Under sections 189 and 328 of the Insolvency Act 1986 a surplus remaining after debts have been paid in full, is to be used in paying interest on those debts, either at the rate specified in section 17 of the Judgements Act 1838 or at the contractual rate, whichever is greater. As from 1 April 1993 the rate specified in Section 17 was reduced from 15% to 8%, and only applied to liquidations or bankruptcies commencing after that date.

The Service’s view is that paragraph 1 of schedule 4 to the Act does not apply so as to require a liquidator to obtain sanction under section 165 or 167 before paying the preferential creditors in full.

Paragraph 1 of schedule 4 is concerned with the powers of a liquidator to pay any class of creditors in full. The liquidator has a duty (imposed by section 175 of the Act) to pay the preferential creditors in full, after paying the expenses of a winding up, provided there are sufficient assets to meet those debts.

A number of the substantive provisions of the Environment Act 1995, which received Royal Assent on 19 July 1995, are to be brought into force with effect from 1 April 1996, others will be brought into force by subsequent commencement orders. The Act contains a fairly diverse package of environmental measures, some of which are new whilst others amend existing provisions elsewhere in environmental legislation. Important changes are also made with regard to the authorities responsible for overseeing environmental legislation, with two new bodies, the Environment Agency and the Scottish Environment Protection Agency, being created. It is not possible to review in detail all the provisions of the Act which may have an impact on insolvency practitioners. However, particular attention is drawn to the following.

Contaminated Land - Powers are granted to local authorities and the Environment Agency to require owners and occupiers of contaminated land to take remedial action by service of a "remediation notice" setting out what must be done, and by when, to clean up the damage. Default in complying with a remediation notice may lead to the local authority or Agency carrying out the work. Failure to deal with such a notice is an offence and may lead to liability for the authority's or Agency's remediation costs. However, insolvency office-holders will not be guilty of such an offence, nor personally liable for the costs of clearing up, provided the damage requiring remediation is not attributable to any unreasonable act or omission on their part. The full provisions are set out at section 57 of the Act which inserts new sections 78A-78YC into the Environmental Protection Act 1990.

Abandoned Mines - Any person operating a mine is required to give six months notice to the Environment Agency or the Scottish Environment Protection Agency, as appropriate, of any proposed abandonment of the mine. The definition of abandonment is very wide and may, for example, include discontinuance of mining activities, cessation of the working of any seam or vein, or the discontinuance of water removal operations. It is a criminal offence to fail to comply with this requirement. Insolvency practitioners appointed, or contemplating appointment, in respect of any insolvent estate which has an interest in a mine will need to be aware of this requirement. An insolvency practitioner's duty to comply with this provision is not removed by a disclaimer made in respect of a mine under insolvency legislation. The full statutory provisions are set out at section 58 and 59 of the Act which insert new sections 91A and B into the Water Resources Act 1991 (England and Wales) and section 30Y and Z into the Control of Pollution Act 1974 (Scotland).

Powers of Entry and to Require Information - Powers are given to enforcing authorities (which include the Environment Agency and local authorities), or a person authorised by those authorities, to enter premises for various purposes in connection with pollution control. Information and documents, including extracts from any computerised records, may also be required from any person thought to be capable of supplying that information or those documents. It is an offence to obstruct an enforcing authority, or any duly authorised person, or, without reasonable excuse, to fail to supply information or documents requested. Any insolvency practitioner acting in relation to an estate in respect of which any of these powers is exercised would be obliged to comply with the provisions. The provisions are set out at section 108-110 of the Act.

Contact: Mike Edbury, Insolvency Practitioner Section, the Insolvency Service, PO Box 203, 21 Bloomsbury Street, London WC1B 3QW (telephone 020 7291 6771/2)

4.    Criminal Procedure and Investigation Act 1996 (The Act)

1. The disclosure provisions of the Act came into operation on 1 April 1997, and together with the associated Code of Practice comprise a new regime for cases where a criminal investigation commenced on or after that date.

The Act introduced a three-tier system of disclosure namely: -

1. Primary disclosure - the duty of the prosecutor to disclose prosecution material to the defence which, in the opinion of the prosecution, undermines the case for the prosecution against the accused. Primary disclosure is triggered where the accused faces summary trial (i.e. in a Magistrates Court) and pleads not guilty, or the accused is committed, or the case is transferred, for trial by jury.
2. Defence statement – is a statement setting out in general terms the nature of the defence, indicating the matters on which the accused takes issues with the prosecution, and in the case of each matter, the reasons why. A defence statement is compulsory for an accused facing trial by jury, provided that the Prosecution have complied with their primary disclosure duty, and is optional for an accused facing a summary trial. A defence statement must be served on the prosecution within 14 days of primary disclosure being made.
3. Secondary disclosure – as soon as is reasonably practicable following receipt of a defence statement, the prosecution has to provide details of any additional information which had not previously been disclosed and which might reasonably be expected to assist the accused’s defence as set out in the defence statement.

2. In addition, the Code of Practice provides that following a conviction, all material which was relevant to the investigation must be retained for periods which can be broadly outlined as:

1. in the case of a custodial sentence, until six months after the conviction or until that sentence is completed, whichever is the later;
2. in the case of a non-custodial sentence which is to run for a particular period (e.g. a probation order), until that sentence has ended.

3. The Act will create additional work for the Official Receiver (OR), who will be required to provide a detailed analysis of material which comes into his possession, or is generated during the course of his dealing with a case, when submitting prosecution reports to the Service’s Headquarters. That analysis will include details of an insolvent’s accounting records, books, papers, etc. Where a criminal investigation/prosecution results from a prosecution report submitted by the OR, material relevant to the investigation will include all books, records, papers, documents etc mentioned above. Following a conviction the OR will have to retain such "relevant material" in line with paragraph 2 above.

The effect on insolvency practitioners

4. Where such records etc have been handed over to an insolvency practitioner (IP), the requirements imposed on the OR above will not be extinguished. The Act itself does not impose requirements upon IPs to maintain and list insolvent’s records, documentation etc and there is no alteration to the existing policy of handing an insolvent’s accounting records to an IP appointed as trustee or liquidator of the insolvent’s estate.
5. The Act places no obligation upon IPs to either retain material or to reveal its existence to an investigator or prosecutor, but it is likely that such requests will be made by investigators. If an investigator believes that an IP may be in possession of material that may be relevant to the investigation, the IP will be notified that an investigation is taking place and will be invited to retain the material in case they receive a request for its disclosure. An accused person may also request access to, or information on, material held by practitioners.
6. In view of the requirements imposed upon the OR outlined in paragraph 3 above, it is essential that an insolvent’s books, papers, etc are accurately maintained, notwithstanding that the material may be in the possession of an IP. Accordingly, IPs are requested wherever possible, to maintain an insolvent's accounting records, etc in the same format in which they are collected, e.g. records should not be re-boxed unless absolutely necessary. Where an IP feels that the records must be re-boxed or re-organised in order to assist his administration, it would assist if a file note could be kept amongst the practitioner’s working papers, recording the date that re-boxing etc occurred, and a brief explanation of the reason why it was required.

5.    Civil Procedure Rules 1998

New Civil Procedure Rules (CPR) were introduced on 26 April 1999. This will necessitate some amendment of insolvency secondary legislation in areas where that legislation currently makes reference to, and is dependent for its operation on, the Supreme Court Rules or the County Court Rules. General references to the existing court rules will be replaced with reference to the corresponding new rules. Where currently used terms will cease to be used under the CPR (i.e. discovery) they will be replaced by the new term (i.e. disclosure). There will be two new statutory instruments - the Insolvency (Amendment) (No.2) Rules 1999, and the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1999 - these have been available from HMSO since 16 April 1999.

Practitioners should note that the provisions of the CPR will only apply to insolvency proceedings to the extent that they are consistent with the Insolvency Rules.

(Enquiries arising from the above should be addressed to Richard Favier on 020 7637 6421).

The statutory right for small businesses to claim interest from larger businesses and public sector bodies from 1 November 1998 will have implications for practitioners dealing with proofs of debt and book debts in insolvencies. The Late Payment of Commercial Debts (Interest) Act 1998 provides the right to claim interest when payment is made after the agreed credit period, or 30 days if no credit period has been agreed. The interest rate will be set at 8% above the Bank of England base rate.

This article seeks to provide information about a change to the status of (some) student loans in the context of bankruptcy.

The student loans regime changed with the enactment of the Teaching and Higher Education Act 1998 and the Education (Student Support) Regulations 1999 which came into force on 3 March 1999.

Where a student loan is made under the 1999 regulations, it shall not be claimed as part of the bankrupt's estate, either as vesting property, or after acquired property, or as part of an income payment order. An outstanding loan is now not excluded from being a bankruptcy debt, and so will be released on the discharge of the bankrupt.

Therefore where at the date of a bankruptcy order the bankrupt has an outstanding debt in respect of a student loan made under the new arrangements, it should be scheduled as a debt in the usual way, with the Student Loans Company Limited of 100 Brothwell Street, Glasgow G2 7JD being added to the list of creditors. This company will submit a claim in cases when the loan was made under the Student Support Scheme but will not submit a claim where the loan was made under the old Student Loans Scheme, i.e. under the former arrangements.

The deciding factor is the scheme under which the loan was made, not the date in which, the new regulations came into force, namely 3 March 1999.

8.    Data Protection Act 1998. How we collect and use information?

Under the Data Protection Act 1998 (the Act) persons who process personal data ("Data Controllers") are obliged to tell the people they have information on ("Data Subjects") certain details about the data held. This article complies with that obligation with regard to the personal data held by the Service relating to Insolvency Practitioners (IPs).

Individual Official Receivers (ORs) and the Secretary of State (SoS) are Data Controllers for the purposes of the Act. Practitioners should also be aware that under the terms of the legislation they may also be "Data Controllers".

ORs and the Service hold information about current and former IPs, and applicants to the SoS for authorisation as IPs, for the purposes of recording details of trustees and liquidators, and also for registration and authorisation purposes.

The Service may check information provided by individual IPs, or by a third party, with other information held in-house. Information may also be passed to third parties in order to check its accuracy, or for regulatory or enforcement purposes.

As data subjects, individual IPs are entitled to know what information ORs/the SoS hold about them. The Service is not however required to disclose information which would be likely to prejudice the proper discharge by The Service of functions designed to protect members of the public against dishonesty, or other serious misconduct.

Any IP wishing to know more about the information held about him or her, or the purposes for which it is held, should contact the Data Protection Liaison Officer (DPLO) at Insolvency Practitioner Section, 21 Bloomsbury Street, London, WC1B 3QW. The DPLO will respond with full details of the type of information that can be provided. The DPLO will also provide a standard data request form for completion and return, together with payment of the relevant fee and appropriate form of identification. Upon receipt of the completed request form and fee the DPLO has 40 days in which to deal with the request. The IP should inform the DPLO, in writing, of any inaccuracy in the information provided.

9.    Introduction of Some of the Pensions and Bankruptcy Provisions of the Welfare Reform and Pensions Act 1999

The following provisions of the Welfare Reform and Pensions Act 1999 came into force on 29 May 2000 and will not apply retrospectively:-

Section 11 (1), (2), (3) and (11);
Section 13 (1) and (2);
Section 18 (so far as it relates to paragraph 1 and 2 of Schedule 2); and
Schedule 2 – paragraph 1 and 2

Section 11 (12) of the Act will come into force on 1 December 2000.

Section 11 excludes all right under ‘approved pension arrangements’ (as defined in that Section) from the bankrupt’s estate. Section 11 will apply to proceedings where the bankruptcy petition was presented on or after 29 May 2000.

The new provisions will not affect the making of income payments orders under Section 310 of the Insolvency Act 1986 or Section 32(2) of the Bankruptcy (Scotland) Act 1985. Pensions payments can be taken into account when calculating a bankrupt’s income for the purposes of an income payment order.

Regulations that will allow the recovery of excessive contributions from protected pensions and to protect less common types of pensions from seizure on bankruptcy should be introduced early in the next session of Parliament.

10. EC Regulation on Insolvency Proceedings

GUIDANCE NOTES 

                    Part I – An Overview of the Regulation 

                    Part II – Flowcharts of Certain Procedures & Provisions 

                    Part III – Legislative Changes

PART I – An Overview of the Regulation

1.            Background

The EC Regulation on insolvency proceedings (“the Regulation”) was adopted by the Council of the European Union on 29 May 2000 and comes into force throughout the EU on 31 May 2002.  (In fact, Denmark is not a party to the Regulation and where in this document reference is made to the EU or its member states that excludes Denmark).  The purpose of the Regulation is to improve the efficiency and effectiveness of insolvency proceedings with a cross-border dimension by either simplifying or removing formalities previously associated with recognition and enforcement.  The Regulation is not an attempt to harmonise the insolvency laws of the individual member states but rather it provides a framework within which the different insolvency regimes can interact with more predictable outcomes.

Unlike an EU directive, the Regulation does not need to be implemented by the member states.  It is directly applicable and becomes an integral part of each member state’s law.  The Regulation will prevail in the event of any incompatibility with the national law. However, in order to ensure that the Regulation will be fully workable and enforceable in the United Kingdom, a small number of amendments will be made to both primary and secondary insolvency legislation.  An indication of the changes likely to be made in relation to England and Wales (the corporate primary legislation changes will also apply in relation to Scotland) are given in Part III of this document. 

2.            Scope of Application

The Regulation applies only where a debtor has his centre of main interests (see recital 13) within the EU and deals only with jurisdiction within the EU .  It is applicable to collective insolvency proceedings in relation to individuals and legal persons, but not to insurance undertakings, credit institutions (for which separate directives are to be implemented) and certain investment undertakings (article 1).  To be covered by the Regulation, member states’ insolvency proceedings must not only comply with the general provisions of article 1.1, they must also be listed in Annex A and/or B to the Regulation.  For the purposes of the Regulation, the United Kingdom represents one jurisdiction and includes Gibraltar.   The relevant proceedings in relation to the United Kingdom are:

• Winding up by or subject to the supervision of the court

• Creditors’ voluntary winding up (with confirmation by the court)

• Administration

• Voluntary arrangements under insolvency legislation

• Bankruptcy or sequestration 

A creditors’ voluntary winding up will not enjoy the benefits of automatic recognition and enforcement without a formal confirmation by the court.  A new procedure will be put in place for this purpose (see Part III). 

The Regulation does not apply to receiverships – administrative or otherwise.  The insolvency of the debtor is a prerequisite for recognition and consequently the Regulation does not apply to members’ voluntary winding up or to winding-up orders made solely on just and equitable grounds. 

The Regulation has no retrospective effect.  Under article 43, it applies only to relevant insolvency proceedings opened (see article 2(f)) on or after 31 May 2002.  Acts done by the debtor before that date will continue to be governed by the law which was applicable to them at the time they were done. 

3.            Proceedings under the Regulation

Article 3 of the Regulation permits member states’ courts (defined for these purposes more broadly than usual - see article 2(d)) to open two types of insolvency proceedings. 

Main Proceedings.  These can be opened only in the member state where the debtor has his “centre of main interests” (the place where he conducts the administration of his interests on a regular basis and which is consequently ascertainable by third parties – recital 13).  Subject to the existence or subsequent opening of territorial proceedings (which largely oust the jurisdiction of main proceedings in the member state where the territorial proceedings are opened) main proceedings have universal effect throughout the EU. 

Territorial Proceedings.  These can be opened in any member state in which the debtor has an establishment (defined in article 2(h) of the Regulation as “any place of operations where the debtor carries out a non-transitory economic activity with human means and goods”). Their effects are restricted to those assets situated (see article 2(g)) in that member state.  Where such proceedings are opened after main proceedings, they are termed secondary proceedings and can only be winding-up proceedings (listed in Annex B), and not rescue or rehabilitation proceedings. 

From a United Kingdom perspective, a number of important changes flow from this.  Firstly, the wide jurisdiction which United Kingdom courts have asserted to open insolvency proceedings in relation to debtors whose centre of main interests is not in the United Kingdom will be restricted.  Secondly, the scope to request the opening of territorial proceedings before the opening of main proceedings is limited to those creditors established in that state or whose claim arises directly from the operation of the establishment (article 3.4).  Finally, the reach of the “liquidator” (the term the Regulation uses for the insolvency officeholder – see Annex C) in territorial proceedings is restricted to those assets situated in the member state where the proceedings were opened, irrespective of whether or not main proceedings have been opened in relation to the debtor. 

4.            The Law Applicable

Under the Regulation, the general rule is that the national law of the state in which the proceedings are opened is the applicable law and it is that law that determines the conditions for the opening, conduct and closure of the proceedings.  Article 4.2 contains a non-exhaustive list of the matters to be determined by the law of the proceedings.  Importantly, however, the Regulation contains a number of substantive conflict of laws provisions.  These are exceptions to the general rule and have the effect of subjecting situations where, for example, property is, or parties are, situated in a member state other than that in which the insolvency proceedings have been opened to laws other than that of the proceedings.  Clearly it would be impractical to explore these complex provisions in any detail in guidance of a general nature, but the conflict provisions apply in the following areas :- 

1. Creditors or third parties holding secured (or “in rem”) rights over assets (article 5).
2. Set off (article 6).
3. Reservation of title (article 7).
4. Contracts relating to immovable property (article 8).
5. Rights and obligations in relation to payment or settlement systems or financial markets (article 9).
6. Employment contracts and relationships (article 10).
7. Effect of insolvency proceedings on debtor’s rights in immovable property, ships or aircraft subject to registration in a public register (article 11).
8. Community patent, trade mark or similar rights (article 12).
9. Voidness, voidability or unenforceability of detrimental acts (article 13).
10. Protection of third party purchasers of immovable or registered assets (article 14).
11. Effect of insolvency proceedings on pending lawsuits concerning assets or rights of which the debtor has been divested (article 15).

5.            Recognition of Insolvency Proceedings

Currently the process of obtaining recognition from a foreign court can be slow and costly and consequently be detrimental to the interests of creditors.  The Regulation makes major advances in the areas of international recognition of insolvency proceedings and the exercise abroad of the liquidator’s powers. 

In future, proceedings opened under the Regulation will be recognised without any formality in all member states, subject only to normal public policy considerations (articles 16 and 26).  Main proceedings will become immediately effective in all member states as long as no territorial proceedings have been opened there (article 17).  Subject to the same condition, the liquidator appointed in main proceedings will immediately be able to exercise his powers in other member states and even the liquidator in territorial proceedings will be able to act to recover assets removed to another member state after the proceedings for which he was appointed were opened.  At all times the liquidator must comply with the general law of the member state in which he intends to take action, but a certified copy of his appointment (with an appropriate translation) is all that he will need to be able to act (articles 18 and 19). 

Historically, insolvency is an area that has been excepted from the ambit of the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters.  Now, under article 25 of the Regulation, certain specified judgments of the court which has opened insolvency proceedings will also be recognised without formality and fall to be enforced in accordance with the Brussels Convention. 

The Regulation contains substantive provisions dealing with the position of creditors who have obtained payment after the opening of insolvency proceedings, as well as by way of distribution in other insolvency proceedings (article 20) and the effectiveness of discharge of third party obligations after the opening of proceedings (article 24).  So as to achieve greater certainty in these areas, liquidators are permitted to publish notice of the judgment opening their proceedings in other member states (article 21).  The liquidator in main proceedings is also authorised to request registration of the judgment in the public registers (for example, the Land Register) in other member states. 

6.            Secondary Insolvency Proceedings

For the purpose of improving the efficiency and effectiveness of insolvency proceedings which have cross-border effects, the Regulation provides a structure for the interaction of multiple insolvency proceedings in relation to the same debtor.  

The Regulation affords primacy to main insolvency proceedings and the opening of such proceedings will serve as proof of the debtor’s insolvency for the purposes of opening secondary insolvency proceedings.  To achieve this primacy the Regulation not only imposes a duty on liquidators to cooperate with and communicate information to each other, it also provides the liquidator in main proceedings with a range of powers in relation to secondary proceedings.  He is empowered to – 

• request the opening of secondary proceedings (article 29)
• request the stay of the process of realisation of assets in secondary proceedings (article 33)
• propose a rescue plan or composition in secondary proceedings (article 34)
• request that pre-existing territorial proceedings be converted into winding-up proceedings (article 37).

Where territorial insolvency proceedings have been opened before main proceedings, following the opening of main proceedings they are thereafter to be treated as secondary proceedings insofar as the progress of those proceedings allows (article 36). 

7.            Information for Creditors and Proving of Claims

The Regulation’s provisions in relation to the provision of information to creditors and the proving of claims are generally straightforward but occasionally novel. 

Any creditor whose habitual residence, domicile or registered office is in an EU member state is entitled to prove his claim in insolvency proceedings opened in another member state (article 39).  Such creditors are to be given notice of the opening of proceedings and of any specific requirements or provisions of the particular member state relating to the process of proving claims (article 40).  This notice has to be accompanied by a form indicating that it includes an invitation to lodge a claim and that there are time limits to be observed. That information is to be given in all the official languages of the institutions of the European Union (see schedule A). Creditors are required to provide appropriate information and documentation to support their claims (article 41).  Under article 42, creditors are permitted to use their native language when proving their claims, but they can be required to provide a translation into the language of the state in which the proceedings were opened. 

The novel aspect of the Regulation in relation to proving of claims is that, not only are liquidators in both main and secondary proceedings empowered to participate in other proceedings on the same basis as the creditor, they can also prove the claims which have been proved in proceedings for which they were appointed in other insolvency proceedings (article 32).

SCHEDULE A

Headings in all the official languages of the forms provided by Article 42 of Council Regulation (EC) No 1346/2000 of 29.5.2000, OJ L 160, p.12.

(es, da, de, el, en, fr, it, nl, pt, fi, sw)

ART.42 (1):

«Convocatoria para la presentación de créditos. Plazos aplicables».
»Opfordring til anmeldelse af fordringer. Vær opmærksom på fristerne«
„Aufforderung zur Anmeldung einer Forderung. Etwaige Fristen beachten!“
«Προ΄σκληση για αναγγελι΄α απαιτη΄σεως. Προσοχη΄ στις προθεσµι΄ες»
‘Invitation to lodge a claim. Time limits to be observed’
«Invitation à produire une créance. Délais à respecter»
«Invito all’insinuazione di un credito. Termine da osservare»
„Oproep tot indiening van schuldvorderingen. In acht te nemen termijnen”
«Aviso de reclamação de créditos. Prazos legais a observar»
”Kehotus saatavan ilmoittamiseen. Noudatettavat määräajat”
”Anmodan att anmäla fordran. Tidsfrister att iaktta”

ART.42 (2):

«Presentación de crédito»
»Anmeldelse af fordring«
„Anmeldung einer Forderung“
«Αναγγελι΄α απαιτη΄σεως»
‘Lodgement of claim’
«Production de créance»
«Insinuazione di credito»
„Indiening van een schuldvordering”
«Reclamação de crédito»
”Saatavaa koskeva ilmoitus”
”Anmälan av fordran”

PART II - Flowcharts of Certain Procedures & Provisions

Download/View in Word format

Download/View in PDF format

PART III  - Legislative Changes

Since the Regulation is directly applicable, it does not need to be implemented by the EU member states. Where there is any conflict between the Regulation and national law, the Regulation will prevail. However, it will be necessary to make some limited changes to both primary and secondary insolvency legislation in the UK to ensure that the Regulation will be fully workable and enforceable. Details of the areas to be covered in the relation to England and Wales are provided below. 

Insolvency Act 1986 

The Regulation’s impact is likely to be noticed most in two areas – (1) jurisdiction to open insolvency proceedings and (2) the property that is capable of being dealt with in those proceedings. Accordingly, the Act’s jurisdictional provisions (sections 117, 120, 221, 225 and 265) will be amended as necessary and new provisions will be introduced to modify the definition of “property” in section 436. A number of other definitional provisions will be introduced and the rule-making powers in sections 411 and 412 will be extended to enable rules to be made to give effect to the Regulation. 

Insolvency Rules 1986 

A range of amendments to the Rules will be needed, primarily to ensure that – 

a)      the question of the Regulation’s applicability (or not) is addressed at the stage when the opening of insolvency proceedings is contemplated; and 

b)     appropriate effect is given to the extensive role that the Regulation gives to member state liquidators in the insolvency process. In particular, provision will be made to deal with applications for the conversion of territorial administration and voluntary arrangement proceedings into winding-up proceedings. 

Provision will also be made for applications by liquidators for confirmation by the court of creditors’ voluntary winding-up proceedings. Such confirmation will be required for the proceedings to be recognised and (where applicable) enforceable in other EU member states. 

As a result of the Regulation, a number of the statutory forms (relating primarily to the opening of insolvency proceedings) will require to be modified. A limited number of new forms may also need to be introduced.

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

Telephone: 0207 291 6740

11. PENSIONS UNDER THE WELFARE REFORM AND PENSIONS ACT 1999

Welfare Reform and Pensions Act 1999 (Commencement No 13) Order 2002 

The Welfare Reform and Pensions Act 1999 (Commencement No 13) Order 2002 [SI 2002/153(C3)] came into force on 6 April 2002.  The following are the main provisions that are now brought into force in the Welfare Reform and Pensions Act 1999 (WRPA 1999):- 

• Section 11(4) to (10) – the effect of bankruptcy on pension rights: approved arrangements, as far as not already in force.
• Section 12 – the effect of bankruptcy on pension rights for unapproved Arrangements, as far as not already in force (see also article 12 on the Regulations below)
• Section 13 – as far as not already in force, and applies to Scotland the provisions of Sections 11 and 12.
• Section 14 – provides that rights under pension schemes cannot be forfeited on bankruptcy.
• Section 15 – introduces Sections 342A to 342C into the Insolvency Act       1986, so far as not already in force.  The trustee in bankruptcy may recover excessive pension contributions. 
• Section 16 – as far as not already in force, applies in Scotland and amends Sections 36A to 36C of the Bankruptcy (Scotland) Act 1985.  Excessive pension contributions may be recovered where a debtor’s estate is sequestrated.
• Paragraphs 67 –72 of Schedule 12 – introduce Sections 342D to 342F into the Insolvency Act 1986.  The trustee may seek to recover excessive pension contributions from a bankrupt’s ex-spouse where the pension has previously been shared on divorce.

(Article 9 on page 17.6 first published in Dear IP no. 50, June 2000 provided information on the introduction of parts of the WRPA 1999 on 29 May 2000, principally Section 11(1) and (2) of that Act. Section 11(1) provides that any approved pension arrangement is excluded from the bankruptcy estate in cases where the bankruptcy order was made on a petition which was presented on or after 29 May 2000. (Section 13 WRPA 1999 came into force on that date and applied Section 11 to Scotland.))  

12.   The Occupational and Personal Pension Scheme (Bankruptcy) (No 2) Regulations 2002

The Occupational and Personal Pension Scheme (Bankruptcy) (No 2) Regulations 2002 [SI 2002/836] came into force on 6 April 2002.  The main provisions are as follows:

• Regulation 2 – prescribes those arrangements that will be ‘approved pension arrangements’ and are excluded from a bankrupt’s estate by Section 11 of the WRPA 1999.  This is in addition to the arrangements already excluded from a bankrupt’s estate by Section 11(2) WRPA 1999 (which came into force on 29 May 2000).    (Regulation 11 applies Regulation 2 to Scotland.)

• Regulation 3 (for England and Wales) and Regulation 12 (for Scotland) – prescribe the types of unapproved pension arrangements that can be considered under Section 12 WRPA 1999 and the conditions that must be met for them to be excluded from a bankrupt’s estate. 

• Regulations 4,5 and 6 (for England and Wales) and Regulations 13, 14 and 15 (for Scotland) - Unapproved pension arrangements may in some circumstances be excluded from a bankrupt’s estate. To do so the bankrupt must either apply to the court for an exclusion order or make a qualifying agreement with his trustee in bankruptcy. Time limits apply to the making of such an application and entering into such an agreement, which may be extended by the court.    

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

Telephone: 0207 291 6740

13.   The Occupational Pension Schemes (Winding Up Notices and Reports etc) Regulations 2002 

The Occupational Pension Schemes (Winding Up Notices and Reports etc) Regulations 2002[S.I 2002/459] came into effect on 1 April 2002.  Regulation 3(1) introduces a time limit for the appointment of an independent trustee.  Regulation 8 introduces procedures for the modification of a pension scheme to ensure that the scheme is properly wound up. 

Appointment of an independent trustee

Section 23(2) of the Pensions Act 1995 now requires IPs to appoint an independent trustee within three months of either: 

a)   the date the IP first became aware that he had a duty to appoint an independent trustee or

b)   the date that the duty arose,  

whichever is the later.

While the legislation does not impose a penalty for any failure to appoint an independent trustee, IPs are reminded that where an office holder neglects or refuses to carry out his duty to make an appointment, any scheme member can apply (under section 24 of the 1995 Act) for a court order forcing him to deal with the matter.  The Occupational Pensions Regulatory Authority (OPRA) will also consider reporting any failure to appoint an independent trustee to an IP's authorising body. 

Application to OPRA to modify pension scheme

The trustees or managers of a scheme may apply to OPRA for the scheme to be modified to ensure that it is properly wound up.  Where the employer is subject to an insolvency procedure and an application is made which would reduce the amount that might be distributed to the employer on winding up, the office holder must be given notice.  The office holder may make representations to OPRA within one month of the date of the notice. 

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

Telephone: 0207 291 6740

14.   Secure Register for Home Addresses 

IPs' attention is drawn to The Companies (Particulars of Usual Residential Address)(Confidentiality Orders) Regulations 2002 and The Limited Liability Partnerships (Particulars of Usual Residential Address)(Confidentiality Orders) Regulations 2002, The Limited Liability Partnerships (Competent Authority) (Fees) Regulations 2002 and The Companies (Competent Authority) (Fees) Regulations 2002, which came into effect on 2 April 2002. A copy of a letter from Registrar of Companies to The Insolvency Service giving details of the new provisions is set out on the following page. 

The registrar is at present working on the verification of competent authority procedures and guidance, which should be available shortly.  In the meantime, the Administrator of the Secure Register asks that verification requests from IPs are only made if a search of the public register reveals an officer whose address is described as a "service address". 

Extract of letter sent to The Insolvency Service by the Registrar of Companies 

DIRECTORS HOME ADDRESS – PROPOSED NEW REGULATIONS  

“The Regulations are The Companies (Particulars of Usual Residential Address) (Confidentiality Orders) Regulations 2002 and The Limited Liability Partnerships (Particulars of Usual Residential Address) (Confidentiality Orders) Regulations 2002. 

The new Regulations will enable officers and permanent representatives or a person who lives with them of a company and members of a Limited Liability Partnership who consider that they are at serious risk of violence or intimidation to apply for a Confidentiality Order. If a Confidentiality Order is granted the statutory requirement under the Companies Act 1985 and the Limited Liability Partnerships Act 2000 to disclose the usual residential address for the public record is disapplied. Instead, a service address may be filed for the public record and the usual residential address will be held on a Secure Register. 

Information held on the Secure Register would not be made available to the public under the Regulations. However, as a Competent Authority provided for in the Regulations this restriction will not apply to your organisation. Under the Regulations, every Insolvency Practitioner is entitled to access to information on the Secure Register. 

The Regulations require us to have secure and resilient procedures in place to ensure that secure information is provided only to organisations and individuals entitled and authorised to receive the information. We need to put arrangements in place with individual Insolvency Practitioners for us to carry out certain verification procedures before supplying this information so that we can be sure that the information is provided only to those persons entitled to an authorised to receive it.  

Under the Regulations it is an offence to disclose secure information to another party, except under the circumstances described in the Regulations. A person guilty of such an offence will be liable to criminal prosecution. It is vitally important, therefore, that the people authorised to receive this information are fully aware of the requirements of the Regulations and the penalties for failure to observe those requirements.  

A fee of £50 will be payable to cover the costs of carrying out the initial verification checks and establishing secure arrangements for providing this information to your organisation or to authorised individuals within your organisation. A fee of £4 is then payable for the provision of each individual address requested thereafter. 

We will carry out verification checks each time information is requested so that we can be sure that we are only providing information to authorised persons."

Urgent enquiries may be addressed to The Administrator, PO Box 4082, Cardiff, CF14 3WE. Tel 0845 3032400.

Dear IP no 7 of April 2002 drew IPs' attention to provisions for a new secure register for home addresses. The Registrar has recently issued guidance on the procedures for the verification of competent authorities.

The Companies (Particulars of Usual Residential Address) (Confidentiality Orders) Regulations 2002 came into force on 2 April 2002, together with almost identical legislation for Limited Liability Partnerships. This legislation removes the requirement for company secretaries, directors, permanent representatives of foreign companies registered in the UK and members of Limited Liability Partnerships, granted a confidentiality order, to notify their usual residential address to the Registrar of Companies for the public record.

In essence, beneficiaries of a confidentiality order should provide companies/limited liability partnerships, to which they are appointed, with a service address for the public record and changes to their usual residential address for the confidential record. A service address will be clearly denoted as such on the public record. Access to usual residential address information on the confidential record, held by the Registrar of Companies, is limited to those "Competent Authorities" listed in the regulations. Competent authorities include insolvency practitioners.

An IP accessing usual residential information from confidential records, held by the Registrar of Companies, should be mindful of the disclosure prohibitions outlined in regulation 14 of The Limited Liability Partnerships (Particulars of Usual Residential Address)(Confidentiality Orders) Regulations 2002 and The Companies (Particulars of Usual Residential Address)(Confidentiality Orders) Regulations 2002.  In light of regulation 14, and prohibited disclosure being an offence under regulation 17, IPs
should consider whether to seek legal advice before divulging information.

To request information from the confidential record a competent authority must first nominate an address, or addresses, or an individual, or individuals, or a combination as points of contact for the receipt of information. The point of contact must be notified using the appropriate form. The form should be sent, together with a cheque for £50 per location nominated, or £50 per individual nominated, to the Administrator, PO Box 4082, CF14 3WE. There is an additional fee of £4 for each beneficiary’s usual residential address requested. On receipt of the completed form, the nominated point of contact, whether an individual or an address, must be verified to ensure it is genuine.

Once verified the registrar will provide a statement confirming how, when and from where the competent authority may obtain usual residential address information from the confidential record. The statement, called a determination, also contains details of the validation and security procedures.

The Administrator, on behalf of the Registrar of Companies, will be overseeing the process and will provide the appropriate forms, notes for guidance and a draft example of a standard determination. Please refer any queries to the Administrator, PO Box 4082, CF14 3WE, or telephone 0845 3032400.

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

Telephone: 0207 291 6740

1. The Financial Services and Markets Act 2000 (FSMA) came into force on 1 December 2000, establishing the Financial Services Authority (FSA), as the single regulator in the financial services industry for authorising and regulating those types of business. Businesses authorised and regulated under the Act include:

• Banks
• Building societies
• Insurance companies
• Friendly societies
• Credit unions
• Society of Lloyd's
• Investment advisers
• Stockbrokers
• Professional firms offering certain types of investment services
• Fund managers
• Derivatives traders

This list is intended to be illustrative rather than definitive. Regulated activities are not defined in FSMA itself but are listed in the Financial Services and Markets Act (Regulated Activities) Order 2001 SI 2001/544. This Order is amended from time to time to reflect the regulation of new categories of activity, but an up to date version of the Order, as currently amended, can be found on the Treasury website.

2. The FSMA coordinates and modernizes the financial regulatory arrangements that were established and previously operated under a number of different enactments (see page 17.28 for list) and replaces ten different sectoral regulators with a single regulator (the FSA) covering the whole financial services sector. It also introduced a single compensation scheme for consumers. The ten sectoral regulators are:

• The Supervision and Surveillance Division of the Bank of England
• The Securities and Investments Board (SIB)
• The Personal Investment Authority (PIA)
• The Investment Management Regulatory Organisation (IMRO)
• Securities and Futures Authority (SFA)
• The Building Societies Commission
• The Friendly Societies Commission
• The Registry of Friendly Societies
• HM Treasury (formerly DTI) Insurance Division
• UK Listing Authority (UKLA), which was formerly part of the London Stock Exchange

3. The FSMA 2000 gives the FSA powers to ask the courts to wind up, or initiate other insolvency procedures against authorised (and certain other) persons. It also enables the FSA to be heard by the court when other parties commence such proceedings.

4. Insolvency impacts on the regulation of financial services businesses in two ways. First, there are implications for existing customers if a financial service business becomes insolvent. Second, winding up may itself be part of the appropriate regulatory response to events. It may be desirable to wind up a company to protect the interests of existing customers and also those who might otherwise do business with it in future, if it continued to trade. Subject to the particular provisions of Part VII of the Companies Act 1989 for transactions carried out on regulated markets e.g. by those who trade on the Stock Exchange, the general law of insolvency applies, and will continue to apply, to most financial services businesses, as it does to other businesses. However, it is supplemented by provisions that allow the FSA to petition the court for the winding up of an authorised business either on the grounds of insolvency or that it would be just and equitable.

5. The insolvency provisions of the Act establish so far as is practicable, a common approach across all sectors. Sections 359, 367, 372 and 375 provide the FSA with the power to ask the court to initiate various insolvency procedures. Sections 356, 357, 362, 363, 365, 371 and 374 make clear that the FSA has the right to be heard by the court in insolvency proceedings instigated by other parties.

6. Sections 369, 376, 377, 378 and 379 of FSMA carry forward provisions of the Insurance Companies Act 1982 dealing with the insolvency of insurance companies (which because of the particular nature of insurance business, must in some respects be dealt with in a different way to other authorised persons). However, certain changes have been made and they are set out in sections 360 and 366.With effect from 1 December 2001 the Insurers (Winding Up) Rules 2001 replaced the Insurance Companies (Winding Up) Rules 1985. The new rules are largely unchanged in substance, although they make a number of changes to the way in which policies are valued, primarily in schedules 1 – 5.

7. At the same time a number of gaps in the coverage of the predecessor regimes will be filled. Section 359 will allow the FSA to ask the court to make an administration order in respect of authorised businesses, as an alternative to winding up. Section 372 will give the FSA powers to petition the court to declare bankrupt an insolvent trader providing financial services. The FSA previously had such a power in respect of some kinds of authorized businesses, but not in others.

8. The special winding-up regime for banks contained in the Banking Act 1987 remains in place. Similarly the winding up regimes for mutual societies which include building societies, friendly societies or industrial and provident societies remain in the Building Societies Acts 1986 and 1997, the Friendly Societies Acts 1974 and 1992, and the Industrial and Provident Societies Act 1965. These arrangements did not change on the coming into force of FSMA, as section 355(1)(b) expressly provides that Part XXIV of the Act is not to apply to building societies, to friendly societies or to industrial and provident societies.

9. The FSA were required by Part XV of FSMA to set up a statutory scheme for the payment of compensation (The Financial Services Compensation Scheme) to consumers who suffer financial loss as a consequence of the inability of an authorised person to meet its liabilities (see page 17.29). The scheme replaces previous sectoral compensation schemes.

10. A number of consequential amendments have been made to the Insolvency Act 1986, the Insolvency Rules 1986 and the Company Directors Disqualification Act 1986 pursuant to the Financial Services and Markets Act 2000 (Consequential Amendments and Repeals Order 2001, SI 2001/3649). A table of some of those amendments and their effect is set out at the end of this article on page 17.30 Certain other enactments have also been repealed, or substantially repealed, including the Policyholders Protection Acts 1975-97, the Industrial Assurance Acts 1923-48 and the Insurance Brokers (Registration) Act 1977.

The FSA’s address is: -

Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS

Tel: 020 7676 1000

www.fsa.gov.uk

Full information on the Financial Services and Markets Act 2000 can be found on the HM Treasury website:

Amendments have been made, by the FSMA, to the financial regulatory arrangements previously established and operated under the following enactments, although not all of the Acts have been fully repealed:

• the Industrial Assurance Act 1923
• the Industrial Assurance and Friendly Societies Act 1948
• the Industrial and Provident Societies Act 1965
• the Insurance Brokers (Registration) Act 1977
• the Credit Unions Act 1979
• the Insurance Companies Act 1982
• the Financial Services Act 1986
• the Building Societies Acts 1986 and 1997
• the Banking Act 1987
• the Friendly Societies Act 1992

With effect from 1 December 2001 the Insurers (Winding Up) Rules 2001 replaced and repealed the Insurance Companies (Winding Up) Rules 1985 but the content remains substantially the same.

The Financial Services and Markets Compensation Scheme is operated under the auspices of the Financial Services Authority. The new body is responsible for compensation schemes in relation to:

• deposits - 100% of the first £2000 and 90% of the next £33,000 (total £31,700)
• investments - 100% of the first £30,000 and 90% of the next £20,000 (total £48,000)
• insurance
• Compulsory – covered in full
• Non-compulsory – 100% of the first £2000 of a claim or policy, and 90% of the remainder of the claim or value of the unused premiums,
• Long term – 100% of the first £2000, and 90% of the remainder of the value of the policy.

Contact details for compensation scheme:

Financial Services Compensation Scheme
7^th Floor Lloyds Chambers
Portsoken Street
London
E1 8BN

Tel. 020 7892 7300

This table shows the effects on those provisions in Insolvency legislation of interest to IPs by the Financial Services and Markets Act 2000 (Consequential Amendments and repeals Order 2001, SI 2001/3649).

17.   Late Payment of Commercial Debt – New Provisions

The Late Payment of Commercial Debts (Interest) Act 1998 provides the right to claim interest, on qualifying debts, when payment is made after the agreed credit period, or at the end of 30 days if no credit period has been agreed. The interest rate was set at 8% above the Bank of England base rate (SI 2002/1675). Under the Act small business have been able to claim such interest from large businesses and the public sector since 1 November 1998 and from other small businesses since 1 November 2000.

From 7 August 2002 all businesses and the public sector will be able to claim late payment interest from all other businesses and the public sector under the provisions of The Late Payment of Commercial Debts Regulations 2002. The rate of interest claimable will remain 8% over the Bank of England base rate, but will now be calculated using the rate in force on 30 June or 31 December immediately before the day when the interest starts to run.

A new right for the creditor to claim compensation for the costs suffered by suppliers arising from late payment has been introduced. This is a fixed amount based on the size of the unpaid debt, as follows:

These new rights apply only to contracts made on or after 7 August 2002.

Any enquiries about this article should be referred to Policy Unit on 020 7291 6740

18.   INSOLVENCY ACT 2000 - VOLUNTARY ARRANGEMENT PROVISIONS AND OTHER AMENDMENTS 

1.The voluntary arrangement provisions of the Insolvency Act 2000 come into force on 1 January 2003.They will make it easier for small companies and partnerships in financial difficulty to make voluntary arrangements with their creditors by providing the option of a short moratorium to give the firm's management time to put a rescue plan to creditors.  Technical improvements to the existing company and individual voluntary provisions will also come into effect on that day.

2. The provisions are:

Section 1 and Schedule 1 which provide for small companies in financial difficulty to make voluntary arrangements with their creditors by providing the option of a moratorium to give the firm's management time to put a rescue plan to creditors (Company Voluntary Arrangement moratorium)(see Annex A). 

Section 2 and Schedule 2:which provide for technical improvements to the existing company voluntary arrangement procedure and make amendments to the Building Societies Act 1986 (see Annex B). 

Section 3 and Schedule 3: which provide for technical improvements to the existing individual voluntary arrangement procedure (see Annex C). 

Section 4: modifications to who can be the nominee/supervisor of a voluntary arrangement. 

Section 15 and Schedule 5: minor amendments/repeals (to the extent that they are not already commenced). 

3. The criteria determining which companies are eligible for a moratorium (paragraphs 2 – 4 of Schedule A1 to the Insolvency Act 1986) have been amended since the Insolvency Act 2000 received Royal Assent. The Insolvency Act 1986 (Amendment) (No. 3) Regulations 2002 provide that a company will also be ineligible for a moratorium if it:

·        is involved in a securitisation transaction involving finance of £10 million or more;

·        is a public/private project company where the financier has the right to step in and take over the project delivering services on behalf of a public body;

·        incurs a liability of £10 million or more under an agreement; or,

·        is a holding company of a large group (which for the purpose of these Regulations is a group which is not small or medium-sized for the purposes of the Companies Act 1985).

4.The associated secondary legislation comprises the following statutory instruments: -

The Insolvency Act 2000 (Commencement No.2) Order 2001 (S.I. 2001.No1751 (C.59))

The Insolvency Act 1986(Amendment) (No.3) Regulations 2002 (S.I. 2002/1990)

The Insolvency Act 2000 (Commencement No. 3 and Transitional Provisions) Order 2002 (S.I.2002 No.2711 (C.83))

The Insolvency (Amendment) (No.2) Rules 2002 (S.I.2002/2712)  

The Insolvency (Scotland) Amendment Rules 2002(S.I.2002/2709(S.10))

The Insolvency Practitioners (Amendment) Regulations 2002 (S.I.2002/2710)

The Insolvency Practitioners (Amendment) (No.2) Regulations 2002 (S.I.2002/2748)

The Insolvent Partnerships (Amendment) (No.2) Order 2002 (S.I.2002/2708)

These statutory instruments can be found on the HMSO web site at www.hmso.gov.uk .

5.The Insolvency (Amendment) (No.2) Rules 2002 and The Insolvency (Scotland) Amendment Rules 2002 provide the necessary detail needed to make the new voluntary arrangement provisions work effectively and efficiently in the respective jurisdictions. Whilst the purpose of this note is not to give an in depth view and analysis of the new rules, you may wish to note the following:

In CVA moratorium cases

• where a moratorium is in force, votes will  be calculated according to the amount of the creditor's debt as at the beginning of the moratorium.
• any resolution to pass, extend or further extend the moratorium, or to bring the moratorium to an end before the end of the period of any extension, must have a majority in excess of three-quarters in value of the creditors present in person or by proxy and voting (the requisite majority for members must be more than half in value). Fully secured creditors will be allowed to vote for the full amount of their debt on this issue. 

In both CVA moratorium and non-moratorium cases

• the meetings of the creditors and the company will no longer have to be held on the same day.
• the supervisor of a voluntary arrangement will now have to send notice to all creditors, members, the registrar of companies and the court that the voluntary arrangement has been fully implemented or terminated .
• a proposal for the voluntary arrangement  will have to state how it is proposed to deal with the claims of  "unknown" creditors.

In IVA cases

• if an interim order is in place and no bankruptcy order has been made, a creditor's vote will be  calculated according to the amount of the debt as at the date the interim order was made;
• if no interim order has been obtained and no bankruptcy order has been made, then  votes will be  calculated according to amount of the debt as at the date of the meeting; or
• in any case where a bankruptcy order has already been made, then  votes will be calculated according to the amount of  debt at the date of the bankruptcy order
• two copies of a report made under section 256 or 256A will now be required.
• a proposal for a voluntary arrangement will have to state how it is intended to deal with “unknown creditors.

5.The Insolvent Partnerships Order 1994 (the Order), which permits a partnership to enter into a voluntary arrangement with its creditors, has also been amended by The Insolvent Partnerships (Amendment) Regulations (No.2) Order 2002. As a consequence partnerships will be able to avail themselves of the new moratorium procedure available to small companies. Creditors will be able to petition for the winding up of a partnership in moratorium cases where no voluntary arrangement takes effect.