Insolvency technical update – September 2020
By David Menzies, Director of Practice
8 October 2020
Insolvency technical update – your round-up of recent developments in insolvency
Coronavirus
For all coronavirus-related updates please go to the regularly updated A-Z of all things insolvency amid the coronavirus outbreak.
Extension and termination of temporary measures introduced by the Corporate Insolvency and Governance Act 2020
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 (“the first Regulations”) came into force on 29 September 2020.
The first Regulations prolong the period within which certain temporary provisions in the Corporate Insolvency and Governance Act 2020 (“CIGA 2020”) are to have effect.
The small supplier exemption from termination clause provisions and the modifications to moratorium provisions and the temporary moratorium rules are extended to 30 March 2021.
Temporary modifications concerning the restrictions on the use of statutory demands and winding up petitions are extended to 31 December 2020 and the relaxation of company annual general meeting (AGM) requirements is extended to 30 December 2020.
Crucially the temporary provision regarding the suspension of liability for wrongful trading is not being extended and therefore expired automatically on 30 September 2020.
A second statutory instrument, the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Early Termination of Certain Temporary Provisions) Regulations 2020 (“the second Regulations”), came into force on 1 October 2020.
Somewhat confusingly, the second Regulations reinstate a time limit that was already in effect but had been extended by the first Regulations. The purpose of the second Regulations is to re-establish, for certain measures, the time limit that was originally specified in the legislation (in effect, carving-out certain provisions from the first Regulations).
Specifically, the second Regulations terminate modifications to the conditions for having a moratorium which allows the supervising insolvency practitioner to disregard aspects of the company’s financial position that relate to coronavirus when considering whether the company is “rescuable” for the purposes of having a moratorium.
They also terminate the relaxation of the conditions for extending, monitoring and terminating of the moratorium on the grounds that any worsening of the company’s financial position, because of coronavirus, should be disregarded.
As a result the lowered threshold will no longer apply and, when considering whether the company is rescuable, the monitor will not be able disregard the economic impact of coronavirus so that only a company deemed to be rescuable by the proposed monitor is able to access a moratorium.
The intention of this change is to minimise the risk of increasing the number of so-called zombie companies (those that have no real prospect of servicing and repaying their debts).
A series of articles is available looking at the various insolvency and restructuring measures introduced by CIGA 2020.
Extension of temporary measures introduced by the Coronavirus (Scotland) Act 2020 and the Coronavirus (Scotland) (No.2) Act 2020
The Coronavirus (Scotland) Acts (Amendment of Expiry Dates) Regulations 2020 came into force on 29 September 2020.
The Regulations amend the expiry date of Part 1 of the Coronavirus (Scotland) Act 2020 and Part 1 of the Coronavirus (Scotland) (No.2) Act 2020 from 30 September 2020 to 31 March 2021.
The extension does not apply to all provisions currently in the Acts as a separate instrument expired early certain provisions on 29 September 2020 – the Coronavirus (Scotland) Acts (Early Expiry of Provisions) Regulations 2020. The provisions expired by those Regulations do not benefit from any extension of Part 1 of each of the Scottish Acts.
None of the provisions expired early relate to restructuring and insolvency, which are therefore all extended to 31 March 2021.
Articles have been produced looking at the impact of both the Coronavirus (Scotland) Act 2020 and the Coronavirus (Scotland) (No.2) Act 2020 on restructuring and insolvency practice in Scotland during their period of operation.
HMRC – insolvency appointments
Last month’s technical update advised IPs that HMRC’s Enforcement & Insolvency Services (EIS), Edinburgh, are refreshing the list from which they nominate Insolvency Practitioners as interim liquidators in Scottish liquidations and other similar appointments and provided a link to the relevant HMRC Insolvency Guidance note.
Following some member enquiries, ICAS has received confirmation from HMRC that the sum of £5,000 + VAT covers fees, disbursements and outlays, with any further funding to be considered on a case by case basis. The new flat fee supersedes any previous financial arrangements individual IPs had in place with HMRC.
HMRC have further clarified that multiple IPs for the same firm may be listed in each Sheriffdom. However, nominations will be sought by HMRC on a rota basis by reference to the IP’s firm, rather than the individual IP.
The new list is in operation from 1 October 2020. Any IP on the old list who has not agreed to the new arrangement via ipso@hmrc.gov.uk will not be included on the new one for future nominations. IPs can be added on to the new list after 1 October but will not be included for future nominations until they have agreed to the new arrangement.
HMRC Insolvency Guidance – VAT processing
HMRC has issued guidance regarding changes to its IT systems, which are impacting VAT processing in insolvency cases.
An accompanying article with further details has been published on icas.com.
HMRC Enforcement & Insolvency Services (EIS) address change
The new address for HMRC’s Enforcement and Insolvency Services (EIS) is Edinburgh Regional Centre, Queen Elizabeth House, 1 Sibbald Walk, Edinburgh, EH8 8FT.
HMRC - introduction of Digital Mail Service (DMS) into Enforcement & Insolvency Service
HMRC has introduced a Digital Mail Service (DMS) across all of Debt Management’s, Enforcement & Insolvency (EIS) Teams. Correspondence is now digitally scanned and can be worked on by teams across HMRC.
A guidance note has been issued and Insolvency (VAT Notice 700/56) has been updated with the latest contact details for each of HMRC’s EIS teams.
The Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations 2020
The Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations 2020 were laid before the House of Commons on 14 September 2020 and will come into force on 1 December 2020.
The Regulations form part of the legislation to amend the Insolvency Act 1986 to make HMRC a secondary preferential creditor for VAT and relevant deductions in insolvencies after 1 December 2020.
The instrument specifies HMRC’s preferential status in the collection of debts for relevant deductions (CIS, employee NICs, PAYE and student loans) that are due at the commencement of the insolvency from the assets of insolvent taxpayers. HMRC will rank above unsecured creditors and holders of floating charge security, but below fixed charge creditors.
Anti-Money Laundering (AML) Guidance
CCAB has published updated draft Anti-Money Laundering and Counter-Terrorist Financing Guidance for the Accountancy Sector.
The guidance is pending approval from HM Treasury but has been approved and adopted by the UK accountancy AML supervisory bodies and firms are encouraged to operate based on this guidance.
Companies House upload – insolvency filings
Companies House has acknowledged that its new document filing service, whereby insolvency forms can be directly uploaded, is proving difficult to access for many users.
Companies House and the Insolvency Service are working closely to resolve these issues. If you are having problems accessing or registering for the service please contact Companies House via enquiries@companieshouse.gov.uk and they will try and resolve the issue so you can access the system.
Companies House has received enquiries from organisations requesting that the service allows several team members to file documents on behalf of the insolvency practitioner. Companies House is unable to extend the service to include the email addresses of all those users that may file on behalf of a practitioner. However, Companies House has advised that up to 10 users can access the service at any one time using the same email address. Therefore, once the insolvency practitioner’s email is registered to access the service then multiple users from the same organisation can submit documents at the same time, providing they log in via the registered email address.
Insolvency Service - Special Manager Panel
The Insolvency Service’s Official Receiver Services is to launch a Special Manager Panel to support them on complex casework.
Applicants must be able to meet and evidence eligibility criteria including mobilisation of 75+ corporate insolvency staff across multiple UK sites, with little notice, along with prior experience of working with government on insolvency/restructuring.
Insolvency Service – cheque payment production
As the Insolvency Service is reopening its offices, it has announced that, with immediate effect, it will accept requests for cheque payments and has detailed the new cheque payment process.
Dear IP 109
Dear IP 109 has been issued by the Insolvency Service. Included in the update are details of the launch of the Insolvency Service’s Official Receiver Services Special Manager Panel to support them on complex casework. Also included are details of the Law Commission consultation on transfer of ownership rules, information on collaborative working between the Insolvency Service and insolvency practitioners and coronavirus-related articles.
Dear IP 110
Dear IP 110 has been issued by the Insolvency Service. Included in the update are details of the Official Receiver’s use of debt collection agencies, the extension of temporary measures introduced by CIGA 2020 and the reinstatement of the Insolvency Service’s account cheque payment production.
Companies House reform
Companies House has announced that it is to be reformed to clamp down on fraud and money laundering, with directors unable to be appointed until their identity has been verified.
The changes are a result of the government’s 2019 consultation on Corporate Transparency and Register Reform.
Individual Voluntary Arrangement (IVA) protocol guidance
The COVID-19: Individual Voluntary Arrangement (IVA) protocol guidance has been revised with effect from 7 September 2020.
Companies House compulsory strike off process
A reminder that Companies House has advised that, from 10 October 2020, it will resume the compulsory process to strike off companies it believes are no longer carrying on business or in operation.
Consumer sales contracts: transfer of ownership
As advised in July’s technical update, the Law Commission is consulting on draft legislation which would implement recommendations it made in July 2016 to modernise the rules on when consumers acquire ownership of goods under sales contracts. The consultation closes on 31 October 2020.
Registration is now open for the Scottish Law Commission's online workshop on the proposed legislation. The workshop is free of charge and will be relevant to anyone with an interest in consumer contracts, insolvency or transfer of ownership. It will run on Thursday, 8 October from 10.00 am to 1.00 pm.
The Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) (Amendment and Revocation) Regulations 2020
The Regulations came into force on 16 September 2020 and extend the scope of the Pension Protection Fund’s rights as a creditor when moratoriums are in place in relation to relevant Co-operative and Community Benefit Societies and when restructuring plans are in place in relation to relevant societies, including credit unions.
The Co-operative and Community Benefit Societies and Credit Unions (Arrangements, Reconstructions and Administration) (Amendment) (No. 2) Order 2020
The Order amends Schedule 1 and Schedule 2A to the Co-operative and Community Benefit Societies and Credit Unions (Arrangements, Reconstructions and Administration) Order 2014 (S.I. 2014/229.
The instrument corrects errors by removing the disapplication of section A55 of the Insolvency Act 1986 and section 901I of the Companies Act 2006.
Legal update
Rhino Enterprises Properties Ltd & Anor, Re [2020] EWHC 2370 (Ch) An application for an order for the permission of the Court under paragraph 75 of Schedule B1 to the Insolvency Act to pursue an application against the Respondents as former joint administrators in respect of allegations that they breached their fiduciary and other duties as administrators and/or have been guilty of misfeasance.
