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Small Business, Enterprise and Employment Bill

07/07/14

 

Small Business, Enterprise and Employment Bill

As mentioned in our news item to members of 19 June 2014, the Queen's Speech included in the legislative programme  a Small Business, Enterprise and Employment Bill. 

The Bill has now been laid before Parliament (on 25 June 2014), and includes a number of measures proposed in the 2013 Trust and Transparency and Red Tape Challenge consultations (see the Technical Committee's responses to these consultations here 30 and 34).  The Department for Business, Innovation and Skills has issued a number of Factsheets setting out the key features of the parts of the Bill (link here)

The insolvency related provisions in the Bill (which also would make a number of amendments in Scotland and Northern Ireland) fall under the general headings of director disqualification, claims by office holders, insolvency procedures and regulation of insolvency practitioners.  The key points are set out below.

Directors' disqualification (Part 9 of the Bill)

  • Disqualification on the grounds of overseas convictions related to the management or insolvency of a foreign company
  • Disqualification of a person upon whose directions or instructions a disqualified director has acted
  • Amendments to Sch 1 CDDA 1986 by replacing Parts I and II with more generally phrased matters to be taken into account (and extending to shadow directors). These would include "the extent to which the person was responsible for the causes of [insolvency]", and the "nature and extent of any loss or harm caused, or any potential loss or harm which could have been caused, by the person's conduct".
  • Extension of the period for an application for disqualification to 3 years
  • Ability for the Secretary of State to apply for a compensation order (or accept a compensation undertaking) against a disqualified director, in the 2 years following disqualification, whose conduct has caused loss to one or more creditors. Amounts paid under the compensation order could be paid to the Secretary of State for the benefit of specified creditors or class of creditors, or as a contribution to the insolvent company's assets generally.

Office holder claims (Part 10)

  • Power for administrators to bring fraudulent or wrongful trading claims
  • Power for a liquidator or administrator to assign fraudulent and wrongful, TUV and preference and extortionate credit transaction claims and their proceeds
  • Specific exclusion of the proceeds of office holder claims (or their assignment) from the general assets of a company available to a floating charge holder

Removal of need for sanction, meetings, notices to creditors, proving for small debts (Part 10)

Subject to further provisions in the Insolvency Rules, the Bill provides for:

  • Removal of the need for a liquidator or trustee in bankruptcy to seek sanction prior to the exercise of Sch 4 powers;
  • Removal of the need to hold physical creditors' meetings unless a prescribed proportion of creditors require, the introduction of a deemed consent procedure(which would not in particular be available in relation to the removal or remuneration of an office holder) and alternatives to physical meetings in some circumstances
  • The ability for creditors to opt out of receiving certain notices prescribed by the IR 1986
  • Removal of the requirement for creditors to prove for "small debts".

In addition, the Bill provides for the extension by consent of an administrator's term of office by up to 12 months, and for the abolition of fast track voluntary arrangements.

Regulation of insolvency practitioners (clauses 125 - 134)

  • Regulatory objectives for RPBs, including

-        securing the fair treatment for persons affected by the acts and omissions of IPs;

-        encouraging an independent and competitive IP profession whose members provide high quality services at a fair and reasonable cost;

-        promoting the maximisation of value of returns to creditors and promptness in making those returns.

  • Power for the Secretary of State to require RPBs to institute specific regulatory proceedings
  • Power for the Secretary of State to apply for direct sanctions (including a contribution to one or more creditors) against an IP
  • Power for the Secretary of State to establish a single regulator for IPs

As envisaged by the Ministerial Statement on prepacks covered in our previous news item, the Bill includes a reserve power for the Secretary of State to make regulations prohibiting or imposing conditions on transactions between administrators and connected parties. This reserve power is not limited to prepack administration sales.

As set out in our responses to the consultation papers which preceded the Bill (see the links above to the ILA website), many of the steps proposed in the Bill are welcome.  There are however matters on which we have expressed concern, both in principle and on "workability" grounds. These include in particular the risks of abuse if office holder claims are tradable, and the operation of compensation claims against disqualified directors by the Secretary of State and the treatment of the proceeds of such claims. 

The Technical Committee will provide further updates to members as the Bill progresses through Parliamentary Committee stage and beyond.