Report on the Insolvency (Amendment) Bill (NIA Bill 39/11-16)

Session: 2014/2015

Date: 03 March 2015

Reference: NIA 227/11-16

ISBN: 978-0-339-60564-0

Mandate Number: 2011/16

Insolvency_Amendment_Bill.pdf (10.5 mb)

Executive Summary

Purpose

This Report details the Committee for Enterprise, Trade & Investment’s consideration of the Insolvency (Amendment) Bill (the Bill).

The Bill is intended to update Northern Ireland insolvency legislation that was made before the advent of modern methods of electronic communications. The Bill addresses those procedures which, though relevant in the past, have become outdated and pointless and endeavours to make other procedures more efficient.

Principles of the Bill

The main principles of the Bill are:

To establish that documents stored and transmitted electronically in the course of insolvency proceedings are as good and valid in law as paper documents, including communicating documents by displaying them on a website;

To enable the use of means such as video and teleconferencing at meetings of creditors, members or contributors of companies;

To enable liquidators and trustees to reach compromises over what sums they should accept;

The Committee engaged in a call for evidence from interested organisations and individuals, as well as from the Department of Enterprise, Trade and Investment as part of its deliberations on the Bill. Evidence from stakeholders indicated there was broad support for the Bill, although there were concerns raised over a number of provisions.

Committee consideration of Key Issues

The Committee had concerns in relation to the practicalities relating to the holding of remote meetings; the retention of the fast-track system for voluntary arrangement; repeal of the early discharge procedure; the requirement to consult the Lord Chief Justice about the making of orders; and the requirement for statutory demands to be in writing.

The Committee considered that key issues relating to the Bill were as follows:

Transitional arrangements for the removal of the requirement for annual meetings;

Provisions for Deeds of Arrangement as an insolvency procedure is repealed;

Provisions relating to after-acquired property of a bankrupt relating to banks offering accounts to undischarged bankrupts;

The introduction of the option of partial authorisation of insolvency practitioners; and

The need for a robust code of conduct for insolvency practitioners;

Committee agreed to an amendment to Clause 11 of the Bill, Deeds of arrangement, as proposed by the Examiner of Statutory Rules. The Committee further agreed to the wording of the amendment to Clause 11 to be brought by the Department at Consideration Stage.

The Committee agreed to an amendment to Clause 13 of the Bill, After acquired Property of Bankrupt, following consideration of correspondence with the Chancery and Probate Committee. The Committee further agreed to the wording of the amendment to Clause 13 to be brought by the Department at Consideration Stage.

Following consideration of evidence on the need for a code of conduct for Insolvency Practitioners, the Committee agreed to the Department’s proposal to bring a new Clause at consideration stage in order to make such provisions. The Committee considered the proposed clause and was content with the wording.

Introduction

The Insolvency (Amendment) Bill was introduced to the Northern Ireland Assembly on 7th October 2014. The Assembly debated the principles of the Bill in the Second Stage on 10th November 2014 when the Bill was passed to the Committee for Enterprise, Trade & Investment. The Committee sought and received approval of the Assembly in Plenary Session on to extend its consideration and scrutiny of the Bill to 13th March 2015.

The Bill contains 21 clauses and three schedules.

The Committee launched a call for evidence from 20th October 2014 to 1st December 2014.

In total six substantive written evidence submissions were received. These are included at Appendix 3. Officials from the Department of Enterprise, Trade & Investment and representatives from PriceWaterhouseCoopers (PWC) and the Institute of Chartered Accountants in Ireland (ICAI) gave oral evidence to the Committee.

During the Committee Stage of the Bill the Department informed the Committee that amendments will be needed to the text of the Insolvency (Amendment) Bill, mainly as a consequence of changes to legislation underway at Westminster.[1] These amendments were not yet drafted, therefore the agreement of the Committee to the clauses in the Bill is subject to the Committee’s agreement to further amendments to be brought by the Department at Consideration Stage.

Summary of the Draft Insolvency (Amendment) Bill as Presented to the Committee for Enterprise, Trade & Investment in the Committee Stage

Clause 1: Attendance at meetings and use of websites

Clause 1 concerns attendance at meetings and use of websites.

Clause 2: References to things in writing

Clause 2 provides for references to things in writing to be treated as including reference to those things in electronic form.

Clause 3: Removal of requirement for annual meetings in a members’ voluntary and a creditors’ voluntary winding up

Clause 3 provides that if a members’ voluntary liquidation lasts for longer than one year the liquidator has to produce a progress report on prescribed matters for each prescribed period and send a copy of it within such further period as may be prescribed to the members of the company and any other persons who are prescribed.

Clause 4: Requirements in relation to meetings under Articles 81 and 84 of the Insolvency Order

Clause 4 removes the requirement for notice of creditors’ meetings in both members’ and creditors’ voluntary liquidations to be sent by post.

Clause 5: Individual voluntary arrangements: removal of requirement to submit a nominee’s report to the High Court

Clause 5 allows that where the debtor has not sought protection from the High Court in the form of an interim order, a nominee no longer prepares a report to the High Court but prepares a report to the debtor’s creditors. It provides for either reporting to the High Court or to the Creditors (where the debtor has not sought protection from the High Court in the form of an interim order) to be the event triggering the requirement for the nominee to summon a meeting of the debtor’s creditors. The High Court is given power to direct otherwise but only in interim order cases. It is only in cases where a voluntary arrangement has been proposed in interim order cases that an interim order will exist to be discharged by the High Court.

Clause 6: Fast-track voluntary arrangements: notification of the Department

Clause 6 adds a requirement for the Official Receiver to notify the Department as well as report to the High Court whether a proposal by a bankrupt for a voluntary arrangement with the Official Receiver acting as nominee (a so-called “fast-track” voluntary arrangement) has been approved or rejected by the bankrupt’s creditors.

Clause 7: Powers of liquidator exercisable with or without sanction in a winding up

Clause 7 empowers liquidators to reach compromises without having to seek sanction from the liquidation committee, the Court, a meeting of the company’s creditors, or the members of the company by extraordinary resolution, as the case may be. Sanction will still be required to enter a compromise with creditors or others with a claim against the company.

Clause 8: Powers of trustee exercisable with or without sanction in a bankruptcy

Clause 8 empowers trustees to exercise powers to refer to arbitration or to compromise debts and claims due to bankrupts and to make a compromise or arrangement in respect of any claim on any person in connection with a bankrupt’s estate without having to seek sanction from the Court, the creditors’ committee or the Department.

Clause 9: Definition of debt

Clause 9 separates the criteria governing admissibility of a liability in tort in bankruptcy from those applying in the case of company administration or winding up. It specifies the criterion governing whether any liability in tort is a bankruptcy debt. A bankrupt’s liability in tort is treated as having arisen as a consequence of an obligation incurred at the time that the cause of action accrued. It establishes new criteria for deciding whether a liability in tort is provable in a company administration or winding up. It will be provable if the cause of action had accrued

Clause 10: Treatment of liabilities relating to contracts of employment

Clause 10 provides provision to repeal references in the Insolvency (Northern Ireland) Order 1989 to a form of holiday arrangement which is now illegal.

Clause 11: Deeds of arrangement

Clause 11 provides that Chapter 1 of Part 8 of the Insolvency Order which made provision for Deeds of Arrangement as an insolvency procedure is repealed. Subsection (2) gives the Department power to make orders in consequence of this happening.

Clause 12: Bankruptcy: early discharge procedure

Clauses 12 repeals a provision in the Insolvency Order that a bankruptcy will end within one year if the Official Receiver files a notice with the High Court stating that investigation is unnecessary or concluded.

Clause 13: After-acquired property of bankrupt

Clause 13 facilitates banks offering accounts to undischarged bankrupts. It prevents a trustee from taking action against certain persons who have dealt with after-acquired property in good faith and without notice of the bankruptcy. It prevents a trustee making a claim against a bank in circumstances where the bank has not been served with notice by the trustee specifically regarding the after-acquired property he or she wishes to claim, regardless of whether the bank has notice of the bankruptcy.

Clause 14: Authorisation of insolvency practitioners

Clause 14 amends Part 12 of the Insolvency Order to introduce a new regime allowing for the partial authorisation of insolvency practitioners. Currently, individuals who are authorised to act as an insolvency practitioner (IP) are authorised in relation to all categories of appointment. Under the new regime a person may be authorised to act only in relation to companies or only in relation to individuals.

Clause 15: Power to make regulations

Clause 15 gives the Department power to make regulations to give effect to Part 12 of the Insolvency Order. The absence of such a power in Northern Ireland resulted in the Department not being able to make provision which would have required IPs who are authorised by the Department to make returns showing details of continuous professional development undertaken.

Clause 16: Company arrangement or administration provision to apply to a credit union

Clause 16 makes it possible for the Department to make orders enabling societies registered under the Credit Unions (Northern Ireland) Order 1985 as well as societies registered under the Industrial and Provident Societies Act (Northern Ireland) 1969 to enter a company arrangement or administration.

Clause 17: Disqualification from office: duty to consult the Lord Chief Justice

Clause 17 creates a requirement for the Lord Chief Justice to be consulted about the making of orders creating a right of appeal to a court in respect of discretionary decisions to disqualify bankrupts from offices or positions.

Clause 18: Interpretation

Clause 18 defines a number of terms used in the Act.

Clause 19: Transitional provisions, minor and consequential amendments and repeals

Clause 19 introduces Schedule 1 which makes transitional provisions.

Clause 20: Commencement

Clause 20 deals with commencement of the bill.

Clause 21: Short title

Clause 21 deals with the title of the bill.

Schedule 1: Transitional Provisions

This Schedule lists the transitional and saving provisions necessary to the Act.

Schedule 2: Minor and Consequential Amendments

This Schedule makes amendments to the Solicitors (Northern Ireland) Order 1976, the Insolvency (Northern Ireland) Order 1989, the Pensions (Northern Ireland) Order 2005 and the Insolvency (Northern Ireland) Order 2005.

Schedule 3 Repeals

This Schedule lists the repeals brought in by the Act.

Summary of Consideration

Clause 1: Attendance at meetings and use of websites

In a written submission PricewaterhouseCoopers LLC (PWC) agreed that remote attendance at meetings is a practical and helpful addition to existing arrangements, insofar as it will reduce cost and provide greater access to interested parties but has concerns relating to increased scope for creditors to challenge the validity of proceedings at a meeting.[2] In oral evidence, PWC stressed that the purpose is to bring consistency of approach. They believe there must be a mechanism for verifying that the person at the other end of a remote meeting is correctly identified as being the right person. The Institute of Chartered Accountants in Ireland (ICAI) believes this can be resolved by password-protected security.[3] PWC supported the concept of providing information via a website stating it would be particularly beneficial in cases where there are large numbers of creditors and would afford considerable efficiencies to the insolvency process. PWC believes that an industry standard for such websites would be beneficial and could also be addressed by an appropriate Statement of Insolvency Practice (SIP).[4]

The Department informed the Committee that, once the legislation is in place, there will be subordinate legislation to identify the practical implications and to determine what needs to be put in place to allow the new technology to be used. The Department is, as yet, unsure how this will work in practice as there are many things which will have to be put in place to facilitate electronic meetings such as safeguards, password protections and firewalls.[5] There is a requirement in Clause 1 for anyone proposing to hold remote meeting to ensure the identification of those attending and to ensure the security of any electronic means used to enable attendance. IPs are subject to monitoring by their recognised professional bodies (RPBs). These bodies seek to ensure that IPs are adhering to best practice.[6]

In relation to Article 208ZA(8), PWC believes adequate time will need to be built in to allow a suitable venue to be identified and creditors informed, PWC believes that these should be covered by an appropriate SIP. In oral evidence the Institute of Chartered Accountants in Ireland representative stated that logistical planning will be required which will require a minimum of two weeks.[7] Insolvency Service officials informed the Committee that there are requirements in existing legislation for periods of notice to be given for meetings. Those requirements will remain in place and will apply in the case of electronic meetings. They stated that some requirements are quite generous periods of time. Officials do not consider it appropriate to specify a time in the Bill because time periods for the individual requirements for meetings are specified elsewhere in the legislation, therefore the two could be in conflict.[8]

The Institute of Chartered Accountants in Ireland is in agreement with this clause and believes it will help to make the administration of insolvency cases easier by allowing for up-to-date methods of communication and eliminating unnecessary procedural requirements.[9]

Following consideration of the evidence the Committee was content with Clause 1 as drafted.

Clause 3: Removal of requirement for annual meetings in a members’ voluntary and a creditors’ voluntary winding up

It is intended that the requirement to hold a meeting to present progress reports in voluntary winding-up procedures will be replaced by a requirement to issue a report on progress. This will reduce the cost of holding meetings that are poorly attended or not of any benefit. If the resolution for voluntary winding up was passed before the day on which the law comes into place, the old rules apply. If it is after that, the new rules apply.[10]

PWC agreed that the removal of this requirement is a practical and helpful addition to existing arrangements as, in its experience, it is very rare for creditors or members to attend annual meetings and in very large cases, although creditors may attend the first annual meeting, numbers tend to reduce to zero with time. PWC believes the proposal should deliver cost efficiencies and the information presently laid at the meeting should instead be sent to the creditors/members as part of a proposed progress report.[11] The ICAI is also in agreement with this clause and considers that this will help to make the administration of insolvency cases easier by allowing for up-to-date methods of communication and eliminating unnecessary procedural requirements.[12]

Cavanagh Kelly noted that the proposals for transitional arrangements for the new system under Schedule 1 of the Bill will require that all open Members’ Voluntary Liquidations (MVLs) and Creditors’ Voluntary Liquidations (CVLs) will continue to require annual meetings to be held. Cavanagh Kelly states that, in practice, this will mean that IPs will need to operate both the legacy legislation and the amended legislation concurrently on their portfolios of cases. Cavanagh Kelly feels it would be more cost effective for the insolvency profession generally, and therefore result in improved returns to creditors, if the requirement for annual meetings was to be abolished for all MVLs and CVLs rather than only those commencing after the date on which the legislation comes into operation.[13] Cavanagh Kelly representatives informed the Committee that, although the proposed arrangements will require duplication of effort, the company does not see this as a major issue.[14] The Department is following the line taken in the GB legislation in relation to those transitional arrangements. The principle that applies in GB is that, where a procedure is already under way, the creditors and others involved will expect procedures to be conducted in accordance with the existing law and would consider it bad practice to be confronted by a different procedure than the one they had expected at the outset. The Department informed the Committee that it is considered bad law to apply new law to old cases.[15]

Following consideration of the evidence the Committee was content with Clause 3 as drafted.

Clause 6: Fast-track voluntary arrangements: notification of the Department

PWC believes Clause 6 has merit.[16] ICAI is in agreement with the Clause and believes it will help to make the administration of insolvency cases easier by allowing for up-to-date methods of communication and eliminating unnecessary procedural requirements.[17]

The Committee asked Department officials whether it was the intention of the Department to retain the fast-track system. The Department responded that it intended to retain the system for now but that the UK Small Business, Enterprise and Employment Bill 2014-15, currently progressing through Westminster, includes provision to repeal the fast-track system entirely and the Department hopes to repeal it in a future Insolvency Bill, to be passed during the lifetime of the next Assembly. Further, the Department stated that there has never been a case in Northern Ireland of a person availing themselves of the fast-track system.[18] The Committee asked DETI officials why it has been decided to wait until a future Insolvency Bill in the next Assembly to repeal the fast-track voluntary arrangements rather than including it in the current Bill. Officials responded that there are a large number of outstanding amendments to be made to insolvency law in Northern Ireland and it would be irrational to single out one particular provision from those and deal with it in the current Bill. They went on to state that there is no outstanding urgency attached to the abolition of fast-track voluntary arrangements.[19]

Following consideration of the evidence the Committee was content with Clause 6 as drafted.

Clause 11: Deeds of arrangement

PWC believe the new amendments have merit as this is a very old type of insolvency which has been superseded.[20] The ICAI is in agreement with this clause and considers that this will help to make the administration of insolvency cases easier by allowing for up-to-date methods of communication and eliminating unnecessary procedural requirements.[21] Cavanagh Kelly has no particular view on the repeal of provisions relating to Deeds of Arrangement.[22]

In his advice to the Committee on the Bill, the Examiner of Statutory Rules stated:

“Clause 11 contains a power to allow the Department to make orders subject to draft affirmative procedure amendments (including repeals) consequential upon the repeal of the provisions in respect of deeds of arrangement in Chapter 1 of Part 8 of the Insolvency Order. That seems to be appropriate, except that the Department might perhaps wish to amend clause 11 so that orders making consequential amendments and repeals in respect of primary legislation (provisions contained in an Act of Parliament or in Northern Ireland legislation as defined in the Interpretation Act (Northern Ireland) 1954) were subject to draft affirmative, while consequential amendments (and revocations) in respect of subordinate legislation were subject to negative resolution.”

In a response to the Committee on the issue, the Department stated that Legislative Counsel had agreed to alter the type of Assembly control required for orders made under Clause 11 of the Bill. Therefore draft affirmative procedure will only be required in the case of orders amending or repealing provisions in primary legislation. Negative resolution procedure will suffice in the case of orders amending or revoking provisions in subordinate legislation.[23] The Committee considered the wording of the amendment at its meeting on 24th February 2015.

Following consideration of the evidence the Committee was content with Clause 11 as amended and was content with the wording of the proposed amendment.

Clause 12: Bankruptcy: early discharge procedure

Department officials informed the Committee that only two people have ever been discharged early under the Northern Ireland provision. The Committee highlighted that, in relation to a person who is disqualified from holding certain positions for the period of time, early discharge may allow that person to take up a position in society such as in public service. The Department outlined the procedure that both people would have written to the Department requesting early discharge. There would have been a cost to the Department to administer it whereas waiting until they were discharged automatically would have resulted in no cost to the Department. The Department stated that early discharge was of very minor benefit to the individuals.[24]

The Department informed the Committee that England and Wales administered early discharge on a different basis to Northern Ireland wherein they did not wait for the individual to request early discharge but dealt with it on an automatic basis. An academic study, conducted in England, found that the cost of administering the scheme far outweighed any benefit to the bankrupts. The Department stated that it would be a very tiny minority of people who are bankrupt and are debarred from holding offices or positions.[25]

PWC agrees that discharge should be after 12 months, a reduction from 3 years to 12 months having already been enacted. Early discharge is an administrative burden that ultimately adds to the cost of administering the estate.[26] The ICAI is in agreement with this clause and believes it will help to make the administration of insolvency cases easier by allowing for up-to-date methods of communication and eliminating unnecessary procedural requirements.[27] Cavanagh Kelly welcomes the objective to remove the procedure for discharge from bankruptcy before the end of the first year. It has come across some situations where bankrupt individuals have expressed a desire to present an Individual Voluntary Arrangement (IVA) which would have provided an increased return to creditors, but have been prevented from doing so because they have received discharge from their bankruptcy debts. It feels it is important that discharge does not take place too quickly for this reason.[28]

Following consideration of the evidence the Committee was content with Clause 12 as drafted.

Clause 13: After-acquired property of bankrupt

The Department issued a reply to the Chancery and Probate Committee in relation to an issue it raised during the consultation period. The Committee for Enterprise, Trade & Investment requested and received a copy of the Department’s response.[29] Having considered the response, the Committee wrote to the Chairperson of the Chancery and Probate Liaison Committee to ask if that committee is content with the Department’s response to its concerns. The Chancery Office responded that the Honourable Mr Justice Deeny considered it best to consult the other members of the relevant Committee and would convene an extra-ordinary meeting for the purpose of discussing the Bill.[30] Following that meeting, the Chancery and Probate Committee wrote to the Committee stating that it is content with the Department’s Response.[31]

The Consumer Council welcomed the proposal to give banks immunity from claims by trustees in respect of sums of money passing through a bankrupt’s account unless there is a specific claim. The Consumer Council stated that currently, the majority of banks have a blanket ban on offering bank accounts to undischarged bankrupts, and only one bank offers this service to undischarged bankrupts if they submit an application, provided the consumer meets the relevant requirements and standard checks that are applied to other consumers. The Consumer Council believes banks should be able to change their policies to meet the needs of consumers and demonstrate their flexibility and willingness to treat consumers fairly.[32]

PWC believes non-culpable bankrupts are in effect punished by a lack of access to mainstream financial products. Bankrupts may not be able to access bank accounts which in turn means they are not eligible for discounts available for paying utility bills and dealing with other day-to-day creditors by direct debit. PWC believes that there is a case for a debtor having controlled access to a basic bank account, even prior to discharge. Allowing a bankrupt to use mainstream banking facilities, albeit a basic current account without access to overdraft or credit facilities, would represent an important step in the process of financial rehabilitation, helping bankrupts to regulate their affairs and avoiding at least some of the costs attaching to disenfranchisements. While any facilities offered in this manner should be carefully managed to avoid abuse, PWC observes that legislating to afford bankrupts to access mainstream banking facilities does not necessarily mean that banks will agree to facilitate such access. They therefore recommend that consultation between the Department and banks is undertaken to ensure that facilities provided for bankrupts in law are also available in practice. PWC acknowledges that the outlined changes could make it more difficult for Trustees to pursue claims for after-acquired property but such actions by Trustees are considered rare.[33]

Stepchange debt charity warmly welcomes the provisions contained in Clause 13 to remove the potential liability of banks against a trustee in respect of after-acquired property. It states that access to basic transactional banking is a vital part of good financial health for households recovering from debt. It states that few banks are now willing to offer basic transactional banking which is a vital part of good financial health for households recovering from problem debt and states that this can cause difficulty for their clients. The banking industry has cited, as a reason for this refusal, those provisions in insolvency legislation that impose a potential liability on banks for after-acquired property passing through a bankrupt’s account. By amending the legislation in Northern Ireland to remove this potential liability, StepChange believes Clause 13 removes the reason for banks to refuse to offer basic bank accounts to undischarged bankrupts. This will remove an unnecessary impediment to people recovering from serious debt problems. It states that, for these reasons, it strongly supports Clause 13.[34]

In response to the concerns expressed by Stepchange the Department informed the Committee that the intention of this proposal is to make banking available to everybody, but that ultimately it is the banks’ decision to let people have a bank account or to allow bankrupts to have their own bank accounts. It is hoped that removing the risk and the potential for trustees to take action against a bank for after-acquired property will resolve the matter.[35]

The Institute of Chartered Accountants in Ireland welcomes this clause stating that it will now encourage banks to facilitate the provision of bank accounts for bankrupts.[36] Cavanagh Kelly supports the objective of ensuring that bankrupt individuals continue to have access to bank accounts.[37]

Mr Justice Deeny raised a number of drafting issues in his response to the Committee. The Committee agreed to forward these to the Department for comment. In its response to the Committee, the Department acknowledged the issues raised by Mr Justice Deeny and outlined how these have been addressed or will be addressed during consideration stage of the Bill. The Department’s response included the wording of an amendment to Clause 13 to be brought at consideration stage.[38]

Following consideration of the evidence the Committee was content with Clause 13 as amended and was content with the wording of the proposed amendment.

Clause 14: Authorisation of insolvency practitioners

Clause 14 includes provisions for the option for an IP to be authorised solely in a personal or corporate capacity whereas, under current legislation, it is only possible to be authorised for both. The Committee asked Department officials to outline the rationale behind the approach. The Department responded that the proposed changes will make it easier for people to become insolvency practitioners. They will not have to study both areas. For example, a debt advisor may wish to qualify as an IP and work for individuals but may not be interested in acting as an IP for companies. There would be no point to such a person studying and taking examinations in how to deal with company affairs. The Department believes that greater specialisation should also lead to greater expertise.[39]

In both written[40] and oral[41] evidence PWC and the ICAI raised a number of concerns in relation to partial authorisation of insolvency practitioners. Many of these concerns were supported by Cavanagh Kelly in its written evidence to the Committee[42] and all three questioned whether the proposals are in the public interest. The issues of concern are summarised below. All three organisations were against this proposal.

There is concern that any proposal to introduce two new licensing regimes for IPs would have a negative impact on businesses and individuals seeking financial advice. Businesses and individuals seeking financial advice need to know from the outset if an IP can help them. It was suggested that the distinctions between corporate and personal financial affairs may be blurred and therefore the IP should be competent and qualified in both corporate and personal insolvency. It is thought some clients may not disclose all relevant financial information at the outset of the process. It is believed that partial authorisation may have a negative impact on the quality of advice from IPs resulting in increased costs and delays.

There is concern that Clause 14 may result in greater cost to the taxpayer and the public as regulatory bodies will have additional costs associated with setting up monitoring systems. This will be passed on to IPs through their fees, resulting in a lower dividend to the public.

Reservations were expressed as to how partnerships would be dealt with under a partial authorisation regime. It is thought that a personal licence would be insufficient to deal with a partnership as some partnerships are complex. Similarly, it is believed that a practitioner with only a personal licence may not have the necessary skill-set to deal with the insolvency of a high net worth individual with complex funding arrangements. Cavanagh Kelly provided details to the Committee of research carried out by R3 (the Association of Business Recovery Professionals) and a number of recognised professional bodies into the potential costs and benefits from partial authorisation.[43] R3 states that the draft Bill determines that a person who is partially authorised may not act in relation to partnerships and this will rule out many IPs, who undertake such work, from obtaining a partial licence.

It is thought that the uptake of partial licences would be limited and would not increase competition. It is felt that the proposal risks undermining the World Bank UK ranking of 7th best in the world in speed and returns to creditors. There have been redundancies in the sector recently and an IP with a partial licence will not, it is believed, be attractive to a firm that wants its practitioners to do both.

In the event that it is decided to proceed to implement these proposals, PWC believes that, in order to obtain a “personal licence”, it should be essential to demonstrate knowledge of corporate insolvency and vice versa, even if the examination for partial qualification is undertaken at a lower level than for a full licence.

In oral evidence, PWC representatives conceded that not every IP is an expert in both and they employ people who specialise in corporate insolvencies and others who specialise in personal insolvencies. There are occasions when a particular specialist is referred to.[44]

DETI Insolvency Service informed the Committee that there is no requirement to choose to practice in either corporate or personal insolvency cases. There are three examinations for full authorisation: two in corporate insolvency; and one in personal insolvency. Candidates can choose to do either or both.[45]

Quoting from the Bill, officials informed the Committee that under proposed Article 349A, ‘full authorisation’:

“…means authorisation to act as an insolvency practitioner in relation to companies, individuals and insolvent partnerships.”

Proposed Article 350 states:

“The Department may by order declare a body which appears to it to meet the requirements of paragraph (4) to be a recognised professional body which is capable of providing its insolvency specialist members with full authorisation or partial authorisation.”

Therefore the option exists to recognise a professional body that can provide insolvency practitioners with either full or partial authorisation. The Department went on to inform the Committee that partial authorisation does not exist under existing law but if a body has been recognised under existing law to grant full authorisation, they will, under Clause 14(7) of the Bill, continue to be recognised for the purpose of providing full and partial authorisation.[46]

If there is any doubt about whether a particular case fits into one or other category, a short interview with the person concerned should establish at the facts of the case and whether there is a partnership involved or potential company issues. The Department considers it highly unlikely that a case would proceed to any significant degree before it was realised that the IP was not qualified to meet the individual’s circumstances. The Department conceded that it could happen if an individual did not, for whatever reason, volunteer all the information that they should.[47]

Following a request for clarification from the Committee, the Department contacted Cavanagh Kelly and PricewaterhouseCoopers who replied confirming that they both understand that full authorisation will continue to be available to IPs as well as the option of being partially authorised to take only company or individual cases.[48]

In answer to concerns expressed in relation to the introduction of partial authorisation, the Department responded that it has no alternative except to go along with what is being done in GB; stating that Northern Ireland cannot opt out of bringing in partial authorisation, because there is a requirement to comply with the EU Services Directive. The UK would be in breach of that directive if Northern Ireland did not bring in partial authorisation. Someone who is partially authorised in GB under what will be the Deregulation Act would be entitled to practice on the same basis in Northern Ireland. Therefore, DETI must have a scheme to allow for partial authorisation here.[49]

Cavanagh Kelly questions whether the proposed amendments are required at the present time to ensure compliance with Article 10(4) of the EU Services Directive. While the legislation in England and Wales has been drafted and is currently at Committee Stage in the House of Lords, Cavanagh Kelly believes that, at the date of the submission of its written evidence, there was no part of the UK where partial authorisation was in operation. They state the operation of insolvency legislation is a devolved matter and requested that the Committee consider whether the particular circumstances of Northern Ireland would give rise to a public interest argument under Article 10(4) for not introducing partial authorisation in this jurisdiction.[50]

Cavanagh Kelly considers that this proposed change should be the subject of separate legislation, following a full public consultation, and would be more appropriately dealt with as part of a Deregulation Bill (as is the case in England and Wales) rather than being dealt with as part of this Bill.[51]

Article 10(4) of the EU Services Directive states:

“The authorisation shall enable the provider to have access to the service activity, or to exercise that activity, throughout the national territory, including by means of setting up agencies, subsidiaries, branches or offices, except where an authorisation for each individual establishment or a limitation of the authorisation to a certain part of the territory is justified by an overriding reason relating to the public interest.”[52]

The Department informed the Committee that legal advice from the Departmental Solicitor’s Office (DSO) is that, under the Directive, if the legislation has been changed in one part of a jurisdiction, every part of that jurisdiction should follow suit.[53]

The Committee was content that Article 10(4) of the EU services Directive applies and that Northern Ireland is required to introduce partial authorisation.

Following consideration of the evidence the Committee was content with Clause 14 as drafted.

Clause 17: Disqualification from office: duty to consult the Lord Chief Justice

The Committee asked Department officials why Clause 17 is considered necessary and if the requirement for the Lord Chief Justice to be consulted would impact on processing times. The Department responded that the Clause relates to the bar on people holding various offices and provisions if they are declared bankrupt. There is discretion as to whether a person is allowed to hold an office or position. If a person is barred they have a right of appeal and the Department is empowered to make orders that that right of appeal can be to a court. Therefore, as the courts have an interest, it is deemed essential that the Lord Chief Justice should be consulted about the making of any order which would provide for a right of appeal to a court, not least because the Lord Chief Justice would have an interest in ensuring that the appeal was to an appropriate court i.e. to a county court or to the High Court.[54]

The Clause will have no impact on processing times. The only situation where there would be communication with the Lord Chief Justice would be on the making of an order, a piece of subordinate legislation, providing for a right of appeals to the court. Appeals by individuals to court would not involve the Lord Chief Justice. It is only the legislation providing for the appeal to the court that has to be subject to scrutiny by the Lord Chief Justice.[55]

PWC considers the new clause sensible.[56] The ICAI fully supports Clause 17.[57] Cavanagh Kelly has no particular view on the objective relating to the Lord Chief Justice being consulted about the making of orders creating a right of appeal to the courts in respect of discretionary disqualification from office as a consequence of bankruptcy.[58]

Following consideration of the evidence the Committee was content with Clause 17 as drafted.

Schedule 1: Transitional Provisions

Issues relating to transitional arrangements in Schedule 1 have been considered under Clause 3.

Following consideration of the evidence the Committee was content with Schedule 1 as drafted.

Schedule 2: Minor and Consequential Amendments

Paragraphs 4, 7 and 8 of Schedule 2 make provision for statutory demands to be in writing. The Committee asked the Department to outline the reasons for this and to provide details of the current position. The Department responded that it is a clarification. The statutory demand is an important document informing the person that they are at risk of being made bankrupt or that the company is at risk of being wound up if payment is not tendered within a three week period. That document has to be served personally. The Department stated that it has always been understood that statutory demands have to be in writing, but the legislation was vague. It is to make it more certain and concrete.[59]

Cavanagh Kelly supports the objective to correct the anomaly whereby individuals other than insolvency practitioners could be authorised to act as nominees or supervisors in voluntary arrangements.[60]

Following consideration of the evidence the Committee was content with Schedule 2 as drafted.

Committee consideration of Other Issues

A Code of Conduct for Insolvency Practitioners

At the second stage debate in the Assembly, Mr Jim Allister QC, MLA asked the Minister if there is a case for the Insolvency (Amendment) Bill to make statutory provision for a code of conduct in respect of insolvency practitioners as there seems to be a deficit of supervision, control, accountability and regulation of how IPs conduct themselves.

The Committee raised the issue with the Department. Officials responded that there is no provision in the Bill for a code of conduct. However, in GB, provision is included in the Small Business, Enterprise and Employment Bill going through Westminster. Officials informed the Committee that they intend to recommend to the Minister that, in future legislation, a regulatory objective be put in place. That will require the regulated professional bodies to ensure that a number of objectives and principles are put in place to regulate insolvency professionals. This would include requirements for appropriate training; ensuring consistent outcomes; providing high-quality services; acting transparently and with integrity; considering the interests of all creditors in any particular case; promoting the maximisation of the value of returns; and protecting and promoting the public interest. The Department stated that those issues will be enshrined in legislation through the Westminster Bill and it is their intention they be enshrined in a future Insolvency Bill.

On 12th December 2014 the Minister wrote to inform the Committee that provisions for a statutory code of conduct for IPs will be included in the current Bill by way of an amendment at consideration stage.[61] In oral evidence Insolvency Service officials agreed to share the amendment with the Committee for review prior to the completion of the Committee report and to consider any comments made by the Committee.[62]

In oral evidence insolvency practitioner representatives stated that the monitoring of regulatory bodies is so strict currently that, if it became statutory, it would not pose a problem.[63]

The Department provided the Committee with the text of the amendment[64] and provided a further oral briefing to the Committee on the matter.[65] Department officials informed the Committee that the recognised professional bodies have two main functions, firstly, to authorise IPs and, secondly, to monitor their performance against regulatory objectives.

The Department outlined that the new clause will not create a code of conduct but takes, what the Department considers to be, a more effective route to policing the conduct of insolvency practitioners. The Clause includes penalties which will apply to RPBs if they do not maintain a satisfactory standard of regulation. The Department will also have the power to intervene directly by applying to the court for action to be taken against an IP. The Department believes that the system has been put in place in an adequate manner in GB without the need for legislation. The matter does not affect any party outside of Government but is internal to the operation of the Westminster Department of Business, Innovation and Skills. It is considered possible for the Department to establish an administrative procedure and control the actions of its staff without having to enshrine the procedure in legislation.

There are two levels at which the process will operate, namely at RPB level and at Government level.

At RPB level the RPB will carry out monitoring inspections of their IPs. Any complaints against an IP will be made to the RPB. The RPB will carry out a review and investigation of the circumstances. The RPB will be able to impose a range of sanctions up to and including the removal of authorisation. It will be the responsibility of each RPB to put in place the regulatory objectives by which IPs authorised by them are licenced.

At Government level there will be an annual programme of inspection whereby every recognised RPB is inspected on a regular basis. This will be undertaken by the Insolvency Service in GB and by the Northern Ireland Insolvency Service. The Department will have very clear enforcement powers against an RPB should that RPB fail to meet requirements. There will be a graduated and tailored range of sanctions set down in the legislation.

Following consideration of the evidence the Committee was content that the proposed new clause be included in the Bill at consideration stage.

Backlog in Insolvency Cases

The Committee asked Department officials about a current backlog in the system and whether more could be done to address the backlog given the economic downturn. Department officials responded that the current legislation will probably not have a large impact on the number of cases coming through the Department or its ability to administer more quickly. No legislative means have been identified to change this but the Department is constantly looking at its processes and reviewing best use of resources to speed up cases. Staff numbers have increased from around 50 to over 100 since the start of the recession. In the same period the number of cases has more than trebled and continues to increase. The number of cases in trading bankruptcies and corporate winding-up has levelled off in the last number of months, but the number of personal bankruptcies continues to increase. Temporary staff have been brought in which helps, and a new IT system should help processing times.[66] PWC informed the Committee that they do not think that there is a backlog with the provision of insolvency services either in Northern Ireland or further afield. It was stated that there is nothing specific in the Bill that will significantly accelerate the process and that it was not, in any case, necessary.[67]

PWC’s response prompted the Committee to seek clarification from the Department around where the backlog lay. In response, the Department stated that, at present, when an insolvency order is made, the Official Receiver conducts initial investigations and identifies whether the insolvent person has any assets likely to be realised. If it seems that assets will be realised, the case is passed to the private sector. If there are no assets, there are no fees to be realised, and the case is taken on by the Official Receiver and administered by the Department. The Department informed the Committee that the economic downturn has been the main factor in the creation of the increase in the number of insolvencies in recent years.[68] In its response, at Appendix 4, the Department outlined the reasons for the delay in dealing with cases where it is not economically viable for a private sector IP to take on the administration of a case.[69]

Following consideration of the evidence the Committee was content.

Electronic Signature

The Committee asked Department officials about the likelihood that an electronic signature will suffice in the future as the Minister had stated in the Second Stage debate in the Assembly that there will be a set of rules made to accompany this legislation which will provide for the authorisation of signatures by electronic means. Department officials responded that, as part of the legislation, a set of rules will be introduced in subordinate legislation which will allow for and define what can be used to formally sign off a document.[70]

Following consideration of the evidence the Committee was content.

Original Clause Containing Provisions in relation to Bank Deposits Covered by the Financial Services Compensation Scheme.

The original draft of the Bill which came to the Committee during pre-legislative scrutiny, included a clause which referred to bank deposits covered by the Financial Services Compensation Scheme. This will now be included in a statutory instrument which the treasury plans to make under the European Communities Act.

The Committee asked Department officials, in the event that a financial institution becomes insolvent, individual customers will be compensated up to £85k and the FSCS reimbursed before Treasury can claim any further funds. What is not clear is, whether Treasury can claim against the remaining funds in preference to customers who hold deposits in excess of £85k.

At the meeting the Department stated that the customer would be at risk of losing any deposit in excess of £85k unless the liquidator could sell off the bank’s assets and loans to raise funds to pay part of what the customer would otherwise have lost. The scheme is administered by the FSA on a UK-wide basis. The Treasury sets the policy on a UK-wide basis. Whenever a financial institution becomes insolvent, the Treasury becomes a preferred creditor. The FSA recompenses the person to £85k. Whenever the institution is wound up, its assets will be identified and then sold off. Therefore, the preferred creditors have the first call on any moneys. The Treasury would be one of the preferred creditors in that case along with the other secure creditors.[71]

The matter has been taken out of the Insolvency Bill, it will be dealt with in a statutory instrument on a UK-wide basis. It will provide for the financial services scheme to have first recourse to the sums paid out by way of compensation to customers which are up to £85k. Further provision is now being included in that statutory instrument. It will give a certain priority to customers who have had deposits of more than £85k. They come in after the financial services compensation scheme in respect of the moneys they have had on deposit.[72]

Following consideration of the evidence the Committee was content.

Speed of the Bill through the Assembly

The Committee asked Department officials why the Bill has not passed through the House more rapidly as Northern Ireland has to comply with the EU directive, as has every other EU Member State. The Department responded that an infraction letter has been issued to the UK about the issue of non-compliance with the EU Services Directive. That issue is being dealt with by the Department for Business, Innovation and Skills (BIS). It has negotiated a date in 2016 by which, if it complies with the directive, no further action will be taken by the EU. The Act should be in operation by that date and that will ensure compliance.[73]

Following consideration of the evidence the Committee was content.

Clause by Clause Scrutiny of the Bill

Clause 1:     Attendance at meetings and use of websites

Clause 2:     References to things in writing

Clause 3:     Removal of requirement for annual meetings in a members’ voluntary and a creditors’ voluntary winding up

Clause 4:     Requirements in relation to meetings under Articles 81 and 84 of the insolvency Order

Clause 5:     Individual voluntary arrangements: removal of requirement to submit a nominee’s report to the High Court

Clause 6:     Fast-track voluntary arrangements: notification of the Department

Clause 7:     Powers of liquidator exercisable with or without sanction in a winding up

Clause 8:     Powers of trustee exercisable with or without sanction in a bankruptcy

Clause 9:     Definition of debt

Clause 10:   Treatment of liabilities relating to contracts of employment

The Committee for Enterprise, Trade & Investment is content with clauses 1 to 10 as drafted.

Clause 11: Deeds of arrangement

The Committee for Enterprise, Trade & Investment is content with Clause 11 as amended and is content with the wording of the proposed amendment.

Clause 12: Bankruptcy: early discharge procedure

The Committee for Enterprise, Trade & Investment is content with Clause 12 as drafted.

Clause 13: After-acquired property of bankrupt

The Committee for Enterprise, Trade & Investment is content with Clause 13 as amended and is content with the wording of the proposed amendment.

Clause 14:   Authorisation of insolvency practitioners

Clause 15:   Power to make regulations

Clause 16:   Company arrangement or administration provision to apply to a credit union

Clause 17:   Disqualification from office: duty to consult the Lord Chief Justice

Clause 18:   Interpretation

Clause 19:   Transitional provisions, minor and consequential amendments and repeals

Clause 20:   Commencement

Clause 21:   Short title

123.        The Committee for Enterprise, Trade & Investment is content with clauses 14 to 21 as drafted.

Schedule 1: Transitional Provisions

Schedule 2: Minor and consequential Amendments

Schedule 3: Repeals

The Committee for Enterprise, Trade & Investment is content with schedules 1 to 3 as drafted.

Long Title

The Committee for Enterprise, Trade & Investment is content with the long title as drafted.

List of Appendices

Appendix 1 – Minutes of Proceedings (extracts)

11 November 2014

9 December 2014

13 January 2015

27 January 2015

3 February 2015

17 February 2015

24 February 2015

3 March 2015

Appendix 2 – Minutes of Evidence

27 September 2012 – DETI

11 November 2014 – DETI

9 December 2014 – Institute of Chartered Accountants in Ireland and PricewaterhouseCoopers

3 February 2015 - DETI

Appendix 3 – Written Submissions

Cavanagh Kelly

Consumer Council

Institute of Chartered Accountants in Ireland

PricewaterhouseCoopers

Royal Courts of Justice

StepChange

Appendix 4 – Memoranda and Papers from DETI

DETI proposed amendments to the Insolvency Law

DETI post consultation briefing

Briefing from DETI on the Insolvency (Amendment) Bill

Update from DETI in regards to Insolvency (Amendment) Bill – Letter sent to Chancery and Probate Liaison Committee

DETI Correspondence regarding the Insolvency (Northern Ireland) Order 2005

Letter from the Minister regarding the inclusion of a clause repealing the early discharge provision in bankruptcy

Letter from the Minister regarding Insolvency Practitioners

Letter from the Minister regarding proposed legislative amendments to safeguard banks

Letter from the Minister regarding the Insolvency (Amendment) Bill – May 2014

Correspondence from the Minister regarding the Insolvency (Amendment) Bill – June 2014

Correspondence from the Royal Courts of Justice

Departmental response to Committee query on the Insolvency (Amendment) Bill

Correspondence from the Minister regarding the Insolvency (Amendment) Bill – December 2014

Response from DETI to Committee query on the extent of any backlog in relation to insolvency cases

Response from DETI to comments made by Mr Justice Deeny

Appendix 5 – Research Papers

NIAR 386-14, Insolvency (Amendment) Bill

Appendix 6 – List of Witnesses

Department of Enterprise, Trade and Investment

Institute of Chartered Accountants Ireland

PricewaterhouseCoopers


[1]                  Appendix 4: Memoranda and Papers from DETI – Correspondence from DETI 12th                      December 2014
[2]                  Appendix 3: PWC Written Submission
[3]                  Appendix 2:PWC/ICAI Hansard
[4]                  Appendix 3: PWC Written Submission
[5]                  Appendix 2: DETI Hansard 13th January 2015
[6]                  Ibid
[7]                  Appendix 2: PWC/ICAI Hansard
[8]                  Appendix 2: DETI Hansard 13th January 2015
[9]                  Appendix 3: ICAI Written Submission
[10]                Appendix 2: DETI Hansard 13th January 2015
[11]                Appendix 3: PWC Written Submission
[12]                Appendix 3: ICAI Written Submission
[13]                Appendix 3: Cavanagh Kelly Written Submission
[14]                Appendix 2: PWC/ICAI Hansard
[15]                Appendix 2: DETI Hansard 13th January 2015
[16]                Appendix 3: PWC Written Submission
[17]                Appendix 3: ICAI Written Submission
[18]                Appendix 2: DETI Hansard 11th November 2014
[19]                Appendix 2: DETI Hansard 13th January 2015
[20]                Appendix 3: PWC Written Submission
[21]                Appendix 3: ICAI Written Submission
[22]                Appendix 3: Cavanagh Kelly Written Submission
[23]                Appendix 4: Memoranda and Papers from DETI
[24]                Appendix 2: DETI Hansard 11th November 2014
[25]                Ibid
[26]                Appendix 3: PWC Written Submission
[27]                Appendix 3: ICAI Written Submission
[28]                Appendix 3: Cavanagh Kelly Written Submission
[29]                Appendix 4: Memoranda and Papers from DETI: Letter sent to Chancery and                                  Probate Liason Committee - 3 September 2012
[30]                Appendix 3: Chancery and Probate Committee Written Submission
[31]                Ibid
[32]                Appendix 3: Consumer Council Written Submission
[33]                Appendix 3: PWC Written Submission
[34]                Appendix 3: StepChange Written Submission
[35]                Appendix 2: DETI Hansard 13th January 2015
[36]                Appendix 3: ICAI Written Submission
[37]                Appendix 3: Cavanagh Kelly Written Submission
[38]                Appendix 4: Memoranda and Papers from DETI- Correspondence from DETI 12                            February 2015
[39]                Appendix 2: DETI Hansard 11th November 2014
[40]                Appendix 3: PWC and ICAI Written Submissions
[41]                Appendix 2: PWC/ICAI Hansard
[42]                Appendix 3: Cavanagh Kelly Written Submission
[43]                Ibid
[44]                Appendix 2: PWC/ICAI Hansard
[45]                Appendix 2: DETI Hansard 13th January 2015
[46]                Ibid
[47]                Ibid
[48]                Appendix 4: Memoranda and Papers from DETI
[49]                Ibid
[50]                Appendix 3: Cavanagh Kelly Written Submission
[51]                Ibid
[52]                http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?                                                                      uri=CELEX:32006L0123&from=EN
[53]                Appendix 2: DETI Hansard 13th January 2015
[54]                Appendix 2: DETI Hansard 11th November 2014
[55]                Ibid
[56]                Appendix 3: PWC Written Submission
[57]                Appendix 3: ICAI Written Submission
[58]                Appendix 3: Cavanagh Kelly Written Submission
[59]                Appendix 2: DETI Hansard 11th November 2014
[60]                Appendix 3: Cavanagh Kelly Written Submission
[61]                Appendix 4: Memoranda and Papers from DETI – Correspondence from DETI 12                          December 2014
[62]                Appendix 2: DETI Hansard 13th January 2015
[63]                Appendix 2: PWC/ICAI Hansard
[64]                Appendix 4: Memoranda and Papers from DETI – Correspondence from DETI 12                          February 2015
[65]                Appendix 2: DETI Hansard 3rd February 2015
[66]                Appendix 2: DETI Hansard 11th November 2014
[67]                Appendix 2: PWC/ICAI Hansard
[68]                Appendix 2: DETI Hansard 3rd February 2015
[69]                Appendix 4: Memoranda and Papers from DETI- Correspondence from DETI 12th                        February 2015
[70]                Appendix 2: DETI Hansard 11th November 2014
[71]                Appendix 2: DETI Hansard 11th November 2014
[72]                Ibid
[73]                Ibid

 

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