Insolvency (Scotland) Rules 2018 – are you ready?

The long-awaited Scottish Rules are here!

Two sets of Rules

Due to the nature of the partially devolved corporate insolvency regime, Scotland’s Rules are found in two pieces of secondary legislation.  The Insolvency (Scotland) (Company Voluntary Arrangement and Administration) Rules 2018 and the Insolvency (Scotland) (Receivership and Winding up) Rules 2018 (“the new Scottish Rules”) were laid last month and will bring Scotland’s corporate insolvency regime broadly in line with England and Wales from 6 April 2019. Are you ready?

Decisions, decisions…

Perhaps the most significant change is the restriction placed upon an office holder’s ability to hold a physical meeting of creditors. Decisions of creditors are to be obtained using either deemed consent (where this is available) or by one of a number of prescribed decision procedures: correspondence, virtual meeting or electronic voting, with physical meetings available only where requested by the requisite number or value of creditors (the 10/10/10 rule).

Practitioners South of the Border have got to grips with these new requirements over the last two years, but not without some teething pains. Concerns remain about verifying the identity of a participant in a virtual meeting, and the potential implications of a person being excluded because of a technological failure. Perhaps counter-intuitively, it seems removing the requirement of a physical meeting has not increased creditor engagement.  But the good news for practitioners dealing with Scottish appointments from 6 April 2019 onwards, is that a lot of creditors and stakeholders will be familiar with the decision-making process already.

Effects of the new Rules

  • Consolidation: There have been 32 years of amending statutory instruments since the existing Rules came into force in 1986 and the new Scottish Rules contain impressive lists of revocations. In theory, the new Rules should be easier to use, once bedded in, though there will undoubtedly be a steep learning curve at the outset.  Have your destination tables to hand!
  • Future proofing: By describing what needs to go in a notice, report or return, rather than prescribing a particular form, the new Scottish Rules aim to reduce the need for statutory forms and amending statute for alteration. This approach is intended to provide more flexibility, though has resulted in the inclusions in the Rules of lengthy lists of standard contents. Your standard documents and notices will need to be reviewed and amended.
  • Modernisation: The language has been modernised and made gender neutral, in accordance with current drafting practice. The definitions applied by the Rules mirror those used in the England & Wales Rules broadly although there are some small (and noteworthy) variations. Where possible, the new Scottish Rules adopt a “common parts” approach with the aim of reducing repetition and unnecessary divergences between procedures.
  • Cost reduction and improved engagement: Ultimately, the new Rules give effect to the policy changes which resulted from the UK Government’s Red Tape Challenge initiative. Reducing unnecessary meetings, providing for opting out and allowing small claims to be admitted without a statement of claims are all intended to reduce cost and improve creditor engagement.

Remuneration and accounting periods

As those of you dealing with Scottish cases know, the process for obtaining approval for remuneration is distinct from England & Wales and invariably involves the court.  The remuneration approval process will remain largely unaltered, which limits the impact of the decision-making procedures when compared to England & Wales.

A more welcome revision may be the changes to the operation of accounting periods that allow an IP to manage accounting periods without court or committee approval.  The first two six-month accounting periods will remain, but thereafter a practitioner can defer a claim for remuneration without court or committee approval.

Key steps for your practice:

  • Gain familiarity with the new Rules at an early stage – come on one of our courses!
  • Review files for application of transitional and savings provisions
  • Amend document packs to reflect new standard contents – we can assist with packs
  • Consider what form of decision procedure will be appropriate for the size and nature of the cases you administer
  • Consider the benefits / opportunities presented by these changes in terms of cost saving to how you operate

We will be examining the new legal requirements and their practical implications at a series of courses running throughout January and February 2019 and providing document packs and compliance support.

For further information about how ISS may assist you in adjusting to these changes, contact: enquiries@insolvencysupportservices.com

 

Guest lecturing on insolvency

Insolvency Support Services director Eileen Maclean presented to a different audience from our usual earlier this month when she was back at The University of Glasgow Adam Smith Business School to guest lecture again on corporate insolvency with course leader Yvonne Joyce.