There appears to have been some confusion over these rules, particularly Rule 6.224(1)(h), which deals with the payment of the petitioner's costs in a bankruptcy. Some practitioners are of the opinion that they have no power to make such payments from the estate. Their view is that Rule 6.224 sets out the priority for payment of costs, but does not authorise payment. The Service’s view is that Rule 6.224(1)(h) does provide adequate authority for the payment of the petitioner's costs as that Rule contains a statement that the expenses of the bankruptcy are payable out of the estate and lists the costs of the petitioner as one of those expenses. A distinction is drawn in paragraph (1)(h) of Rule 6.224 between the petitioner’s costs and those of other persons appearing on the petition, which are not payable without the authority of a court order.

Rule 7.34 of The Insolvency Rules 1986 allows payment of costs without taxation. Rule 7.34(6) applies this Rule to all liquidations and bankruptcies in both old and new Act cases. However, where taxation is required in old Act bankruptcies, any bills must be taxed in accordance with the scales in Appendices II and III of the Bankruptcy Rules 1952.

(First published in Dear IP no. 6, February 1988)

All applications for authority to operate a local bank account under the 1994 Regulations (as amended) should be submitted to IPCU.

As part of its desk-top monitoring procedures, IPCU has recently completed a review of the local bank account authorities granted to practitioners. It is evident from the majority of cases reviewed that many practitioners are not adhering to the specific terms of the sanction given in each case, and the following practices are considered to be contributing to this.

1. Failing to request a change of any inappropriate terms of a sanction

It is appreciated that when a practitioner seeks a sanction, the information provided is based upon estimates. However, once the terms of the sanction are set, they must be adhered to. IPCU are, though, always willing to reconsider the terms in the light of the practitioner’s experience from trading and operating the account. Consequently, it is suggested that practitioners may wish to review the terms of the sanction within the first six to eight weeks of operating the local bank account to ensure that the terms are still appropriate.

2. Failing to monitor the account correctly resulting in the maximum balance to be retained in the account being exceeded.

   It is apparent that practitioners generally monitor the operation of the account by reference to their cash book rather than bank statements, and then only on a monthly basis. As a result, while the cash book may record the account as operating within the agreed limits, the bank statement may not. This is generally due to timing differences between the date of the issue of cheques and their presentation for payment. It must be noted, however, that the sanction to operate a local bank account is expressed in terms of the actual balance in the bank account, and not the practitioner's cash book balance. It is suggested, therefore, that practitioners may wish to take into account matters such as timing differences when requesting the sanction, and also to obtain and reconcile bank statements for the local bank account on, say, a weekly basis.

3. Failing to remit funds in excess of the agreed maximum balance to the ISA

   Practitioners are reminded that the terms of the sanction, particularly the agreed maximum balance, are set at a level to enable sufficient funds to be available to meet trading expenses. Income generated over and above what is required to meet those expenses should be remitted to the ISA.

   Again, monitoring the account on a weekly basis should ensure that any monies held in excess of the agreed maximum balance will be remitted to the ISA in good time.

4. Drawing remuneration from the local bank account

   The Service’s view is that sanction to operate a local bank account enables the office holder to make payments into and out of that account. The sanction does not permit remuneration (which is not a payment made by the office holder) to be drawn from the local bank account. Remuneration should be drawn from the ISA in the usual way once it has been approved.

All enquiries regarding the use of a local bank account should be directed to Pat Christopher at IPCU, 5^th Floor, West Wing, Ladywood House, 45/46 Stephenson Street, Birmingham B2 4UZ, telephone number 0121 698 4104.

The Amendment Rules have changed the order of priority of payment of expenses out of the assets of companies in compulsory liquidation and bankrupts’ estates contained in Rules 4.218 and 6.224 of the Insolvency Rules 1986 respectively.

Previously, the deposit payable on presentation of a petition as security for the administration fee, was repayable after the expenses incurred in protecting and realising the assets, the expenses and disbursements incurred by the OR, and the administration fee, had been recovered from the realisation of assets.

The amendment Rules 4.218(1)(c) and (d), and 6.224(1)(c) and (d) changed the order of priority in which expenses are payable. The effect of the amendment is that the petition deposit will not be repayable until after all statutory fees and the OR’s remuneration have been recovered from the realisation of assets.

Practitioners should please note that the changes apply only to winding-up proceedings commenced on or after 1 April 1995 and to bankruptcy proceedings where the petition is presented on or after that date.

The above Statutory Instrument, which came into force on 31 March 2000, amends the Insolvency Regulations 1994 so as to permit the use of electronic means for payments both into and out of the Insolvency Services Account (ISA). This is a modernisation measure which takes account of developments in banking practice and overcomes the inherent risk of loss or theft of postal remittances. It will also extend and improve the range of banking services provided by Central Accounting Unit (CAU). The Service recognises that there will be a continuing requirement for cheque payments so the new electronic system will operate in parallel with the existing paper-based one as provided for in the 1994 Regulations as amended. The practical arrangements under the new provisions will be as follows:-

• Any payment into the ISA can be made by the liquidator or trustee by electronic transfer, accompanied by details identifying the liquidator or trustee making the payment and the estate to be credited. The estate should be identified by the BANCS account ID if known and, failing that, by the name of the estate.
• All payments out of the ISA can also be made by electronic transfer, at the request of the liquidator or trustee, using the appropriate requisition form, CAU 105, a copy of which has previously been supplied to IPs. However, the Secretary of State retains discretion to determine the mode of payment out of the ISA to allow for any technical or practical problems which could prevent or inhibit electronic payments.
• In the initial period of using the electronic payments facility (BACS), payments out of the ISA will be restricted to payments to IPs for fees and expenses in all insolvency types and for distribution in voluntary liquidations. IPs should note that the fax number required in form CAU 105 will be used to send the remittance advice to the IP.
• Having sorted out any operational problems during the initial period, it is intended that BACS payments will be made available for a wider range of payments including one-off payments of £50,000 or more (to any payee) and payments to "regular payees" such as agents and Government creditors. Where the payee is not the IP, the fax number and address of the payee will be required in addition to the bank account information. Form CAU 105 will be modified to cater for the additional requirements.
• The initial performance target for BACS payments will be: payment into payee’s bank account on the 4^th working day after receipt by CAU of the requisition.
• Further bulletins will be issued in due course but in the meantime IPs are encouraged to make their views and needs known to their representatives on the CAU User Group. Enquiries about electronic payments can be directed to Central Accounting Unit’s Customer Services team on 0121 698 4268.

(First published in Dear IP no. 50, June 2000)

6.    Recoverable expenses or costs (Rule 4.218 and Rule 6.224)

In the case of Re Floor Fourteen Limited, Lewis V IRC [2001] the Court of Appeal held that costs of unsuccessful legal proceedings would not fall within the expenses listed in Rule 4.218 (1) I.R.86 and were therefore not recoverable from the assets of the company. The Court further found that any funds recovered from proceedings under sections 214 and 239 I.A.86 were not assets of the company but arose after the liquidation and were held on trust by the liquidator for distribution to creditors. As a result the costs of a successful application could similarly not be recovered as an expense of the liquidation under that rule.

On page 17.34 of Dear IP no.9 issued in November 2002 there was a brief reference to the amendment to Rule 4.218 made by the Insolvency (Amendment) (No.2) Rules 2002 so that properly incurred costs or expenses relating to the conduct of any legal proceedings, which the liquidator has the power to bring or defend, may be recovered from the assets of the company. IPs should also be aware that other amendments were made to the order of priority of payment set out in Rule 4.218 including the addition of sub-paragraph(r) which now provides:

"any other expenses properly chargeable by the liquidator in carrying out his functions in the liquidation".

Similar amendments have been made to Rule 6.224 with regard to proceedings commenced or defended by the trustee and other properly chargeable expenses.

The amendment only applies to those cases where the petition is presented, or a resolution for voluntary winding up has been passed, after 1 January 2003 ie the commencement date of the amending rules.

The provisions of Schedule 4 and 5 of the Act (powers exercisable with sanction) will be amended by provisions of the Enterprise Act 2002 coming into effect later this year.

General enquiries may be directed to Policy.unit@insolvency.gsi.gov.uk

7.  Enterprise Act 2002 -Amendments to Insolvency Rules.

Details of the changes arising from the new procedures for administration are provided in article 4 of Chapter 1 and those relating to the abolition of Crown preference and the introduction of the prescribed part can be found at article 23 of chapter 17 of this edition of Dear IP.

Amendments and additions to the Insolvency Rules and the Scottish Court Rules have been made as a result of the Enterprise Act 2002 provisions. The changes are made through the following Statutory Instruments:

The Insolvency (Amendment) Rules 2003 (S.I. 2003/1730)

The Insolvency (Scotland) Amendment Rules 2003 (S.I. 2003/2111)

The Insolvency Act 1986 (Prescribed Part) Order 2003 (S.I. 2003/2097)

The Enterprise Act 2002 (Consequential Amendments) (Prescribed Part)(Scotland) Order 2003 (S.I. 2003/2108)

Act of Sederunt (Rules of the Court of Session Amendment No. 5) (Insolvency Proceedings) 2003 (S.S.I. 2003/385)

Act of Sederunt (Sheriff Court Company Insolvency Rules 1986) Amendment 2003 (S.S.I. 2003/388)

Copies of the instruments are available through HMSO http://www.legislation.hmso.gov.uk/ or can be accessed via The Insolvency Service website http://www.insolvency.gov.uk/

8.  Enterprise Act 2002 (Individual Insolvency Provisions) - Income Payments Orders/Agreements

Income Payments Agreements (IPAs) will provide an out of court alternative to Income Payments Orders (IPOs) and bind the bankrupt in those cases where agreement is made with the trustee on the amount to be contributed to the estate from the bankrupt’s income. This will avoid unnecessary court hearings, which involve time and expense, delay the process and use up funds that would otherwise be available for creditors.  In case of default an agreement can be enforced as if it were an IPO made by the court. 

Income Payments Agreements – rule changes

New rules 6.193A to 6.193C are added as a separate Chapter 16A, which follows on from the rules governing Income Payments Orders.

They specify the form of an agreement (to be in writing), the time limits for approval, variation procedure and notice requirements.  Specifically, an agreement must be made before, and may extend beyond, discharge but for a period of no longer than three years in total.

No new statutory form is prescribed since, although enforceable as if made as an order of the court, the court does not become involved except in matters of dispute.

IPAs will be worded to provide for the payments to be made to the official receiver “or any other person appointed as trustee”.  In general the official receiver will aim to obtain at least an agreement in principle where handing over to a trustee, so that he/she can finalise the agreement in due course.

Enquiries arising from the above should be addressed to Steve Quick, Director of Policy. Tel: 020 7291 6747.

9.   Enterprise Act 2002 (Individual Insolvency Provisions) - Other Changes To Part 6

1. Summary Administration

Rules 6.48 to 6.50 in relation to summary administration, which will no longer apply to new cases following commencement of the individual insolvency provisions of Part 10 of the Enterprise Act 2002, are nevertheless saved for existing cases.  

2. Summary Certificates

As no new summary certificates will be issued after commencement, sub-paragraph (c) of rule 6.97 (2) is revoked. The change to rule 6.121 (1) is made for the same reason.

General enquiries may be directed to Policy.unit@insolvency.gsi.gov.uk  

10.   Contents of Proof of Debt Form in Bankruptcy, and Changes to the Procedures to be Adopted by the Official Receiver (OR) for Proving Debts 

As a result of the legislative changes arising from the Insolvency (Amendment) Rules 2004, from 1 April 2004 the Official Receiver will only be required to send proofs of debt forms to creditors on request and will no longer be obliged to lodge proofs of debt in court on completion of the bankruptcy or winding up.    The new provisions will become effective on 1 April 2004 and they apply to all cases as from that date, irrespective of whether the bankruptcy or winding-up order was made before or after 1 April 2004.  

The information that is required to be detailed in the proof of debt forms themselves is set out in Rules 4.75(1) and Rule 6.98(1) of the Insolvency Rules 1986, both of which have been amended by the Insolvency (Amendment) Rules 2004 (Amendment Rules). 

Unfortunately an error has crept into the Amendment Rules with the result that Rule 6.98(1)(b) and (d) incorrectly contain references to liquidation, rather than bankruptcy. 

Whilst it is anticipated that users will read the appropriate bankruptcy references into those sub-rules, it has been decided that the error should be corrected.  This will be achieved in the Insolvency (Amendment No. 2) Rules 2004 (No. 2 Rules). 

The No. 2 Rules will replace the words “on which the company went into liquidation” with “of the bankruptcy order” in Rule 6.98(1)(b) and “company” with “debtor” in Rule 6.98(1)(d). 

The Amendment Rules will come into force on 1 April; 2004.  It is anticipated that the No. 2 Rules will come into force by the end of April 2004. 

From 1 April 2004, in the absence of a specific request, proof of debt forms will only be sent out by ORs in the following circumstances: 

·        in cases in which a decision has been made to hold a meeting of creditors;

·        in cases in which a dividend is to be paid (and assuming that proofs have not previously been sent out, eg for a meeting); normally the forms will be sent out when a distribution is to be made accompanied by a notice of intended dividend;

·        in connection with an application for annulment in cases in which forms have not already been sent out; in such cases the proof will be accompanied by a standard letter;

·        when the OR considers that the submission of formal proofs of debt would aid his or her investigation.

Creditors who are not sent a proof of debt form by the OR, but who wish to complete one, can access the form on The Service’s Internet site (http://www.insolvency.gov.uk/) or request one from the OR. 

General enquiries may be directed to IP Policy Section Email: IPPolicy.Section@insolvency.gsi.gov.uk Telephone 020 7291 6772

General enquiries may be directed to IP Policy Section Email: IPPolicy.Section@insolvency.gsi.gov.uk Telephone 020 7291 6772

Under paragraph 58 of Schedule B1 to the Insolvency Act 1986 and Rule 2.48 of the Insolvency Rules 1986, an administrator can deal with the business of a creditors’ meeting by correspondence.  Under Rule 2.48(9) anything done, or required to be done, at, or in connection with, or in consequence of, a creditors’ meeting, also has to be done for “correspondence” cases.  In order to provide guidance for administrators who may make use of these provisions we have set out, below, the Service’s view on how the relevant Rules relating to meetings apply or should be adapted to deal with “correspondence” cases.

General enquiries may be directed to Policy.unit@insolvency.gsi.gov.uk Telephone: 0207 291 6740

13.   Review of insolvency practitioner regulation

Article Withdrawn December 2007

14. Amendments to Rules, Regulations and Fees Orders 2005

The Insolvency (Amendment) Rules 2005 (SI 2005/527)

The Insolvency (Amendment) Regulations 2005 (SI 2005/512)

The Insolvency Proceedings (Fees) (Amendment) Order 2005 (SI 2005/544)

The insolvency practitioners and Insolvency Services Account (Fees) (Amendment) Order 2005 (SI 2005/523) 

The above statutory instruments come into force on 1 April 2005. Details of issues that may be of interest to insolvency practitioners are outlined below.  However, full details of the changes are contained in the legislation which may be accessed on the Insolvency Service website, at www.insolvency.gov.uk/whatsnew/whatsnew.htm.  Alternatively, the legislation will shortly be available through HMSO at http://www.legislation.hmso.gov.uk/ 

1.The Insolvency (Amendment) Rules 2005 (SI 2005/527)  

These Rules come into force on 1 April 2005 (the commencement date) and make a number of changes to the Insolvency Rules 1986.   

The changes only apply where a company has entered administration or gone into liquidation, or where a bankruptcy order has been made, after the commencement date, unless otherwise indicated. 

Mutual credit and set-off 

There is no change to the provisions relating to mutual credit and set-off in bankruptcy.  However, the following Rules that relate to administration and liquidation have been revised and new Rules substituted:  

• Rules 2.85 and 4.90

The substituted Rules are designed to provide greater detail and clarity of meaning for the user to reflect the applicable case law and bring the rule on set-off for liquidation into line with the rule in administration.  The main points to note are:

•  “Mutual dealings” that are not to be included in the set-off account are defined; these include any debt acquired by a creditor by way of an agreement entered into after one of the dates set out in Rules 2.85(2)(e) and 4.90(2)(d). If a creditor acquires, or re-acquires, a debt after one of those dates, as a result of an agreement entered into at an earlier date, then such a debt would be considered a “mutual dealing” for the purposes of the set-off account. 

• Set-off in liquidation proceedings and administration proceedings are harmonised so that all amounts due to and from a company are “mutual dealings” to be included in, or excluded from, the set-off account, as applicable. 

• The provision of a meaning for the term “sums due” drawing on the definition of “debt or liability” in Rule 13.12(3);
• For the purposes of calculating the set-off account, the Rules which relate to the quantification of debts (Rules 2.81, 2.86 to 2.88, 2.105, 4.86, 4.91 to 4.93 and 11.13) are extended to cover debts owed to a company, as well as debts owed by a company. Accordingly, debts owed to the company that are contingent or payable at a future time are to be included in the set-off account and liquidators and administrators will be able to place a value on such debts.
• Rules 2.78 and 4.83 provide the means of appeal if a mutual third party disagrees with an administrator’s or liquidator’s valuation of a debt that a third party owes to a company;
• Where, after the calculation of the set-off account an amount is owed to the company arising from a contingent debt or a debt payable at a future time, such an amount only has to be paid to the liquidator or administrator if and when it becomes due and payable.

Debts payable at a future time 

An amendment to Rules 2.105 and 11.13 (and, consequentially, to Rule 2.88(7)) to the formula for use in calculating the discounted value of a debt which is not due for payment at the date of payment.  This change responds to criticism made by the House of Lords in Re Park Air Services Limited [2000] 2 AC 172.

Relevant insolvency date 

As a result of the changes made to the law on administration by the Enterprise Act 2002 (c.40) a company can move between liquidation and administration or between administration and liquidation.  Both of these procedures enable creditors to prove their debts at the date of the administration or liquidation respectively.  By way of clarification of the existing rules, the amendments provide that the relevant date is the date that the first insolvency procedure commenced.   

Remuneration of non OR liquidator and trustee – these provisions apply in any case where, on or after 1 April 2005, a winding-up order has been made or a  resolution for the winding-up of a company has been passed or, a bankruptcy order has been made. 

Following amendments made in the Insolvency (Amendment) Rules 2004, post 1 April 2005, provisions relating to the calculation of the remuneration of a non official receiver liquidator or trustee, are set out in the Rules.  There was no intention to change the substance of the provisions in force pre 1 April 2005 (which were set out in Regulations 33, 34 and 36 of the Insolvency Regulations 1994) – the amendments introduced in the Rules were simply intended to restate the substance of the legislation that had previously been set out in the Regulations.  Amendments to Rules 4.127B, 4.148A, 4.218 and 6.224 have now been made to correct some drafting errors and omissions arising from that restatement exercise. 

Replacement of sheriff with enforcement officer 

Following changes introduced by section 99 of and Schedule 7 to, the Courts Act 2003, from 1 April 2004 High Sheriffs no longer carry out writs of execution emanating from the High Court and have been replaced by High Court Enforcement Officers.  The changes in the Courts Act 2003 have not altered the requirement to serve notice of insolvency proceedings on the enforcement officer executing a warrant.  There are numerous references to “sheriff” and “under-sheriff” in the Rules which are amended consequently upon these changes.  The affected Forms are 6.9 and 6.24A.  

Company registration number 

In order to assist the identification of a company entering into liquidation and to bring certain Rules and Forms into line with requirements elsewhere in the Rules, amendments have been made to require the inclusion of a company’s registered number in liquidation proceedings.  The following forms are consequently amended; Forms 4.6, 4.11, 4.12, 4.13, and 4.14. 

Postal redirection in bankruptcy 

Section 371 Insolvency Act 1986 permits the court to make an order, on the application of the official receiver or the trustee of the bankrupt’s estate, for the redirection by a postal operator of a bankrupt’s post for a period not exceeding three months.  Postal redirection orders are typically sought only in cases of non-co-operation or where the applicant believes that a bankrupt has not made a full disclosure of his affairs (for example, in an attempt to conceal assets). 

A new Rule, 6.235A, provides for procedure on the application for such an order and Form 6.80 is revised.  The Rule provides for ‘without notice’ application, embodies the current operational practice of the Insolvency Service regarding provision of a report setting out the reasons why the order is sought, and gives the court wide power to make the order on such conditions as it thinks fit.

Family proceedings 

Rule 12.3(2)(a) is amended to provide that lump sum and costs arising as a result of an order made in family proceedings are now provable in bankruptcy proceedings whilst periodical payments continue to be non-provable.

Administration

A new sub-rule is added to Rule 2.67 to state expressly that the expenses of the administration per Rule 2.67(1) are expenses of the former administrator for the purposes of paragraph 99(3) of Schedule B1 to the Insolvency Act 1986. 

Rules 2.106 and 2.107 are amended to clarify that in circumstances where an administrator had made a statement under paragraph 52(1)(b) of Schedule B1 to the Insolvency Act 1986 if it falls to the creditors to fix or increase the administrator’s remuneration, those creditors comprise the secured creditors (with the inclusion of 50 per cent of the preferential creditors where a distribution is made etc to preferential creditors).

Rule 2.108 is amended to provide that where the administrator feels that the quantum of remuneration fixed by the secured/preferential creditors under Rule 2.107(2) is insufficient, he may apply to the Court to have it increased. 

Rule 4.7 is amended to clarify the circumstances in which a winding up petition can be presented following the discharge of administration. 

Notice changes

Rule 4.26(3) and (4) is amended to provide that a copy of the provisional liquidation order must be sent to the registrar of companies by the provisional liquidator (whether the official receiver or otherwise).  A new statutory form (Form 4.15A) is introduced for this purpose. 

The duty to send a copy of the notice (of a final meeting) to the official receiver in Rule 4.125(4) is replaced by the Secretary of State.  The address where notices should be sent is:  Insolvency Service, PO Box 3690, Birmingham B2 4UY.  The DX address is: DX 713899, Birmingham 37.  Rule 6.137(4) is similarly amended for bankruptcy. 

Post 1 April 2004, voluntary liquidators no longer have to bank with the ISA.  Although the requirement to submit receipts and payments accounts to the registrar of companies does remain, there is no longer any need for a copy to be sent to the Insolvency Service.  The duplicate copy sent to the registrar of companies is thus redundant and a waste of resource.  Sub-rule 4.223-CVL(4) is therefore redundant and deleted.  Consequential amendments are made to Form 4.68.

Miscellaneous 

·        A new sub-rule is added to Rule 4.12 (mirroring the wording in Rule 2.4(4)) to provide that the affidavit in support of a winding-up petition must include a statement as to the (non) applicability of the EC Regulation.  This will then reflect the requirement of the winding up petition (Form 4.2).  In order to harmonise with the administration procedure, the prescribed form of affidavit (Form 4.3) is deleted. 

·        Rule 6.42 is amended to provide that a debtor is only required to file one copy of the SA with his petition; and that the court is to send that copy to the official receiver if a bankruptcy order is made.  The SA itself (Form 6.28) is amended to require additional information from a debtor. 

• The reference to RSC Order 11 in Rule 12.12(1) is replaced by reference to CPR Part 6 paragraphs 6.17 to 6.35 to make it clear that those procedural rules relating to service out of the jurisdiction are not to be applied in relation to insolvency proceedings.  Rule 12.11 is also amended by the inclusion of a reference to Rule 12.12 to further enforce the point that insolvency proceedings have their own free-standing rules regarding dealing with service outside the jurisdiction

2.The Insolvency (Amendment) Regulations 2005 (SI 2005/512) 

These Regulations come into force on 1 April 2005 and make changes to the Insolvency Regulations 1994. 

A new regulation (regulation 3A) is inserted into the 1994 Regulations to make provision for when the Secretary of State can require information from an administrator and the circumstances in which an administrator can dispose of a company’s records. 

A further new regulation (regulation 36A) is inserted into the 1994 Regulations.  This provides that an insolvency practitioner can be required to provide a statement of the number of hours spent on a case by the insolvency practitioner and his staff by grade and further makes provision for the circumstances on which a statement should be made and the information to be included in that statement.   

Regulation 35 is amended to clarify the circumstances in which an official receiver can draw remuneration on a time cost basis – and to link with those functions not included within the definition of the official receiver’s “general duties” in the Insolvency Proceedings (Fees) Order 2004 (as amended in the Insolvency Proceedings (Fees) (Amendment) Order 2005 – see paragraph 3 of this article)

3.The Insolvency Proceedings (Fees) (Amendment) Order 2005 (SI 2005/544) 

This Order comes into force on 1 April 2005 (the commencement date) and makes changes to the Insolvency Proceedings (Fees) Order 2004.  The changes apply only in relation to any case where a winding-up or a bankruptcy order is made on or after the commencement date. 

Article 6(1) of the 2004 Order is amended to provide that a deposit is payable where a bankruptcy petition is presented by a temporary administrator or a liquidator within the meaning of Council Regulation (EC) No 1346/2000. 

Schedule 2 is amended to clarify those functions that are not included as part of the official receiver’s “general duties” in respect of which the administration fee (Fee B1 or W1) is payable under the 2004 Order. An official receiver’s “general duties” do not include anything done by him in connection with or for the purposes of-

• The appointment of agents re realising assets.
• The making of a distribution to creditors (including preferential or secured creditors)
• The realisation of assets on behalf of holders of fixed or floating charges
• The supervision of a special manager

Where the official receiver acts in relation to any of the above he is entitled to remuneration on a time cost basis – and Regulation 35 of the Insolvency Regulations 1994 has been amended to reflect this.  

4.The insolvency practitioners and Insolvency Services Account (Fees) (Amendment) Order 2005 (SI 2005/523) 

This Order comes into force on 1 April 2005 and makes changes to the insolvency practitioners and Insolvency Services Account (Fees) Order 2003. 

The Schedule to the 2003 Order is amended to make provision for the circumstances where an account relating to monies held in the Insolvency Services Account will no longer be regarded as being “maintained”.  Where an account ceases to be maintained this terminates liability for the payment of fees under the 2003 Order.

General enquiries may be directed to Policy.unit@insolvency.gsi.gov.uk Telephone: 0207 291 6740

15. The insolvency practitioners Regulations 2005 (SI 2005/524) 

These regulations come into force on 1 April 2005. The following notes are intended to illuminate certain provisions of the Regulations and a provision about time records to be provided by insolvency practitioners in the Insolvency (Amendment) Regulations 2005. The notes have no statutory authority and where there is doubt as regards legislation insolvency practitioners should seek independent legal advice.  Provisions in the legislation that appear self-explanatory are not further addressed in these notes.  

Regulation 3 – In relation to some offices, an office-holder who changes office but continues to act on an on-going basis in respect of the same insolvent may rely upon the security he has obtained in relation to the first office (i.e. “the initial capacity”) for the second office (i.e. “the subsequent capacity”). He need not obtain new security for the second office save where there has been an increase in the value of the assets. The offices to which this applies are set out in regulation 3(3). 

Regulation 4(1) – Revokes the insolvency practitioners Regulations 1990 and subsequent amendments.   

Regulation 4(2) – Parts I and II of the insolvency practitioners Regulations 1990 will continue to apply to an application for authorisation from the Secretary of State, made before commencement.  

Regulation 4(3) – Parts I, III, and IV of the insolvency practitioners Regulations 1990 will continue to apply where an insolvency practitioner was appointed before commencement or where an insolvency practitioner, now acting in a “subsequent capacity”, was appointed in an “initial capacity” before commencement. Only regulations 16 and 17 of the insolvency practitioners Regulations 2005 will apply in these cases.  

Regulation 6(e) – The scope of matters that shall be taken into account when determining if an individual is a “fit and proper person” to act as an insolvency practitioner is extended to include whether or not that individual acts in accordance with generally accepted professional standards, practices and principles. Such professional standards, practices, and principles, may include, but are not limited to, Statements of Insolvency Practice and ethical guidelines.  

Regulation 7 and Regulation 8 –  These regulations are concerned with applications for authorisation by the Secretary of State and reflect two policy changes decided upon since the issue of the consultation document on the 2005 Regulations.   

The first policy change relates to those who are able to apply to the Secretary of State for an authorisation. The insolvency practitioners Regulations 1990 did not allow insolvency practitioners who had been authorised to act by Recognised Professional Bodies but who did not hold a pass in the Joint Insolvency Exam to apply for ‘re-authorisation’ by the Secretary of State; a position ‘at odds’ with insolvency practitioners who held an authorisation from the Secretary of State but who also did not hold a pass in the Joint Insolvency Exam. It was decided that given the equality of standards and requirements between the Recognised Professional Bodies and the Secretary of State this inconsistency was not sustainable. Consequently policy has been changed so as not to prevent applications for ‘re-authorisation’ by the Secretary of State from insolvency practitioners without a pass in the Joint Insolvency Exam who had been authorised to act by Recognised Professional Bodies.  

The second policy change relates to applications from those who have either previously been authorised to act by a Recognised Professional Body or held an authorisation from the Secretary of State but who are not authorised to act or holders of an authorisation at the time of application. ‘Re-authorisations’ under the insolvency practitioners Regulations 1990 required insolvency practitioners granted an authorisation by the Secretary of State but not holding a pass in the Joint Insolvency Exam, to be the “holder of an authorisation” at the date of application for a ‘re-authorisation’ i.e. that there had been ‘no lapse or break between authorisations’. Having given further thought to this, we appreciate that there may be reasonable grounds – health grounds, career break, or simple human error – why such a ‘break in authorisation’ might occur. It was decided that to require the applicant to be the “holder of an authorisation” at the time of application was no longer necessary given that in respect of ‘re-authorisations’ by the Secretary of State under the 2005 regulations we have retained the practical experience requirements contained in the 1990 regulations, we have introduced requirements for at least 108 hours of Continuing Professional Development to be obtained in the three years immediately preceding the date of the application, and we have extended the matters which are to be included when assessing an applicants status as “a fit and proper person”. Failure either to meet the prescribed requirements or to be deemed “a fit and proper person” will result in an application for an authorisation being rejected; we do not anticipate a significant number of ‘speculative’ applications as each application is to be accompanied by the application fee of, currently, £2000. We similarly recognise that ‘breaks in authorisation’ such as those we have considered might occur where the insolvency practitioner holds a pass in the Joint Insolvency Exam and consequently the regulations are drafted to accommodate applicants in this position too.  

The effect of this policy change is to allow insolvency practitioners who were authorised to act or held an authorisation but who are not so ‘authorised’ at the date of application and who may or may not hold a pass in the Joint Insolvency Exam to apply to the Secretary of State for ‘re-authorisation’.  

Regulation 7 – This regulation applies to applicants who have neither held an authorisation from the Secretary of State nor been authorised to act by a Recognised Professional Body. All applicants must hold a pass in the Joint Insolvency Exam or equivalent, and have a good command of the English language.  

Regulation 8 – This regulation applies to applicants who have either previously held an authorisation from the Secretary of State or have been authorised to act by a Recognised Professional Body but are not so authorised at the date of application; and, applicants who at the date of application hold an authorisation from the Secretary of State or are authorised to act by a Recognised Professional Body, including applicants who do not hold a pass in the Joint Insolvency Exam (or equivalent) but have previously been authorised by the Secretary of State or a Recognised Professional Body.      

Regulation 8(2)(a) – When an applicant is seeking ‘re-authorisation’ by the Secretary of State regulation 8(2)(a) provides two sets of practical experience criteria either of which can be relied upon by the applicant. Each set of criteria is mutually exclusive.  Regulation 8(2)(a) also extends the categories of practical experience that can be relied upon by a holder of an authorisation to include regulatory work experience and advisory work experience. The definitions of such experience are included in regulation 5.  

Regulation 8(2)(b) – Introduces a new prescribed requirement to the regulatory regime, which applies to an applicant seeking ‘re-authorisation’ by the Secretary of State. All applicants must have completed at least 108 hours of Continuing Professional Development (CPD) in the three years immediately preceding the date of his or her application; 54 of those 108 hours must fall into specific categories as detailed in regulation 8(3)(b)(i) – (v).  In each of the three years the applicant must undertake a minimum of 12 hours CPD the balance being achieved in the remaining year(s) in the period.   

Regulation 8(3) – Directs an applicant as to the nature of CPD required and provides for all CPD activity to relate to insolvency law or practice or to the management of the practice of a insolvency practitioner. Matters 8(3)(b)(i) – (v) represent what is often termed ‘structured learning’, 8(3)(b)(vi), ‘unstructured learning’.   

Regulation 8(4) – The requirement to have completed CPD in order to comply with the requirements for authorisation will become effective on the third anniversary of commencement i.e. 1^st April 2008. Consequently, an applicant applying for an authorisation from the Secretary of State between commencement and the third anniversary of commencement will not have to meet the requirement of the regulation but will have to do so when applying for authorisation thereafter. It’s important to note that whilst regulation 8(2)(b) does not apply until the third anniversary of commencement, regulations 9 and 11(1)(c) will apply from 1^st April 2005.  

Regulation 9 – Introduces new prescribed requirements as to the content and maintenance of records of CPD. This regulation will apply from commencement.        

Regulation 11 – Introduces a new prescribed requirement to the regulatory regime for a holder of an authorisation from the Secretary of State to submit an annual return providing information to the Secretary of State, which will assist in making ‘risk assessments’ in pursuance of the statutory monitoring function by, for example, monitoring the number of open cases and the number of hours worked being recorded ‘against’ each case. The return will be in respect of each period of 12 months ending on 31 December and will be submitted to the Secretary of State within one month of that date. The first return to be submitted will be for the 12 months to 31 December 2005. The regulation also provides for the Secretary of State to request, at any time, information relating to any matters therein and for that request to be complied with, within one month. 

Regulation 12(1)Sets out the requirements for Security and Caution for the Proper Performance of the Functions of an insolvency practitioner and directs the reader to Schedule 2 to the new Regulations.  

Regulation 12(2)- This regulation clarifies the requirements where more than one office-holder has been appointed.  

Regulation 13(1) – Sets out a prescribed requirement for a minimum ‘body of records’ that an insolvency practitioner must maintain in respect of each case to which he is appointed office-holder. The minimum of information required is set out in Schedule 3 to the regulations.  

Regulation 13(2) – The effect of regulation 13(2) is to establish the requirement that all records maintained pursuant to paragraph (1) of this regulation are maintained on a contemporaneous basis.  

Regulation 13(5) – Provides for records to be preserved for a period of six years from either the date of release or discharge of the insolvency practitioner, or the expiry of any security or caution maintained in respect of the case, whichever is later. 

Regulation 16 – Where the holder of an authorisation from the Secretary of State is, or has been, office-holder, this regulation provides for the Secretary of State, upon the giving of reasonable notice, to inspect and take copies of those records relating to the case as set out in regulation 16(2) but which may not be held directly by the holder of the authorisation.  

Regulation 17 – Provides for the Secretary of State to inspect and take copies of records relating to administration and administrative receivership proceedings. The extent to which the regulation will be utilised will be limited to the Secretary of State’s supervisory and monitoring functions.    

Schedule 1 – Provides a summary of statutory instruments to be revoked on commencement of the insolvency practitioners Regulations 2005 

Sch 2 Part 2 para. 3(3)(a) – The terms of the bond may provide for a limit to be placed on the total amount of bond cover available to an insolvency practitioner for all cases to which he is appointed. That limit cannot be less than £25,000,000.  

Sch 2 Part 2 paras. 4 and 5– The definition of “insolvent’s assets” is given at Schedule 2 Part 1 paragraph 1 to the Regulations. All of the assets – subject to paragraph 4(a) and (b) are to be bonded for from the outset, including cases where assets are received over the course of the administration (e.g. in Voluntary Arrangements and Trust Deeds) and irrespective of whether or not the assets are in his, the office-holder’s, possession; the legislation does not provide for ‘staged realisation’ of assets. Interest paid and antecedent recoveries comprise in the insolvent’s assets.

Sch.3 para. 13(c) – Provides for the amount of capital returned to be included in the ‘body of records’.

Sch.3 para. 15 – Establishes the requirement that time-records must be maintained as a feature of the minimum ‘body of records’ that an insolvency practitioner must maintain pursuant to regulation 13 in relation to each case to which he is appointed.  

Insolvency Practitioners should note that The Insolvency (Amendment) Regulations 2005 which amend the Insolvency Regulations 1994 (S.I. 1994/2507) – introduces a new prescribed requirement (regulation 36A) providing for any creditor, contributory, director and bankrupt to be provided within 28 days of the receipt of the request and free of charge, a statement of time and cost expended on a case, in the terms set down in the provision. The vires for the Secretary of State’s power to make regulations are provided by rule 12.1 of the Insolvency Rules 1986 and sections 411 and 412 of the Insolvency Act 1986.  Rule 12.1(1) does not include insolvency practitioners acting in the capacity of nominee and supervisor, and therefore regulation 36A does not extend to insolvency practitioners as officeholder in an IVA or CVA

We anticipate that such a statement will be founded upon the information maintained pursuant to paragraph 15 of Schedule 3 to the Insolvency Practitioners Regulations 2005.

Some consultees felt that the time-recording requirement was unnecessary given that, in their view, appropriate mechanisms – SIP9, fees charged on a percentage basis, and the fact that fees tend to be agreed in Individual Voluntary Arrangements – already exist by which fees can be calculated: this is not disputed. However, whilst we can see that time-recording information can be utilised in this fashion, that is not the reason we have introduced the requirement. Rather it will add transparency and openness to all insolvency proceedings; and creditors and others will be entitled to access to that information. It will also enable insolvency practitioners to comply with the Court Practice Direction on the Remuneration of Office-holders that came into force on 1^st October 2004.     

Time/cost statements will be provided to creditors and others entitled to them on a request basis for no charge. There is no on-going obligation on an insolvency practitioner to provide time/cost statements throughout the period of the proceedings based on a single request; each request is separate and requires only the most recent time/cost statement in response. Time/cost statements produced in response to requests are produced at six-month intervals and must cover the period of the insolvency procedure from the date of the office-holder’s appointment. Any person requesting a time/cost statement within the first six-months of the date of appointment should be advised that the relevant statement will be produced at six months and the statement should then be provided at that date. Any request for a time/cost statement received within the second six months of appointment will be provided with the statement produced at the end of the first six months; any request received in the third period of six months from the date of the office-holders appointment will be provided with the statement produced at the end of the second six months, which will be a time/cost statement covering the period of twelve months from the date of the office-holders appointment. All requests for statements should be complied with within 28 days of receiving the request. 

General enquiries may be directed to IP Policy Section Email: IPPolicy.Section@insolvency.gsi.gov.uk Telephone 020 7291 6772

16. Consolidation of Secondary Insolvency Legislation 

Insolvency practitioners are informed that The Insolvency Service has just commenced a project to review, and consolidate the secondary insolvency legislation to produce replacement instruments that will take account of the numerous amendments that have been made over the periods that the legislation has been in force. 

Within this project it is proposed to review the operation of the Insolvency Rules 1986 and to consider what scope there is for:

·        Simplification;

·        Modernisation;

·        Innovative change, and

·        Removal of any unnecessary burdens. 

As well as the Insolvency Rules themselves, we will also be reviewing and consolidating the instruments listed below:  

·        The Insolvent Partnerships Order 1994

·        The Administration of Insolvent Estates of Deceased Persons Order 1986

·        T