Banking & Finance

In recent weeks and months we have all heard and read about the changes made to the law of personal insolvency in Scotland as a result of the Bankruptcy and Debt Advice (Scotland) Act 2014. Well now it’s the turn of corporate insolvency, with not one but two Acts of Parliament set to amend the Insolvency Act 1986 (“IA”) later this month.

On 26 May 2015 certain insolvency provisions of the Small Business, Enterprise and Employment Act 2015 (“SBEEA”) and the Deregulation Act 2015 (“DA”) will come into effect. The following amendments to be made to the IA are relevant to corporate insolvency law in Scotland:

1 Corporate Insolvency Generally

1.1 Part 4 and Scheds 3 and 4 – Exercise of powers by liquidator: removal of need for sanction

Liquidators will have the ability to exercise any of the powers contained in Schedule 4 without the need to obtain sanction from the company, the court, the creditors’ committee or a meeting of creditors and sections 165, 167, 169, Part 2 of Schedule 3 and Schedule 4 are amended accordingly (SBEAA, s. 120).

1.2 Schedule 8, Paragraph 13A – Creditors not required to prove small debts

The Secretary of State is given the power to make rules which will allow an officeholder in a corporate insolvency to pay a dividend to a creditor (on the basis of the statement of affairs or accounting records) without the need for the creditor to submit a claim, where the debt owed to a creditor in respect of which the dividend relates is below a prescribed amount (the intention is to set this initially at £1,000) (SBEEA, s. 131).

1.3 Various – Treatment of liabilities relating to contracts of employment

The sums included in (i) “wages and salary” for the purposes of calculating the liability of an IP arising under a contract of employment and (ii) remuneration for the purposes of calculating the relevant category of preferential debt are being amended. Sums treated as earnings for the purposes of social security legislation will no longer be included and consequently the following provisions of the IA are to be omitted: section 19(10); paragraph 99(6)(d) of Schedule B1; and paragraph 15(b) of Schedule 6 (DA, s. 19, sched 6, paras 24, 25, 27 and 28).

The DA makes a similar amendment to section 44 of the IA in relation to administrative receivers appointed to English registered companies (DA, s. 19, sched 6, paras 24 and 26). At the current time there is no similar amendment pending in respect of section 57 in relation to receivers in Scotland.

2 Administration – Schedule B1

2.1 Paragraph 25A – Appointment under paragraph 22 where winding up petition presented

Clarifies that the prohibition in paragraph 25(a) does not prevent an appointment under paragraph 22 (by the company or its directors) if a petition for the winding up of the company was presented after the notice of intention to appoint was filed with the court under paragraph 27, unless the petition was presented under any of the provisions mentioned in paragraph 42(4) (DA, s. 19, sched. 6, para 5).

2.2 Paragraphs 60 and 60A– Powers of the administrator

The power of the administrator to sell, hire out or otherwise dispose of property is subject to any regulations made under paragraph 60A. Paragraph 60A provides for regulations in relation to any such transactions with connected persons in specified circumstances (SBEEA, s. 129).

2.3 Paragraph 65 – Distribution Paragraph

65(3) is amended to allow distribution of the prescribed part without first seeking the permission of the court (SBEEA, s. 128).

2.4 Paragraph 76 – Automatic end of administration

An administrator’s terms of office may be extended for a specified period not exceeding one year (rather than, at present, 6 months) with the consent of creditors (SBEEA, s. 127).

2.5 Paragraph 83 – Moving from administration to cvl

As an administrator may now proceed to distribute the prescribed part, an exit via cvl will only be possible where he thinks that a distribution will be made to unsecured creditors other than by virtue of the prescribed part (SBEEA, s. 128).

2.6 Paragraph 115 – Attachment of floating charges

A floating charge will attach when the court gives permission to an administrator to make a distribution to a creditor who is neither secured nor preferential under paragraph 65(3)(b) (SBEEA, s. 130). Paragraph 115(1) has been interpreted as a restriction on an administrator’s powers resulting in an inability to make a payment to the holder of a floating charge which has not attached. This change will allow an administrator to distribute to a floating charge holder without the need to put the company into liquidation in cases where there will be a distribution to unsecured creditors other than by virtue of the prescribed part.

Although mostly subtle, the majority of these changes will be welcomed as a means of improving the efficiency of, and reducing costs incurred in, the insolvency process.

Both the SBEEA and the DA contain further provisions relating to corporate insolvency in Scotland which will be covered in future posts as and when dates are appointed for bringing those provisions into force.

Banking and Finance

The banking team at Brodies have been involved in a number of Scotland and the UK's biggest and most complex finance transactions and our practice continues to grow both in strength and depth. This is virtually unique in Scotland. Find out more at http://www.brodies.com/legal-services/banking-finance-contentious-banking
Banking and Finance

Latest posts by Banking and Finance (see all)