The Insolvency (Scotland) Rules 2018 – short term pain for long term gain?

Posted on November 20, 2018 by Wylie & Bisset

The largest single change to insolvency procedure in over 30 years has (finally) been unveiled in full. But what are the new regulations, and what practical steps do Insolvency Practitioners need to take? David Meldrum, from Wylie & Bisset’s Corporate Recovery team, has the answers.

From 6 April 2019, the Insolvency (Scotland) Rules 1986, and the associated amendment rules introduced over the last four decades, will be replaced by two new regulations: The Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018 andThe Insolvency (Scotland) (Receivership and Winding Up) Rules 2018.

The full titles of these regulations are a bit of a mouthful so, for the purposes of reducing the word count of this blog (and the sanity of the reader!), I will refer to “the 2018 Rules” going forward.

The 2018 Rules bring Scotland into line, as far as possible, with England and Wales. This will certainly make life easier for practitioners dealing with appointments on both sides of the border, and those already familiar with the procedures in England and Wales will have a significant head start.

For the rest of us, some preparation will be needed before the changes come into effect on 6 April 2019.

So what are the changes?

The 2018 Rules bring about immediate changes to the administration of both existing cases and new cases.  There are savings provisions within the regulations to cope with overlapping procedures, so these should be carefully reviewed to ensure that the 2018 Rules are not erroneously applied when the 1986 Rules continue to be in force.

The layout and language of the 2018 Rules are the first noticeable differences.  The split into two distinct regulations is also something new, but the devolved split of competencies by the Scotland Act 1998 means this is necessary.

The main areas to be aware of are:

  • Physical creditors meetings are no longer required (including meetings held pursuant to section 138 of the Insolvency Act 1986), unless specifically requested by the creditors;
  • Remuneration claims can be deferred at the end of accounting periods without Court or Committee approval;
  • There is new standard content for notices and documents instead of prescribed forms, and;
  • Electronic communication can now be used with creditors and members.

Statutory interest in a member’s voluntary liquidation

The 2018 Rules may also resolve one of the most topical points of discussion over the last 12-18 months – the application of statutory interest in a member’s voluntary liquidation. Practitioners have previously argued that there is no rate of statutory interest applicable to debts in an MVL, due to Schedule 2 of the 1986 Rules not applying Rule 4.16E or Rule 4.66.

HMRC have disagreed with this stance and, in some cases, have refused to grant clearance for liquidations where statutory interest has not been paid on debts due at the commencement of the winding up.  While this is apparently not a change in policy by HMRC, statutory interest was not something they had claimed in years gone by.

The 2018 Rules appear to have resolved the dispute for new cases by applying Part 7 of the 2018 Rules to all winding ups. This means practitioners will need to plan accordingly to minimise any statutory interest that may be owed in respect of debts due for payment by the company.

Preparation is key

Insolvency firms will need to ensure that any standard documents they currently utilise are updated in time for 6 April 2019, given that many of the changes apply to existing and new cases.

I believe that although the changes will be onerous on Insolvency Practitioners and their staff in the short term, they do mean that corporate insolvency is a more modern process which is closer to meeting the needs of stakeholders in the 21st century.

David Meldrum is an Insolvency Manager with over 10 years’ experience of both personal and corporate insolvency procedures, regularly providing advice and commercial solutions to a range of stakeholders, including company directors, individuals, banks and government agencies.  David has first-hand experience of the legislative process involved in drafting the 2018 Rules, having been seconded to the Accountant in Bankruptcy during 2013/14 to assist in the successful implementation of the Insolvency (Scotland) Amendment Rules 2014.