Many of you will be familiar with the term ‘domino effect’, otherwise referred to in the Oxford English Dictionary as "the theory that a political event in one country will cause similar events in neighbouring countries, like a falling domino causing an entire row of upended dominoes to fall". But what does this have to do with insolvency?
In England and Wales alone, the Insolvency Service recorded 16,502 company insolvencies throughout 2016. However, the impact of those insolvency procedures is felt further afield than these corporate failures, with the squeeze on cash flow filtering its way down the supply chain as a result of late and non- payment. For each company failure there will be a number of suppliers, employees and stakeholders also falling victim as a result of this domino effect.
The introduction of The Insolvency (England and Wales) Rules 2016 on 6th April 2017, seeks to reduce these effects and increase returns to creditors with a major overhaul to the familiar Insolvency Rules 1986, which have been in force for some 30 years. The new insolvency rules will frankly drag the insolvency profession kicking and screaming into the 21st century.
Whilst electronic messaging was around in 1986, it was not widely used as a means of communication and certainly not by office holders (e.g. administrators, liquidators etc. depending on the insolvency procedure). Over the years, many of my more senior colleagues have told tales of the hammer and chisel used to set their words in stone, whilst others have fondly named their (imaginary) carrier pigeons, all allegedly required before the introduction of computers and Tim Berners-Lee's World Wide Web in the early nineties (insolvency professionals may be seen as the grim reapers of the accountancy world, but they do have a sense of humour). The overhaul seeks to modernise procedures in order to accelerate communication, reduce costs and hopefully reduce the professions carbon footprint. Key changes include:
Electronic communication
There will be more scope to use e-communications by the lifting of certain restrictions and limitations.
2. The use of websites
Whilst many insolvency professionals, including Moore, have in recent years sought to make progress reports and similar communications available to creditors from online portals, the new rules make this option more readily available (subject to certain exceptions), reducing paper usage along with the strain on the poor postman’s back.
3. BREAKING NEWS.....the removal of physical creditors meetings
Physical meetings have effectively been abolished unless specifically called for by the creditors under the "rule of ten": ten percent by value of creditors; ten percent in total number of creditors; or, ten individual creditors. Holding meetings can be a costly business in both time and expenses, which ultimately has a knock on effect on the amount available to distribute to creditors.
Alternate decision making processes such as deemed approval and virtual meetings are also available to engage creditors, without the need to take valuable time out of their day to travel to a physical meeting.
4. The ability to ‘opt out’
Communication with all creditors has historically been a statutory requirement of the office holder. However, the new rules enable creditors to opt out of future communications, reducing the time and expense incurred by both creditors and the office holder in dealing with communications.
Whilst there are many other changes for the Restructuring & Insolvency team to face upon the introduction of these news rules and arguably more head scratching when interpreting them, the changes will certainly help us toward becoming a paperless office.
If your company is experiencing a squeeze on its cash flow through this domino effect as a result of an insolvent customer and/or customer late payments, contact the Southampton R&I Team on 023 8033 0116.
-Dawn Sherin