15. Insolvency rules, regulations and orders
Source: gov.uk (2025-04-02)

Insolvency rules, regulations and orders

This section contains content published after 1 January 2020. Articles published before this date can be found on the National Archives here (https://webarchive.nationalarchives.gov.uk/ukgwa/20230306163448/https:/www.insolvencydirect.bis.gov.uk/insolvencyprofessionandlegislation/dearip/dearipindex.htm)

67. An increase in the cap on the prescribed part with effect from 6 April 2020 – The Insolvency Act 1986 (Prescribed Part) (Amendment) Order 2020

The Insolvency Act 1986 (Prescribed Part) (Amendment) Order 2020 was laid in both houses on 5 March 2020, and can be found here: http://www.legislation.gov.uk/id/uksi/2020/211. It is a negative resolution statutory instrument (SI) and will commence on 6 April 2020.

Its effect is to amend article 3(2) of The Insolvency Act 1986 (Prescribed Part) Order 2003, to raise the cap on the prescribed part from £600,000 to £800,000. This is the first time the cap has been raised since the introduction of the prescribed part in 2003 and is in line with inflation. Other elements of the prescribed part calculation remain unchanged.

The SI includes a transitional provision. The new cap will not affect floating charges created before the commencement date, unless priority has been given to one created after commencement.

A change to the cap on the prescribed part was subject to consultation as part of the Government’s Insolvency and Corporate Governance review in March 2018. The response to that consultation was published in August 2018, and is available here: www.gov.uk/government/consultations/insolvency-and-corporate-governance.

Enquiries regarding this article may be sent to: xxx@xxx.xx (mailto:xxx@xxx.xx)

67. Bankrupts’ Estates – Exemption for Payments made under the Victims’ Payments Regulations 2020

The Victims’ Payments Regulations 2020 (S.R. 2020 No. 103) were made on 31 January 2020.

These Regulations provide for the establishment of a Victims Payment Board to make payments to persons injured in incidents related to the troubles in Northern Ireland.

Payments will normally be made monthly but can also take the form of a lump sum.

Payments can be made to anyone injured in an incident in the United Kingdom. Subject to eligibility conditions, payments may also be made in respect of incidents which took place elsewhere in Europe.

Any payments made under the Victims Payments Regulations 2020 are exempt from being treated as part of a bankrupt’s estate as Regulation 28(2) provides;

“(2) On the bankruptcy of any person entitled to payments under these Regulations, no such payment, or entitlement to payments, is to pass to any trustee or person acting on behalf of the creditors”.

Enquiries regarding this article may be sent to: xxx@xxx.xx (mailto:xxx@xxx.xx)

68. The Insolvency (Amendment) (EU Exit) Regulations 2020

On 30 June 2020 the Government laid the Insolvency (Amendment) (EU Exit) Regulations 2020 (the “2020 Regulations”).

As insolvency practitioners will be aware, the UK left the EU at 11pm on 31 January 2020 and we are currently in a transitional period, during which there is no change to the insolvency framework that operates between the UK and the EU. EU rules continue to apply until the end of this period on 31 December 2020. As part of the Withdrawal Agreement with the EU it was agreed that the EU legal framework will continue to apply after that date to all main insolvency proceedings that are opened before the end of the transitional period.

The 2020 Regulations implement that Withdrawal Agreement in the UK and remove the conflicting provisions contained in the Insolvency (EU Exit) Regulations 2019 (the “2019 Regulations”).

In particular the 2019 Regulations (which anticipated the UK leaving the EU without a withdrawal agreement) included an incompatible power for use by the courts when dealing with insolvency cases commenced under the EU rules. The power in question permitted a court to depart from applying the EU Insolvency Regulation, where for example creditor interests were prejudiced by a member State not treating the UK as a member State. That power is no longer needed, as the Withdrawal Agreement itself provides that the EU rules will continue to be applied by both the UK and the EU in respect of insolvency proceedings opened before the end of the implementation period.

Enquiries regarding this article may be sent to: Policy.Unit@insolvency (mailto:Policy.Unit@insolvency).gov.uk

69. Law Commission Launches Consultation on Transfer of Ownership Rules

In its July 2016 Report, Consumer Prepayments on Retailer Insolvency (https://www.lawcom.gov.uk/project/consumer-prepayments-on-retailer-insolvency/), the Law Commission made recommendations to enhance the protection of consumers who had paid retailers in advance for goods but had not received the goods at the point of the retailer’s insolvency. One of the Law Commission’s recommendations was to reform the rules governing the transfer of ownership of goods under consumer sales contracts. The Law Commission has now launched a consultation on a draft Bill which would implement this recommendation and invites insolvency practitioners to respond.

The draft Bill aims to make the transfer of ownership rules easier for consumers to understand and for insolvency practitioners to apply. Among other things, the draft Bill sets out a list of events and circumstances, the occurrence of any of which will cause ownership of goods to transfer to the consumer. These include the trader labelling or setting aside the goods for the consumer in a way that is intended to be permanent, the trader altering the goods to an agreed specification, and the delivery of the goods to a carrier for delivery to the consumer. The proposed rules would be inserted into the Consumer Rights Act 2015 and would apply specifically to sales contracts between traders and consumers. Transfer of ownership of goods under other sales contracts (for example, contracts between suppliers and traders) would continue to be governed by the rules in the Sale of Goods Act 1979.

The Law Commission seeks qualitative and quantitative evidence about the possible impact of the draft Bill on the insolvency process and the work of the insolvency practitioner. The consultation paper asks how the draft Bill might impact the claims of other creditors on an insolvency (for example, warehouses asserting a lien over the goods or suppliers claiming retention of title). It also asks about the practical implications of the draft Bill for insolvency practitioners, including the additional time insolvency practitioners might have to spend in determining whether ownership of goods has transferred to the consumer under the proposed rules.

The Law Commission’s consultation is open until 31 October 2020.

Responses can be made by completing an online form (https://consult.justice.gov.uk/law-commission/consumer-sales-contracts-transfer-of-ownership). Alternatively, responses can be provided by email to xxx@xxx.xx (mailto:xxx@xxx.xx)or by post to Transfer of ownership project, Commercial and Common Law Team, Law Commission, 1st Floor, Tower, 52 Queen Anne’s Gate, London, SW1H 9AG. If practitioners send plan to send their comments by post, it would be helpful if, whenever possible, they could also send them by email.

Enquiries regarding this article may be sent to: Policy.Unit@insolvency (mailto:Policy.Unit@insolvency).gov.uk ## 69. Law Commission Launches Consultation on Transfer of Ownership Rules

In its July 2016 Report, Consumer Prepayments on Retailer Insolvency (https://www.lawcom.gov.uk/project/consumer-prepayments-on-retailer-insolvency/), the Law Commission made recommendations to enhance the protection of consumers who had paid retailers in advance for goods but had not received the goods at the point of the retailer’s insolvency. One of the Law Commission’s recommendations was to reform the rules governing the transfer of ownership of goods under consumer sales contracts. The Law Commission has now launched a consultation on a draft Bill which would implement this recommendation and invites insolvency practitioners to respond.

The draft Bill aims to make the transfer of ownership rules easier for consumers to understand and for insolvency practitioners to apply. Among other things, the draft Bill sets out a list of events and circumstances, the occurrence of any of which will cause ownership of goods to transfer to the consumer. These include the trader labelling or setting aside the goods for the consumer in a way that is intended to be permanent, the trader altering the goods to an agreed specification, and the delivery of the goods to a carrier for delivery to the consumer. The proposed rules would be inserted into the Consumer Rights Act 2015 and would apply specifically to sales contracts between traders and consumers. Transfer of ownership of goods under other sales contracts (for example, contracts between suppliers and traders) would continue to be governed by the rules in the Sale of Goods Act 1979.

The Law Commission seeks qualitative and quantitative evidence about the possible impact of the draft Bill on the insolvency process and the work of the insolvency practitioner. The consultation paper asks how the draft Bill might impact the claims of other creditors on an insolvency (for example, warehouses asserting a lien over the goods or suppliers claiming retention of title). It also asks about the practical implications of the draft Bill for insolvency practitioners, including the additional time insolvency practitioners might have to spend in determining whether ownership of goods has transferred to the consumer under the proposed rules.

The Law Commission’s consultation is open until 31 October 2020.

Responses can be made by completing an online form (https://consult.justice.gov.uk/law-commission/consumer-sales-contracts-transfer-of-ownership). Alternatively, responses can be provided by email to xxx@xxx.xx (mailto:xxx@xxx.xx)or by post to Transfer of ownership project, Commercial and Common Law Team, Law Commission, 1st Floor, Tower, 52 Queen Anne’s Gate, London, SW1H 9AG. If practitioners send plan to send their comments by post, it would be helpful if, whenever possible, they could also send them by email.

Enquiries regarding this article may be sent to: Policy.Unit@insolvency (mailto:Policy.Unit@insolvency).gov.uk

70. Report to the Secretary of State of the approval of an Individual Voluntary Arrangement (IVA)

This article is to remind insolvency practitioners of the requirements when filing a report of an approval of an IVA with the Secretary of State.

Rule 8.26 (2) of The Insolvency (England and Wales) Rules 2016 requires that:

The report must be delivered as soon as reasonably practicable, and in any event within 14 days after the report that the creditors have approved the IVA has been filed with the court under rule 8.24(3) or the notice that the creditors have approved the IVA has been sent to the creditors under rule 8.24(5) as the case may be.

The Insolvency Service will inform the appropriate Recognised Professional Body where there has been a late filing of an IVA with the Secretary of State in relation to the above rule.

Enquiries regarding this article may be sent to: IPRegulation.section@insolvency (mailto:IPRegulation.section@insolvency).gov.uk

71. EU exit - legal changes following the end of the transition period

The UK has left the EU and 31 December 2020 marks the end of the transitional period in which, under the Withdrawal Agreement, EU rules have continued to apply. As a result, the legal frameworks under which insolvencies are managed across borders, and insolvency practitioners are recognised in the UK and the EU, are changing.

This article provides details of changes affecting the insolvency sector.

Management of assets in cross-border cases

Under the terms of the Withdrawal Agreement with the EU, article 67(3)(c), the existing rules contained in the EU Insolvency Regulation will continue to apply where main insolvency proceedings have been opened prior to the end of the transition period. In most cases therefore, the rules for handling insolvency proceedings opened before 1 January 2021 will not change.

Subject to the normal restrictions that apply under the Insolvency Regulation, UK insolvency practitioners in those cases will retain the legal authority to deal with assets located in any of the EU member states other than Denmark, without requiring further authorisation from local courts or other authorities. Many insolvencies commenced in EU member states before the end of the 2020 calendar year will, similarly, continue to be automatically recognised in the UK, and so EU insolvency practitioners will be able to deal with the insolvent’s assets that are located here.

The current rules in the EU Insolvency Regulation will no longer apply to any new insolvencies in which the main insolvency proceedings are opened on or after 1 January 2021.

For these new insolvencies, recognition and enforcement of UK insolvency proceedings in EU countries, and the insolvency practitioner’s ability to deal with assets there, will depend upon the individual country’s own laws regarding non-EU insolvencies. The rules and the level of assistance that will be made available to UK insolvency practitioners vary between jurisdictions. In many cases insolvency practitioners will need to seek prior authorisation from the appropriate courts in each country before dealing with assets. Before proceeding, practitioners may wish to seek professional advice regarding the appropriate course of action and the likely costs of doing so.

New insolvency proceedings opened on or after 1 January 2021 in an EU Member State can be recognised in the UK under the Cross-Border Insolvency Regulations 2006 and the Cross-border Insolvency Regulations (Northern Ireland) 2007. These Regulations contain the UK’s implementation of the UNCITRAL Model Law on Cross-Border Insolvency, and already apply in respect of insolvency proceedings commenced outside of the UK and EU.

Recognition of foreign insolvency proceedings under the Cross-Border Insolvency Regulations requires an application to court: a judge will consider various factors such as where the insolvent is based in order to determine whether recognition is appropriate, and to decide what assistance will be provided to the foreign insolvency practitioner.

Claims for redundancy payments

Under the Insolvent Employers Directive (Directive 80/897/EEC, amended by Directive 2002/74/EC) each EU Member State must ensure arrangements are made to guarantee the payment of employees’ redundancy-related claims should their employer become insolvent.

Where an employer is active in more than one state, the country responsible in relation to a given employee is usually the one in which the employee “works or habitually works”. This means for example that if a company that enters insolvency in an EU Member State has a factory in the UK, the Insolvency Service’s Redundancy Payments Service will make statutory redundancy payments to the factory employees from the National Insurance Fund. In the reverse situation where a company enters insolvency in the UK with a factory in an EU member state, that EU member state would make payments to the factory employees under its own guarantee arrangements.

No changes will be made to employees’ eligibility for redundancy payments in the UK as a result of the end of the transition period. Insolvency practitioners should continue to facilitate claims as normal.

However, as the EU Directive will no longer apply to UK insolvencies, from 1 January 2021 employees of insolvent UK companies working in EU Member States may not be covered by those countries’ guarantee arrangements. Whether employees are covered may depend, for example, on how the Directive has been transposed into each country’s national law, and any changes that are subsequently made. Insolvency practitioners may direct employees to review the guidance provided by the country in which they work, or to make enquiries with the relevant guarantee institution(s).

Changes to recognition of insolvency practitioner qualifications

Under Directives 2005/36/EC and 2006/123/EC professionals within the EU can have their qualifications recognised from one country to the next and provide their services in countries other than the one in which they qualified. An insolvency practitioner who has qualified in one EU state can seek to have their qualification recognised in another and apply to act in respect of insolvency proceedings opened in that other country.

From 1 January 2021, the above Directives will no longer apply to UK insolvency practitioners. Recognition may no longer be available on the above basis. Insolvency professionals who have relied on these provisions, or wish to rely on their UK qualification, may need to have that qualification officially recognised in order to work (even on a temporary or occasional basis) in the EEA or Switzerland. The qualification will need to be recognised by the appropriate regulator in each country where work is to be carried out.

A new temporary system will apply in the UK, which reduces the obligations placed on recognised professional bodies in respect of EU insolvency practitioners. The provisions allowing EU insolvency practitioners to provide services on a “temporary and occasional” basis have been removed: any future authorisation of EU practitioners in this way will be at the discretion of the recognised professional body, and subject to the full requirements for authorisation under UK law. In addition, EU insurance will no longer be recognised as fulfilling the bonding requirement for insolvency practitioners; in future insolvency practitioners must hold an appropriate bond in the form prescribed by UK law.

Opening insolvency proceedings

Prior to 1 January 2021 the opening of insolvency proceedings in the UK is restricted by the EU Insolvency Regulation. Where the insolvent’s “centre of main interests” (COMI) is in the EU, main insolvency proceedings may only be opened in the UK where the COMI is here; if the insolvent entity has an establishment in the UK then secondary or territorial insolvency proceedings can be opened.

The court making a winding-up order, for example, will examine the company’s COMI and include a declaration in the order to the effect that the proceedings are main proceedings, secondary proceedings, or proceedings to which the Regulation does not apply.

From 1 January this restriction no longer applies. Insolvency proceedings can still be opened in the UK where the COMI is here, or if the insolvent entity has an establishment. In addition, however, insolvency proceedings can be opened under any of the other grounds for opening insolvency proceedings that are set down in UK law. A small part of the EU Insolvency Regulation has been preserved in UK law for this purpose.

Under the new rules, the order or other declaration opening the insolvency proceedings must specify whether those proceedings are COMI proceedings (i.e. the centre of main interests is in the UK, which would previously have led to the opening of main proceedings); establishment proceedings (where the COMI is elsewhere but the insolvent has an establishment in the UK, previously resulting in secondary or territorial proceedings); or proceedings to which the EU Insolvency Regulation as it has effect in the law of the United Kingdom does not apply (and one of the UK’s other grounds for the opening of insolvency proceedings has been relied upon).

Further information regarding the changes introduced with the Insolvency (Amendment) (EU Exit) Regulations can be found in our previous articles at:

Dear IP issue 83 November 2018, Chapter 15 Article 62 https://www.insolvencydirect.bis.gov.uk/insolvencyprofessionandlegislation/dearip/dearipmill/chapter15.htm#62

Dear IP issue 86 March 2019, Chapter 15 Article 64 https://www.insolvencydirect.bis.gov.uk/insolvencyprofessionandlegislation/dearip/dearipmill/chapter15.htm#64

Dear IP issue 106 July 2020, Chapter 15 Article 68 https://content.govdelivery.com/accounts/UKIS/bulletins/293e669

Any enquiries regarding this article should sent to: xxx@xxx.xx (mailto:xxx@xxx.xx)

72. Cross-border insolvencies: Recognition and Enforcement in EU Member States from 1 January 2021

Guidance for insolvency practitioners regarding the applicable frameworks in different EU member states has been published on gov.uk and can be found at:

https://www.gov.uk/government/publications/cross-border-insolvencies-recognition-and-enforcement-in-eu-member-states-from-1-january-2021

The guidance seeks to provide insolvency practitioners with some basic information regarding the applicable frameworks, primarily in relation to seven of the UK’s most significant EU trading partners by total volume of trade, as a starting point towards seeking recognition for UK insolvency proceedings and dealing with assets in the EU.

This includes a summary of the arrangements for recognition of foreign insolvency proceedings (“foreign” meaning non-EU proceedings not covered by the EU Insolvency Regulation, otherwise known as “third country” insolvency proceedings; and “insolvency proceedings” should be read as including any relevant insolvency process but excluding reorganisation proceedings for which additional considerations apply) and further information that may assist those interested in seeking recognition of UK insolvency proceedings in that jurisdiction.

Some additional information has also been provided on the remaining EU states. In those cases, this is limited to a very short description of the arrangements for the recognition of foreign insolvency proceedings.

The entries do not cover all the nuance of recognition. Individual assets may be subject to particular treatment under local law and it would not be possible to cover such issues in any useful way in a short guide. Similarly, local application of the law may vary even where a similar approach has been adopted in several jurisdictions. In some cases, the position of UK insolvency proceedings in particular is unclear and has not been tested at the time of publication. In addition, for the purposes of the guidance, we have not distinguished between in-court and out-of-court UK insolvency appointments. Out-of-court appointments may not be recognised to the same extent as in-court appointments under the domestic laws of each EU member state.

Any enquiries regarding this article should sent to: xxx@xxx.xx

40. Payments to HMRC

HMRC has advised the Insolvency Service that due to the COVID-19 pandemic it is unable to cash cheques. This is due to reduced staffing levels in its post room and finance department.

As a result, HMRC is requesting that all payments are submitted via BACS to its Barclays account:

Account name: HMRC NIC Receipts Sort Code: 20-20-48 Account number: 30944793

HMRC has requested that, when paying via BACS, you quote the 075 or 880 reference number to avoid any delays in allocating funds.

The Insolvency Service will not process any requests for cheque payments to HMRC for the foreseeable future. Where a request for a cheque payment to HMRC is received, we will return the requisition and ask that a BACS payment be submitted instead.

Further information can be obtained from our Customer Services team at xxx@xxx.xx (mailto:xxx@xxx.xx)

73. Examination of centre of main interests and establishment when opening insolvency proceedings

Following the UK's exit from the EU and the end of the implementation period, we have received requests for clarification regarding the duty to examine an insolvent’s centre of main interests (COMI) when opening insolvency proceedings.

An Insolvency Practitioner's duty to determine whether there are grounds to open proceedings based on COMI, or alternatively because the insolvent has an establishment in the United Kingdom, is contained in article 4 of the EU Insolvency Regulation (EU 2015/848). This is one of a small number of articles within the Regulation that have been retained in UK law, and remains in effect.

Due to the removal the majority of the rest of the Regulation, the form of the declaration that the Insolvency Practitioner must make has been amended. Insolvency Practitioners were previously required to state whether the insolvency proceedings were “main, secondary, territorial or non-EU proceedings”. These terms are not present in the retained legislation, and the current requirement is instead to state whether the proceedings are “COMI proceedings, establishment proceedings or proceedings to which the EU Regulation as it has effect in the law of the United Kingdom does not apply”.

The retention of this requirement is intended to make it clear whether the insolvent's COMI is considered to be in the UK and assist cooperation with foreign jurisdictions that make use of this concept.

Enquiries regarding this article may be sent to: xxx@xxx.xx (mailto:xxx@xxx.xx)

74. Further guidance for Insolvency Practitioners on Part A1 moratorium monitor appointments

The Insolvency Service has received feedback from Insolvency Practitioners and others on the new Part A1 moratorium procedure. This article seeks to address the questions raised and to give assurance to practitioners considering consenting to an appointment as monitor. The article should be read in conjunction with the gov.uk guidance for monitors, which it is intended to complement rather than replace.

https://www.gov.uk/government/publications/insolvency-act-1986-part-a1-moratorium-guidance-for-monitors/test-doc

All section numbers refer to the Insolvency Act 1986 unless otherwise stated.

Can the monitor offer other services to the company in a moratorium?

Some practitioners have queried with the Insolvency Service if they are able to offer other services to the company over which they have been appointed as monitor, in addition to the statutory role.

The statutory role is intended to be a relatively narrow one – for example, giving a statement on the likelihood of the moratorium resulting in a rescue of the company as a going concern in section A6 and to monitoring that the company remains rescuable during the moratorium itself - rather than the practitioner taking control of the operation of the company itself. This helps to keep the direct costs of the process to the debtor company low.

The purpose of a moratorium is to give a company in financial difficulties a breathing space to facilitate its rescue while preventing legal action being taken against it. By its very nature it is likely that professional restructuring advice will be needed by such companies. While this need not be from the monitor or the monitor’s firm – the company at all times remains in the control of its directors and they are free to seek advice from whomsoever they wish – there is nothing in Part A1 Insolvency Act 1986 preventing the monitor offering such advice. Payment for such services will be a contractual matter between the company and the practitioner.

It is left to the practitioner’s professional judgement as to whether they can carry out their role as monitor with sufficient objectivity, having regard to the Insolvency Code of Ethics and any threats to their independence on a case by case basis. Given the wide range of matters that directors may ask for advice/help on there may be ethical issues on the monitor providing assistance. As with actions undertaken when appointed in other insolvency procedures, it is important for the practitioner to document accurately what they have done.

How much due diligence is required to be able to make the statement at section A6 on the rescuability of a company?

A condition of entry to the moratorium is that a prospective monitor must make a statement that it is likely that a moratorium will result in the company’s rescue as a going concern (section A6(1)(e)). Practitioners have asked the Insolvency Service how much due diligence they need undertake in order to feel comfortable in making such a statement.

In the Insolvency Service's opinion, the due diligence that needs to be undertaken should be proportionate to the size and circumstances of the company. The statutory provision is predicated on the view – the opinion – of the practitioner and that it is 'likely' that the company will be rescued as a going concern. 'Likely' is not a certainty - the proposed monitor is giving their opinion on what may happen in the future based on facts available in the present and it is appreciated that not all moratoriums will lead to a rescue of the company as a going concern.The Insolvency Service considers that the use of the expression “in the proposed monitor's view” indicates that a degree of latitude is to be given to a monitor in this regard, recognising that the monitor’s assessment will most likely require the exercise of a substantial amount of commercial judgment, often under significant time pressure.

Throughout the Corporate Insolvency and Governance Bill’s progress through Parliament, the moratorium was referred to as a ‘light touch’ process. It is clear that Parliament did not intend the proposed monitor to conduct a full audit of the company to satisfy themselves for the purposes of a section A6(1)(e) statement. Neither should the statement be considered a return to the pre 2003 r2.2 report in administration. The wording of the subsection reflects this.

When considering if the company is likely to be rescued as a going concern does the proposed monitor need to consider how long the rescue might take, for example if it will be rescued in the initial period (20 business days)?

The proposed monitor's statement (section A6(1)(e)) must say that it is likely that the moratorium will result in the company's rescue as a going concern. While the initial period of a moratorium is 20 business days, it is appreciated that effecting a rescue as a going concern may take longer than this and, for more complex cases, much longer. The legislation anticipates this and provides a number of ways to extend the moratorium. In the making of a section A6 statement, the monitor is concerned on the company’s rescuability, not on the time within which rescue can be achieved. If the proposed monitor thinks that rescue will take greater than 20 business days to effect, this in itself should have no bearing on their section A6(1)(e) statement.

Can the monitor be considered responsible for decisions made by the company when in a moratorium?

The central principle of the moratorium is that it is a ‘debtor in possession’ procedure. It allows vital breathing space for a company to consider its options for rescue. The directors remain in control of the company at all times (subject to certain restrictions) – the monitor should not be running the company and, in the statutory role, will not be running the company. While a practitioner acting as monitor, as noted above, may also undertake work outside their statutory role, this does not detract from the position that it is the directors who are in control of the company, not the practitioner. Accordingly, it is the directors who are responsible for their decisions in the day-to-day running of the business, not the monitor.

As would be expected in any appointment, insolvency practitioners acting as monitor should document their own decisions.

How much monitoring does a monitor need to do?

The monitor's statutory duty is that they must monitor the company's affairs to be able to form a view that the moratorium is likely to result in the rescue of the company. The appropriate amount of monitoring that is required in such a role will depend upon the size, nature and business of the company and may also include the method by which the directors propose the company will be rescued. In a simple example, if a rescue was predicated on additional capital being invested in the company, it would be proportionate for the monitor to monitor correspondence etc. between the company and the proposed investor. If it became clear that this money was no longer forthcoming, it would be proportionate for the monitor to bring the moratorium to an end.

How far does the monitor need to go to verify information passed to them by the company?

The moratorium is a 'debtor in possession procedure'. At all times the directors remain in control of the company (subject to certain restrictions). A monitor has wide powers to request information from the company's directors in order that they can execute their statutory duties, and if such information is not forthcoming the moratorium may be brought to an end. Section A35 notes that the monitor is entitled to rely on the information given to them by the company. This is unless the monitor has reason to doubt its accuracy.

Whether doubt is appropriate will be in the professional judgment of the monitor and depend on the size and nature of the case and the monitor's experience of the company and its directors to date. In so doing, it is not expected that the monitor will externally verify every piece of information given to them. This would be disproportionate and an unnecessary cost and be contrary to the spirit of section A35(2) and the ‘debtor in possession’ nature of the moratorium.

The monitor should document any deliberation and decisions they have taken regarding the veracity of information given to them by the company.

Bonding

The Insolvency Service has been asked why a specific penalty bond is required for a monitor when they will not be in direct control of the company’s assets.

The Insolvency Service considers bonding to be important for protecting creditors from financial loss on those rare occasions where there is fraud or dishonesty by an IP. Although the IP does not have direct control of the assets in a moratorium, the Service has determined that there may be opportunities for the monitor to potentially act dishonestly or fraudulently (albeit only where they are in collusion with the directors). Limited control over assets, in the form of necessary consent for the company to take certain actions during the moratorium, is given by the legislation. An example could involve a monitor consenting to a large payment of a pre-moratorium debt to a person connected to the company, to the detriment of unconnected pre-moratorium creditors, or where the monitor consents to the sale of assets not in the normal course of business.

However, we did attempt to limit the cost of bond cover for the role of monitor. Usually a bond provider cannot charge an additional premium for subsequent insolvency appointments (for example for administration moving to CVL with the same practitioner acting office-holder), which means the risks of subsequent appointments are factored into the premium charged by the bond provider. In recognition that a moratorium poses less opportunity for a practitioner to act dishonesty or fraudulently than procedures where they are in direct control of the assets, coupled with the fact that a moratorium need not always result in another insolvency procedure, the Insolvency Practitioners Regulations 2005 were amended in a way that would allow bond providers to charge an additional premium should a company in a moratorium enter a subsequent insolvency procedure.

This allows the bond provider to limit their risk assessment for the premium charged for a monitor’s appointment to the risks involved in that appointment rather than having to factor in the risk of a subsequent appointment.

It should also be noted that nominees in a CVA do not have direct control of company assets but must have bond cover. The specific penalty sum is based on the value of the assets subject to the terms of the proposed CVA. Where the CVA is approved and the same IP appointed as supervisor no further premium is charged for the bond cover.

How often can a monitor request information from the company before it is reasonable for the monitor to bring an end to the moratorium for non-disclosure?

The monitor has absolute discretion to request from the directors of the company information that they require to carry out their function as monitor. The directors must comply with such requests as soon as it is practicable to do so (section A36).

If a failure to comply with such an obligation means that the monitor cannot properly carry out their statutory function, then they must bring the moratorium to an end (section A38(1)(c)). It is in the professional judgement of the practitioner what constitutes an inability to carry out the statutory function properly. For example, if the failure to provide information means that the monitor cannot establish that the company will likely be rescued as a going concern, then the moratorium must be brought to an end. What 'practicable' means will also depend on the situation though it is a form of words used throughout the insolvency framework and practitioners should be familiar with its usage in practice. It is expected that monitors document their requests for information and any consideration they have given to termination in the information's absence.

A distressed company that meets the entry criteria benefits from a moratorium – it provides it with an opportunity to be rescued as a going concern, free from creditor enforcement action. Where the moratorium conditions continue to be met, it is in the company’s interest (and therefore within its directors' interests, subject to their duty to consider creditor interests) that the moratorium should continue. Directors should therefore act to assist the monitor as and when a request for information is made.

Can the deferral of unpaid debts be made after the commencement of the moratorium?

If moratorium debts (and pre-moratorium debts not subject to a payment holiday) are left unpaid, the monitor must bring the moratorium to an end. However, when making the decision about whether to end the moratorium, if the monitor has reasonable grounds for thinking they are likely to be paid within 5 days, this need not happen. Equally, if at the point the monitor is deciding whether to end the moratorium, the company and the creditor in question have agreed to defer payment until a later date, the monitor need not end the moratorium. The Insolvency Service has been asked if such deferral agreements need be arranged prior to a moratorium’s start.

The deferral agreement need not have been made prior to the start of the moratorium (in respect of pre-moratorium debts not subject to a payment holiday) but the agreement should be made before the liability in question becomes due or as soon as possible afterwards and in any case must be made in advance of the monitor's decision whether to bring the moratorium to an end under A38(1)(d). Any agreed deferral of a moratorium debt, as that term is defined in section A53, is by its nature agreed after entry to a moratorium.

It is to be expected that the monitor would document actions that they have taken/not taken based on evidence of such deferrals.

Creditor extensions to the moratorium

Some practitioners have asked the Insolvency Service about the timing of moratorium extensions granted by creditors. Creditors may extend the moratorium for up to a year (including the initial period). However, this extension cannot be made within the first 15 business days of the initial period (s A11(1)).

This limitation does not mean that the company is unable to discuss extensions with creditors within those first 15 business days, including calling a decision procedure to get their agreement to such an extension. Nothing in law prevents such a request being made as soon as the moratorium itself is in effect if the company so chooses.

The prohibition is on such an extension being given effect within those first 15 business days, i.e. that the notice extending the moratorium cannot be filed at court within the time period, even if creditors have already agreed to it.

How are creditor votes calculated for decisions to extend a moratorium?

Only the claims of unpaid pre-moratorium creditors with debts in respect of which the company has a payment holiday during the moratorium as defined in sections A18 and A53 are eligible to vote on extensions to the moratorium. This respects that these are the creditors whose enforcement rights are being restricted in the moratorium. As with decision procedures in other Insolvency Act procedures, proofs/statements of claim need be submitted prior to the decision or, for meetings, 4pm on the business day before the meeting is held (or, in Scotland, at or before the meeting). Proofs/statements of claim should follow the content expected in Insolvency (England and Wales) Rules 2016/The Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018. As noted in the gov.uk guidance for monitors, the monitor may give assistance regarding the decision procedure to the company.

Do ‘GAME’ principles apply on the payment of rent?

If a company subject to a moratorium does not pay liabilities that it is required to, the monitor must bring the moratorium to an end (other than where para 37 (England and Wales) or para 77 (Scotland) Schedule 4 Corporate Insolvency and Governance Act 2020 applies). This applies to liabilities to which the company becomes subject during the moratorium other than where the obligation was entered into before that time, defined as 'moratorium debts' at section A53. It also applies to liabilities arising out of certain obligations entered into prior to this point, known as pre-moratorium debts not subject to a payment holiday (see section A18).

One such pre-moratorium debt not subject to a payment holiday is rent in respect of a period during the moratorium. The Government's intention with the Part A1 moratorium was that the legislation be drafted in such a way as to reflect the GAME judgment regarding rent in an administration (Jervis v Pillar Denton Ltd [2014] EWCA Civ 180). For this reason, section A18(3)(c) specifically refers to ‘rent in respect of a period during the moratorium’. This means that, regardless of when a lease’s due date for rent is (before or after the entry to the moratorium), it is only the rent for the period of the moratorium that qualifies as a ‘pre-moratorium debt not subject to the payment holiday’. This balances the interests of a company’s rescue with the interests of a landlord to receive payment for legal occupation of their property.

However unlike administration, the rent in question is all rent arising from a company’s estate – not just that part of the estate in use during the moratorium. This reflects the different nature and statutory intent of the two procedures.

It is only rent for these periods that receives the protection as a priority pre-moratorium debt at s899A Companies Act 2006 (where the company enters a scheme of arrangement within 12 weeks of the end of a moratorium), s901H Companies Act 2006 (where the company enters a restructuring plan within 12 weeks of the end of a moratorium) or s4(4A) (company agrees a CVA within 12 weeks of the end of a moratorium). Where a company enters administration or liquidation within twelve weeks of the end of a moratorium, it is only unpaid rent in respect of the moratorium period that receives super priority.

Where a moratorium expires through the effluxion of time, does the former monitor need to notify anyone of this fact?

Moratoriums are time-limited. For example, if the end of the initial period is reached without extension, it will expire without any further action from the company or the monitor after 20 business days have passed. The Insolvency Service has been asked if the monitor should send a notice to any party of such terminations through the effluxion of time.

The moratorium is intended as a light-touch procedure, with notice-giving kept to a minimum to keep costs low. Monitors must inform certain parties of the commencement of a moratorium and its length (and any extensions). As the projected expiry of the moratorium will be given in such notices, no further notice need be given should the time period reach its end without further extension or early termination.

Does a monitor need to co-operate with a successive office-holder?

Unlike for other procedures (e.g.r3.70 Insolvency (England & Wales) Rules 2016), there is no statutory requirement for the passing of information etc from the ex-monitor to a new office-holder (where a different practitioner is subsequently appointed following the end of a moratorium). This reflects the moratorium's nature as a light-touch procedure. However, it is the Insolvency Service’s view that the Insolvency Code of Ethics compels a former monitor to respond to reasonable requests for information from a subsequent office-holder, as to do otherwise risks discrediting the profession.

An Insolvency Practitioner shall comply with the principle of professional behaviour, which requires an Insolvency Practitioner to comply with relevant laws and regulations and avoid any conduct that the Insolvency Practitioner knows or should know might discredit the profession

Relevant accelerated debts and super priority

Those who do business with a company in a moratorium receive certain protections. These provisions were made in order to encourage businesses and consumers to trade with a company during a moratorium. Those who contract with the company can be assured that if moratorium debts (or pre-moratorium debts not subject to a payment holiday) are unpaid the monitor will bring a moratorium to an end pursuant to section A38, thereby limiting their exposure from continued non-payment. A CVA, scheme of arrangement or restructuring plan cannot compromise debts in these categories without the consent of the creditor in question. And if the company enters liquidation or administration within twelve weeks of the end of a moratorium, debts in these categories receive 'super priority' in that procedure. Taken together, these protections are intended to increase business/consumer confidence in trading with a company in a moratorium.

There is an exclusion to this super priority in respect of 'relevant accelerated debts' (defined at s174A). These are certain financial services debts that fall due because of the operation or exercise of early termination or acceleration rights under the relevant contracts. Such accelerated debts will lead to the termination of the moratorium by the monitor if left unpaid (as they will be pre-moratorium debts not subject to a payment holiday) but will not receive super priority should the company then enter liquidation or administration within twelve weeks. This modification was made to prevent holders of such contracts from ‘gaming’ the super priority provisions. The definition of relevant accelerated debts at s174A was drafted intentionally widely to cover all financial services contracts or other instruments that contain such acceleration or early termination provisions. This will include overdrafts, loans, RCFs etc.

Will we issue further guidance?

The Insolvency Service will continue to monitor feedback on the moratorium process. If you have further queries not answered in this article, please send them to us at the email address below. If common areas arise from additional feedback given in this way and where further guidance seems useful, we will consider issuing a further Dear IP article.

Additionally, the temporary rules schedule in the Corporate Insolvency and Governance Act 2020 is intended to be replaced later on this year by a permanent addition to the 2016 rules (2018 rules in Scotland). We will consider closer to the time how best to communicate the content of the new rules to practitioners.

Any enquiries regarding this article should be directed towards email: xxx@xxx.xx (mailto:xxx@xxx.xx)

or

General enquiries may be directed to email: xxx@xxx.xx (mailto:xxx@xxx.xx)

75. Application for provisional liquidation

Rule 7.33(3) of the Insolvency (England and Wales) Rules 2016 requires that, where an application is being made for the appointment of an Insolvency Practitioner as provisional liquidator, notice must be given to the Official Receiver including copies of the application and witness statements in support.

The Official Receiver which deals with such applications is the Public Interest Unit, who can be contacted on xxx@xxx.xx.

For any queries, please contact xxx@xxx.xx

76. Creditor bankruptcy and compulsory liquidation petition deposits to rise

The Insolvency Service is introducing changes to the deposits paid to initiate creditor petition bankruptcies and compulsory liquidations.

The petition deposit (the amount that needs to be paid up-front to seek a court order) will be increasing in all cases where a petition is filed at court on or after the 1 November 2022.

There will be no change to the adjudicator petition deposit where the individual applies for their own bankruptcy

Changes being made to deposits

| | Current Fee | Fee from 1 Nov 22 | | Creditors’ bankruptcy petition deposit | £990 | £1,500 | | Compulsory liquidation petition deposit | £1,600 | £2,600 | Fees have not changed since April 2016. Insolvency case numbers have fallen to a historically low level, and the majority of the remaining cases have insufficient asset values to recover the administration costs. The deposit is the only source of funding in a significant volume of the cases administered by the Official Receiver.

The deposit increase will enable the Insolvency Service to continue to administer and investigate insolvencies effectively, maximising outcomes for creditors whilst mitigating the risk of cost recovery being passed on to the taxpayer.

If there are sufficient assets to recover all the fees and costs, then the deposit is returned to the party who initiated the insolvency.

This change has been implemented through a change in legislation. The Insolvency Proceedings (Fees) (Amendment) Order 2022 was laid in Parliament on 5 September 2022 with a commencement date of 1 November 2002.

For further information on these changes please contact: xxx@xxx.xx

77. Authorisation to operate a local bank account

Applications under regulations 6 or 21 of the Insolvency Regulations 1994 for the authorisation of the use of a local bank account are dealt with by the Senior Official Receiver on behalf of the Secretary of State.

The application form can be found here (https://www.gov.uk/government/publications/insolvency-practitioner-sanctions-application-forms) and should be completed fully before being emailed to xxx@xxx.xx (mailto:xxx@xxx.xx).

Where authority is given to operate a local bank account, practitioners should ensure that they adhere to the conditions granted for use of the account. Where, perhaps due to required balance limits or the size of maximum withdrawals being under-estimated in the original application, it becomes apparent that the conditions might need to be revised, a renewed application should be made. The application form should make it clear that it is a renewed application.

Remuneration may not be drawn from a local bank account and should instead be drawn from the ISA, once approved.

Any enquiries regarding this article should be directed to email: xxx@xxx.xx (mailto:xxx@xxx.xx)

78. Changes to Official Receiver’s fees and hourly rates

The Official Receiver’s (OR’s) fees to administer bankruptcy and compulsory liquidation proceedings are set to increase from 9 January 2025 to mitigate inflationary increases in operating costs.

The deposit payable when a company is wound up in the public interest in accordance with s124A of the Insolvency Act 1986 and the hourly rates applied by ORs for undertaking additional duties, not otherwise covered by fees, are also set to increase from the same date.

The majority of these fees have not changed since April 2016. There will be no change to the upfront cost to the public of seeking a bankruptcy or winding up order.

Changes to Administration and General Fees

Changes to the fees are set out in the table below:

Changes to Fees in s124A (“Public Interest”) Liquidations

There are only a small number of s124A winding up orders made each year (usually fewer than 100), yet the nature of the work involved is complex, resource intensive, and takes longer to complete.

These winding up petitions are presented by the Secretary of State or other public bodies such as HMRC, who cover the cost of the petition.

The table below sets out the changes to existing deposit amounts:

Increases to OR Hourly Rates

The table below sets out the updated OR national grades and hourly rates:

These changes have been implemented through legislation. The Insolvency (Amendment) Regulations 2024 were laid in Parliament on 29 May 2024 and will come into force on 9 January 2025. The Insolvency Proceedings (Fees) (Amendments) Order 2024 was laid in Parliament on 19 September 2024 and will also come into force on 9 January 2025.

For further information on these changes, please contact xxx@xxx.xx (mailto:xxx@xxx.xx).