Insolvency Process to be Modernised

The Insolvency Service has revealed that its package of measures aiming to modernise the insolvency process will save the industry an estimated £48m a year.

The service said that the changes, rolled out this week, will reduce costs and administrative burdens and “reflect modern business practices.” The changes form the second phase of the “most extensive” rewriting of the 1986 Act the Insolvency Service has proposed. The (Amendment) Rules 2010 includes more than 500 changes to the legislation.

As part of the changes, insolvency practitioners will be forced to provide greater transparency about their fees, including pre-appointment charges, and will have to provide information to creditors in regular reports.

Particular attention has been paid regarding pre-pack administrations that have come under fire during the downturn. Official insolvency statistics indicate that out of the 4,161 companies that entered administration during 2009, 29 per cent used pre-pack procedures. Insolvency practitioners will now also have to register pre-pack procedure documents, including fees and charges, with Companies House, rather than the courts.

 This week changes to the bankruptcy process also came into force meaning that a bankrupt person can easily obtain an “annulment” of their bankruptcy order in circumstances where they can pay the bankruptcy debts and expenses using third party monies or by means of a subsequent remortgage of property.

The changes will also make it possible for individual debtors who are facing bankruptcy and who may be at risk of violence to apply for limited disclosure of their home address.

The change to the Legislative Reform Provisions will allow insolvency practitioners to hold creditor meetings online through web casting or conference calls. It also makes provisions for the use of websites to communicate information to creditors.

The service said that creditors will also gain better returns from the insolvency procedures as IPs save money by taking advantage of electronic communication.

 This process was already used in the Lehman Brothers case when administrators PricewaterhouseCoopers utilised online procedures to keep a global network of creditors informed.

According to a survey of insolvency practitioners, conducted by the service to examine their views on the practicalities of online services more than 88 per cent agreed or strongly agreed that online offerings would provide better real time information on each case, and a further 90 per cent believed it would reduce the administration costs surrounding insolvency procedures. 

 However, there have been concerns in the industry about how firms will now have to ramp up online data security.

 Alongside other significant changes coming into power – such as the abolishment of annual creditor meetings for voluntary winding up of companies and stopping creditor meetings from appointing the Official Receiver as liquidator – is an amendment that gives greater recognition to women in insolvency.

Posted at 01:49PM Apr 08, 2010 by Marc Stenton in Insolvency  |  Comments[0]