Insolvency technical update – June 2021
By David Menzies, Director of Practice
2 July 2021
Insolvency technical update – your round-up of recent developments in insolvency
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021
The above regulations came into force on 22 June 2021.
The regulations have extended the duration of the temporary measures restricting the use of statutory demands and winding up petitions introduced by the Corporate Insolvency and Governance Act 2020 (CIGA 2020) beyond their previous expiration date of 30 June 2021. The regulations have extended these measures to 30 September 2021.
Two measures were not extended and, therefore, expired automatically on 30 June 2021. These are:
- The small business exemption from the termination clause (ipso facto) requirement, prohibiting the use of termination clauses in contracts for the supply of goods and services where a company enters a relevant insolvency procedure; and;
- The suspension of personal liability for wrongful trading.
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Certain Relevant Periods) (No. 2) Regulations (Northern Ireland) 2021
The above regulations came into operation on 29 June 2021.
The regulations have extended the period during which the temporary measures included in CIGA 2020, which restrict the use of statutory demands and winding up petitions, are to apply for companies in Northern Ireland.
The regulations have extended these measures to 30 September 2021.
The Coronavirus (Extension and Expiry) (Scotland) Bill
The above bill was passed on 24 June 2021 with a view to amending the expiry of certain provisions of the Coronavirus (Scotland) Act 2020 and Coronavirus (No.2) (Scotland) Act 2020 (“the Scottish acts”).
The changes to the law introduced by part 1 of the Scottish acts are due to expire on 30 September 2021. The new bill will extend part 1 of each of the Scottish acts until 31 March 2022 and will also allow secondary legislation to be introduced and approved by parliament to allow further extensions up to 30 September 2022.
However, the prohibition against benefitting from more than one moratorium on diligence in any 12-month period will not be extended. Additionally, the period of notice required to evict a tenant holding a commercial lease will revert back to 14 days from 14 weeks for a monetary breach (non-payment of rent) as of 30 September 2021.
The extension will however apply to other temporary bankruptcy-related measures, such as:
- The increase of the minimum debt level for creditor petitions to £10,000.
- The extension of the length of the moratorium against diligence from 6 weeks to a period of 6 months.
- The ability to allow meetings of creditors to take place using electronic means.
HMRC insolvency guidance – recording tax and national insurance on preferential dividends
HMRC has issued a bulletin setting out the process to record tax and national insurance due on a preferential dividend paid to the former employees of an insolvent entity.
It has also updated the Insolvency Bulletin ‘Introduction of electronic banking for Insolvency Practitioners making dividend payments’, originally issued in April 2020, to include a link to that guidance.
Extended loss carry back guidance
HMRC has issued guidance on extended loss carry back for companies and unincorporated businesses and how to make a claim. This follows a temporary measure announced in the 2021 Budget to allow the carry back of trading losses for a period of 3 years, extending the current 1 year loss carry back provisions.
Insolvency Service: directors of dissolved companies
The Insolvency Service are to be given powers to investigate directors of companies that have been dissolved via the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill, if approved. The bill has reached committee stage in the House of Commons.
Extension of the power to investigate will also include the relevant sanctions such as disqualification from acting as a company director for up to 15 years. These powers will be exercised by the Insolvency Service on behalf of the Secretary of State for Business.
The measures will be retrospective and will enable the Insolvency Service to challenge directors who have inappropriately wound-up companies that have benefited from Bounce Back Loans.
Dear IP
Dear IP 129 has been issued by the Insolvency Service. This edition provides a reminder on the procedure for closing an estate held in the Insolvency Service Account.
Dear IP 130 has been issued by the Insolvency Service. This edition provides details of the recent HMRC bulletins and the Insolvency Service’s new academic research and technical conference.
Dear IP 131 has been issued by the Insolvency Service. This edition contains information on the extension of temporary measures introduced by the Corporate Insolvency and Governance Act 2020.
Debt Relief Orders - The Insolvency Proceedings (Monetary Limits) (Amendment) Order 2021 and The Insolvency (England and Wales) (Amendment) Rules 2021
The above order and rules came into force on 29 June 2021.
They amend the prescribed monetary limits that need to be met in order for an individual to be able to apply for a Debt Relief Order (DRO). The instrument amends the prescribed amounts for a debtor’s overall indebtedness (debts owed by the debtor) from £20,000 to £30,000, monthly surplus income from £50 to £75 and total value of property a debtor can own from £1,000 to £2,000, for the purposes of applying for a DRO.
Rule 9.9 of the Insolvency (England and Wales) Rules 2016, lists property the official receiver must disregard for the purposes of determining the value of a person’s property in connection with DRO. This includes a single domestic motor vehicle where the maximum potential realisable value is less than £1,000. The amendment rules change that amount to £2,000.
The Payment and Electronic Money Institution Insolvency Regulations 2021
The above regulations come into force on 8 July 2021.
The Regulations will create a new special administration regime for payment and electronic money institutions. It applies, with modifications, part 24 of the Financial Services and Markets Act 2000 (which makes provision for insolvency) to those institutions except in respect of special administration.
The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations (Northern Ireland) 2021
The above regulations came into operation on 25 June 2021.
The regulations impose conditions on substantial disposals by companies in administration in Northern Ireland to connected persons, namely, that an administrator must not proceed with a disposal of property of a company within the first 8 weeks of that company entering administration without either an independent opinion on the disposal, or approval of creditors.
HMRC issue briefing: Collecting tax debts as we emerge from coronavirus
HMRC has issued a briefing setting out its approach to collecting tax debts and customer support as the UK emerges from the COVID-19 pandemic.
Changes to notifying an option to tax land and buildings during coronavirus
The temporary changes on the rules on notifying an option to tax land and property during coronavirus (COVID-19) have been extended to 31 July 2021.
For decisions made between 15 February 2020 and 31 July 2021 the time limit has been temporarily extended to 90 days from the date the decision to opt was made.
Temporary Insolvency Practice Direction
A temporary Insolvency Practice Direction (TIPD) comes into force on 30 June 2021. It replaces and extends the previous TIPD, which expired on the same day.
It applies to all insolvency proceedings throughout the Business and Property Courts in England and Wales, subject to any variations as directed by (in London) the Chief Insolvency and Companies Court Judge or (outside London) the relevant Supervising Judge. It will remain in force until 30 September 2021 unless amended or revoked by a further insolvency practice direction.
Its purpose remains to assist court users during the continuing COVID-19 pandemic by avoiding the need for parties to attend court in person, and to deal with some of the problems arising from the need for the court(s) to operate with limited staff and resources.
Call for papers: Insolvency research and technical conference
The Insolvency Service is launching a new academic research and technical conference and is inviting interested parties to submit papers.
Insolvency Service newsletter
The latest edition of the Insolvency Service newsletter includes information on the launch of the Debt Respite Scheme (Breathing Space), the powers to be given to the Insolvency Service to investigate directors of companies that have been dissolved and details of the new version of the IVA protocol.
AiB statistics user survey
The AiB has published the results of its survey on its intention to discontinue the publication of monthly insolvency statistics.
Given the reintroduction of more detailed quarterly statistics publications and the results of the survey, the AiB has confirmed its intention to discontinue the publication of monthly statistics.
AiB Supervision Standard
The AiB has published the latest edition of its ‘Supervision Standard’ newsletter. The edition includes:
- Reviews/Appeals process guidance.
- Trustee Accounts reminders and helpful tips.
- Adjudication and Supervision update.
- Bankruptcy restrictions update and reminders.
AiB PTD Bulletin
The AiB has published its latest PTD Bulletin. The edition includes:
- Coronavirus impact
- Astra updates
- Policy updates
Proceeds of Crime Act 2002 – changes to prosecution guidance
New guidance issued by the Crown Prosecution Service on s330 POCA 2002 (failure to disclose) prosecutions from 2 June 2021 now makes it clear that it is possible to charge someone under s330 of POCA 2002 even though it cannot be proven that money laundering was planned or undertaken.
IPs are reminded of their obligation under AML and counter terrorism legislation of the need to consider whether they know, suspect or have reasonable grounds for knowing or suspecting that a person has engaged in money laundering activities and of the need to report this to their firms Money Laundering Reporting Officer for consideration of whether a Suspicious Activity Report should be submitted.
Helpsheets on suspicious activity reporting and tipping off are available in the ICAS General Practice Manual.
Legal update
Re sequestration of Nahid Ali: The Sheriff at Glasgow has issued a judgement in an unreported case concerning the review of an adjudication of creditors’ claims by the Accountant in Bankruptcy and that review’s subsequent appeal to the Sheriff Court.
Manolete Partners Plc v Hayward and Barrett Holdings Ltd [2021] EWHC 1481 (Ch): The judgment in this case impacts IPs and assignees of insolvency claims, potentially making such claims more expensive to bring and a procedural burden by requiring (depending on the nature of the pleaded claims) two sets of proceedings, even though the claims arise from the same facts (via Lexology).
Hydrodec Group Plc [2021] NSWSC 755: An Australian case in which a Supreme Court in Australia dismissed an application by a UK company’s moratorium restructuring practitioners for recognition of a UK moratorium and ordered that the company be wound up under Australian law. (via Lexology)
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