Key changes to Insolvency Act

On 26 March 2015, the Small Business, Enterprise and Employment Bill received Royal Assent and became the Small Business, Enterprise and Employment Act 2015 (SBEEA 2015).

The SBEEA 2015 makes some key changes to the Insolvency Act 1986.

The following provisions of SBEEA 2015 come into effect on 26 May 2015, being two months:

• The removal of the need for a liquidator or trustee in bankruptcy to seek the sanction of creditors or the court before exercising certain powers conveyed by the IA 1986 (sections 165 and 167 (liquidation) and 314 (bankruptcy), IA 1986, as amended by sections 120-121 of SBEEA 2015).
• The ability of an administrator to obtain the extension of his term of office for up to one year by consent (paragraph 76(2)(b), Schedule B1, IA 1986, as amended by section 127 of SBEEA 2015).
• The power of an administrator to distribute the prescribed part to unsecured creditors without the prior permission of the court (paragraph 65(3), Schedule B1, IA 1986, as amended by section 128 of SBEEA 2015). As a result of the introduction of this power, an administrator is no longer permitted to end an administration by moving a company into creditors' voluntary liquidation if the only funds available for unsecured creditors are those comprised in a prescribed part (paragraph 83, Schedule B1, IA 1986, as amended by section 128 of SBEEA 2015).
• A new enabling provision, allowing for the introduction of new regulations to deal with sales in administration to connected persons, which are concluded without the prior consent of the creditors (paragraph 60A, Schedule B1, IA 1986 as amended by section 129 of SBEEA 2015).
• The removal of the need for a creditor owed a small amount by an insolvent entity to have to prove in the insolvency process to participate in it (paragraphs 13A, Schedule 8 (corporate insolvency) and 18A, Schedule 9 (bankruptcy), IA 1986 as amended by sections 131-132 of SBEEA 2015).
• An alteration to the provisions for the challenge of the approval of an individual voluntary arrangement (IVA), so that any such challenge must be brought within 28 days of the meeting called to consider the IVA proposal (section 262(3)(a), IA 1986, as amended by section 134 of SBEEA 2015).
• The abolition of fast track IVAs (section 135, SBEEA 2015).
• Clarification that a progress report must be issued in a voluntary liquidation even if the liquidator changes within the first year (section 136, SBEEA 2015).

The remaining provisions of SBEEA 2015 that affect the IA 1986 require secondary legislation to bring them into force. It is likely that these provisions will be brought into force alongside the new Insolvency Rules 2015.  At present, the new Insolvency Rules are set to come into force in April 2016, although much of their detail is still being discussed with stakeholders.

Time will tell whether these changes improve recoveries in insolvencies by providing greater flexibility for insolvency practitioners.   Insolvency professionals will have to wait to see the effect of the more controversial aspects of the SBEEA 2015 which do not come into effect immediately.  In particular, it will be interesting to see how the proposed "Pre-Pack Pool" will work when up and running in relation to sales to connected parties.

For further information, help or advice please contact the Banking and Finance team.