Insolvency: a round-up of 2015 and what’s to come
Looking back – what happened in 2015?
2015 was another busy year in the insolvency sector.
We saw an increase in the number of creditors improperly using insolvency procedures to recover disputed debts. We have been busy advising and assisting clients on how best to protect themselves from these aggressive tactics which could have significant consequences if not dealt with appropriately.
The threat of winding up or bankruptcy should only be used where the creditor knows that the debt is undisputed. Where there is already a dispute, or if after demanding payment the creditor is put on notice of a dispute about the sums claimed, they are on thin ice if they then choose to proceed with a petition, as the case of Coilcolor Ltd v Camtrex Limited  EWHC 3202 (Ch) demonstrated in November 2015.
Despite knowledge of a dispute about the sums being demanded, the creditor ploughed on with threatening to present a winding-up petition against the debtor. The debtor was left with no option but to commence urgent injunctive proceedings to prevent the creditor from doing so, to avoid the risk of the petition causing potentially irreparable damage to the company’s reputation and credit rating. The debtor succeeded with its injunction. The Judge commented that the creditor’s proposed petition was clearly an abuse of the insolvency process in that it was being used to apply pressure to the debtor to pay a debt where there was a bona fide dispute as to whether the money was in fact owed and issues in dispute were matters for trial and not an insolvency court. Having succeeded with the injunction, the debtor is likely to recover a significant sum for its costs from the creditor, giving rise to a strong negotiating tool to resolve the dispute about the original debt.
Also in November, we saw the costs of presenting insolvency petitions go up. It now costs £1,630 to present a winding-up petition and £1,130 to present a bankruptcy petition. Furthermore, the threshold of the debt necessary to presenting a bankruptcy petition increased from £750 to £5,000, rendering smaller unpaid invoice debts against sole traders much more difficult to enforce.
Looking forward – what to expect in 2016?
Our insolvency rules and statutory framework are now almost 30 years old and will be receiving a makeover in 2016 when the new Insolvency Rules 2015 come into force in the spring.
Intended changes include:
- removing the need for creditors to meet in all insolvencies
- the abolition of final meetings
- the ability for creditors to opt out of further correspondence from the office-holder
- allowing an office-holder to pay a dividend in respect of a debt of less than £1,000 without the need for the creditor to submit a formal claim or proof of debt form, and
- all applications for bankruptcy on the petition of a debtor will be submitted to an Adjudicator (who will be a person appointed to that role by the Secretary of State).
The changes that are about to come into force are intended to consolidate the existing rules and their amendments into a single set of rules, modernise and simplify the language making the rules easier to read and understand, as well as reduce red tape. All of these are generally hoped to reduce unnecessary regulatory burdens and drive down the cost of administering insolvencies with a view to generating improved returns to creditors.