for insolvency practitioners and their advisers.
Alistair Burrow, Tods Murray WS