Insolvency rules under review – what could be changing?

Dermot Preston, Senior Lawyer

Contributors: Sean Sloane, Trainee Solicitor

The rules that govern how insolvency proceedings are run in England and Wales do not often make headlines. However, the Insolvency Service has launched a fresh public consultation, its second review of the Insolvency Rules 2016, and the changes being considered are worth paying attention to.

What’s happening?

The review picks up where the first consultation left off in 2022 and is focused on two things: cutting unnecessary red tape in how insolvency proceedings are run, and making sure the rules can keep pace with how the world is changing.

The ultimate aim is to establish a fair and predictable process that delivers better outcomes for creditors while giving investors and businesses the confidence to invest.

One of the more concrete proposals on the table is R3’s suggestion of a statutory fee for creditors’ voluntary liquidations (CVL). At present, insolvency practitioners are paid from whatever assets remain in the company; in many CVL cases, this is very little or nothing at all. A statutory fee would change that by creating a guaranteed payment mechanism, making it more viable for practitioners to take on cases where assets are minimal. For creditors, the practical effect could be more CVL cases being administered properly rather than stalling due to lack of funds.

The consultation is also asking how insolvency rules should deal with advancements in technology, artificial intelligence, and digital assets including cryptocurrencies. These are all areas that were not contemplated when the 2016 Rules were drafted but which are an increasingly common feature of modern business.

Why does it matter?

For directors, creditors, and anyone who deals with distressed businesses, changes to the insolvency framework affect real decisions about timing, costs, and the options available. It is worth understanding what is being proposed.

Our commercial litigation and corporate teams advise on insolvency matters and will be keeping a close eye on how this consultation develops. If you have questions about how the current rules affect your position, we are happy to talk it through, please contact us at [email protected] or 0161 832 3434.