Insolvency update - October 2011

Statutory Developments

New SIP9

This will be effective from 1 November 2011.  SIP9 deals with remuneration and expenses of insolvency practitioners.  The intention of the new SIP9 is to ensure that:-

i. IP’s fees and expenses are both reasonable and proportionate;
ii. Sufficient information is given to creditors or other parties who are responsible for agreeing IP’s fees to enable them to exercise proper control over those matters.

Whilst the revised SIP9 comes into effect from 1 November 2011 it is strongly recommended that IP’s comply with the new SIP9 immediately.

Insolvency Services Account

On 9 September 2011 the Insolvency Service confirmed that from 1 October 2011 the Insolvency Services’ Account (ISA) would no longer be available to hold funds realised in the course of voluntary liquidations.  Please note, however, that where voluntary liquidation payments have been made into the ISA involuntary liquidations prior to 1 October 2011, the ISA will remain available after 1 October 2011. 

Brief Case News

Dodgy Dealings at an IVA Meeting

In Kapoor –v- National Westminster Bank Plc and Another [2011] the Court of Appeal had to consider whether an equitable assignee of a debt was able to vote at a meeting of creditors called to consider a debtor’s individual voluntary arrangement proposals.  The court also had to consider whether a material irregularity had arisen in connection with the creditor’s meeting if the debtor had not acted in good faith. 

The Court of Appeal decided that:-

i. An equitable assignee of a debt can vote for that debt at an IVA creditors meeting;
ii. A debtor who is wishing to enter into an IVA owes a duty of good faith to his creditors.  In this case the Court of Appeal found that the debtor breached that duty by procuring an assignment of a debt from a creditor who was associated to him to a family friend who was an unassociated creditor.  This led to the approval of the IVA proposals despite complete opposition by all other unassociated creditors.  The assignment provided no commercial benefit to the assignee which led the Court of Appeal to decide that it amounted to a material irregularity. 

In this case, the intention on the parties was clear cut.  However, there may be cases where an assignee of a debt may derive some commercial benefit from the assignment.  In practice, if you are chairing a creditors meeting, you can avoid having to consider the motivation of the parties on an assignment of a debt by allowing the assignee to vote but marking the vote as disputed so that it is then for the court to resolve the issue.  Unfortunately, this does leave open the prospect of applications to court being merely to determine whether an IVA is approved which is unsatisfactory for both the debtor and creditors.  We may see further case law on this issue.