Changes affecting Insolvency Practitioners and Directors

by Stephen Downie on October 16, 2015

Regulations have introduced the key provisions of the Small Business, Enterprise and Employment Act 2015 (“the Act”) as regards its affect on Directors and Insolvency Practitioners.  This introduces very important changes which will have a considerable impact on Directors and the position of Insolvency Practitioners acting as Administrators or Liquidators. The key changes are addressed below.
1.  Insolvency Practitioners – a Claim is now an insolvency asset!
Sections 117 – 119 of the Act commences as from today for any post 1st October 2015 appointments as Administrator/Liquidator.  As from today, with regard to such appointments, Insolvency practitioners can now assign insolvency claims. This will undoubtedly lead to (eventually) a rush of funder interest in IP appointments where the funds or appettite to pursue litigated proceedings is not there.
Directors will also face increased difficulties in defending such claims against an insolvency application where the applicant funder now has very deep pockets.
No doubt this will also lead to Administration/Liquidation appointments in circumstances where there are no assets, as the IP will still have something to sell (subject to sufficient funding interest), and could lead to the interests of creditors being better served.
2.  Compensation Orders
They have commenced. As from today anyone disqualified under the new provisions will then be subject to the risk of a strict liability offence by way of a Compensation Order. Undertakings can be given to pay such compensation but it is undoubtedly a large majority of Disqualification Claims – treating HMRC different to other creditors – which will be the basis for such an application.
Accordingly, as from today, the signing of a Disqualification Undertaking (which may in the past have been solely to avoid legal costs of litigation) will diminish as the cost threat is outweighed by the tax (or other) liability supporting the Compensation Order/Undertaking Directors would have to pay.
3. Director Disqualification Claims – extension of limitation period
As from today, Disqualification Claims under Section 6 of the Company Directors Disqualification Act 1986 (where the company has entered into insolvency proceedings) can be brought within a limitation period of 3 years post insolvency (it was 2 years previously).  This increases greatly the ongoing and continuing risk to Directors, although please see my comments as regards commencement below.
4.  Director Disqualification – new grounds for disqualification and for findings of unfitness
As from today, a Disqualification Claim can be brought against any Director of a Company for a criminal conviction overseas in relation to their involvement in an overseas company (or similar legal entity).  This does not require that the UK company is placed in any form of insolvency proceedings or indeed does not require that the individual is currently a UK Director, although it appears to be intended to prevent a certain category of individual being appointed a Director in the UK with the associated risk to the public interest.
These changes include a change to Disqualification proceedings such that a Director who is acting as a Shadow Director (which the Act also addresses separately at Sections 89-91) of a company where unfitness is made out can now be disqualified. This reflects the corporate transparency requirements of this legislation.  In addition, when engaged in disqualification proceedings, the Court can now additionally consider additional evidence of unfitness including conduct as a director of an overseas company.
5.  Directors’ Appointments and Resignations
As from today, upon the appointment of a Director or Company Secretary (or any change to the Board) the filing requirements at Companies House now require confirmation that that individual has consented to the appointment.
This could have an affect on Non-Executive Directors or other Executive Directors where an unknown (and possibly not consenting) individual is appointed to the Board leading to the risk that they will be liable for such a breach of their statutory duties.
The Registrar of Companies is also required to write to that Director (upon his/her appoiontment) notifying them of their appointment.
The commencement provisions dictate that the above changes relates to conduct and proceedings occurring after today (1st October 2015) including, for Administrator/Liquidator claims, any appointments commencing from today.
For the filing requirements and notifications to Directors/Company Secretaries, the commencement date is 10th October 2015 (and accordingly applies to any notices/appointments from that date).Accordingly, the risk to Directors is not immediate and further to this the commencement provisions also require that the conduct referred to must also be post 1st October 2015.
Accordingly, we do not see this taking effect for a while, but obviously Directors should plan for such risks.As regards Insolvency Practitioners, this provides an almost immediate benefit in freeing them to dispose of good claims which they may not be capable of funding. However, for Directors, this poses an increased risk of a funder with deep pockets making claims against them. This will likely be subject to delay whilst funders put together arrangements to acquire such claims but we see this taking affect more quickly than the other changes.
Stephen Downie
Stephen is a dual qualified lawyer and ACCA accountant, with over ten years experience in restructuring and insolvency law. He commenced his accountancy training with the Official Receiver and thereafter in several large private practice firms dealing with regulatory and asset recovery matters on behalf of liquidators, administrators, receivers and trustees in bankruptcy before qualifying as a solicitor. Prior to joining FWJ he was a lawyer at a large international law firm with offices in the City. Stephen is a Solicitor Advocate with experience of commercial litigation matters pertaining to dispute resolution, debt recovery and enforcement.
Stephen Downie

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