New insolvency rulings target the domino effect

A new set of insolvency rulings are set to be introduced in the UK this April, with the aim of streamlining, modernising and consolidating existing procedures.

It should also help to counter what is known as the domino effect which often results from a business going through insolvency procedures.

As well the company facing the procedure, a number of creditors, employees and stakeholders can also be affected, as well as customers in some cases.

Should one business rely heavily on another for goods and services for example, the firm could easily find itself in difficulty should the other fail.

With around 14,000 firms in England and Wales going through insolvency procedures on a yearly basis, the Insolvency (England and Wales) Rules 2016 aim to update and modernise the procedures.

Since the first set of Insolvency Rules were developed in 1986, there have been 28 amending instruments added to ensure the processes are up-to-date and relevant.

Under the new rules, administrators or liquidators will be able to use modern communication systems and processes to manage the insolvency procedures.

This should save both time and money in the long term, while also making the processes easier to implement.

In theory, the new rules should also better support insolvency practitioners, creditors and the courts as the overall process will be streamlined.

The majority of the benefits of the new rules should follow the simple modernisation of existing processes – sending documents via the net is faster, cheaper and reduces the carbon footprint.

Part of the rule change will see some of the existing restrictions and limitations that are placed on email correspondence lifted.

The requirement for actual meetings with creditors will also be removed – the new rules will see proposals given to creditors which will deemed as accepted unless more than 10% by value object.

Alternative decision making processes can be used if such a level of objection occurs, with administrators able to call a physical meeting if requested by 10% by value of creditors, 10% of the total number of creditors, or 10 individual creditors.

By Phil Smith

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