CVL commencement under the Scottish Insolvency Rules 2018

This article forms part of a series looking at the significant changes to insolvency procedures being brought in in Scotland from 6 April 2019. In this article, David Menzies looks at the changes relating to CVL commencement.

The effect of the decision-making changes being introduced under the Insolvency (Scotland) (Company Voluntary Arrangements and Administrations) Rules 2018, (ISCVAAR 2018), and the Insolvency (Scotland) (Receivership and Winding Up) Rules 2018, (ISRWUR 2018), will be perhaps most evident in relation to CVLs where meetings under section 98 of the Insolvency Act 1986 (IA 1986) have been held to allow creditors to appoint a liquidator to a company.

Rules in relation to CVLs are contained in Part 4 of ISRWUR 2018.

CVL commencement

When ISRWUR 2018, come into effect on 6 April 2019 the initial steps for a CVL will change significantly. The process will become as follows:

‘Taking’ a CVL appointment

If an Insolvency Practitioner wishes to step in and ‘take’ a CVL appointment from the member’s nominated liquidator, where the deemed consent procedure is used by the directors then it will be necessary to secure enough voting power to object to the deemed consent which would result in a physical meeting having to be called.

It is worth noting that a creditor not only has the right to object to the deemed consent but also has a specific right to request a physical meeting.

The thresholds to object to deemed consent and to request a physical meeting are, however, different. For more information, see: Scottish Insolvency Rules 2018: decision-making. Well-advised creditors can be expected to not only object to deemed consent but also request a physical meeting, having two bites of the cherry to try and make their own appointment.

Commencing a CVL after another process

ISRWUR 2018 contains special provisions when a CVL is being commenced either following an MVL (see ISRWUR 2018 r4.2 and r4.10) or as an exit from administration (see ISCVAAR 2018 r4.1(2) and r 4.10)).

Timing

Controlling and planning the timing of CVL appointments is going to become increasingly complex and difficult. While it might be possible to orchestrate the member’s nomination/appointment there will now be inherent uncertainty around the timing of the creditor’s nomination/appointment depending on the decision procedure used.

Timing of a virtual meeting will be more readily controlled although it might have practical difficulties to be overcome around technology, controlling and verifying access to participate, etc. Use of deemed consent increases the possibility of delay either through objections or a request for a physical meeting being received.

A greater number of ‘centrebind’ appointments may materialise—with the problems those entail—mainly as a result of the limited liquidator’s powers during the hiatus period.

Remuneration

A decision on remuneration is one of the specified matters in legislation where the deemed consent procedure cannot be used. It should therefore be borne in mind that if the directors use the deemed consent procedure for the liquidator’s appointment, and a decision is also required to deal with fees for pre-appointment assistance then that decision will require to be made via one of the qualifying decision procedures.