Small Business, Enterprise and Employment Act 2015: Extension of Administration and Simplification of Insolvency Process

This is part of a series of posts on the Small Business, Enterprise & Employment Bill that has now come into force on 26 March 2015 following the grant of Royal Assent and is now the Small Business, Enterprise and Employment Act 2015 (“the Act”).

This series of posts is intended to update the readers of the key changes, which should radically transform the transparency of the marketplace as regards the operation, control, ownership and risk associated to limited companies in the UK.

We have not addressed all of the issues described in our previous posts, to avoid duplication, but would welcome any queries from the reader in this respect.

The commencement of these changes is different dependant on which part of the Act is being reviewed (Section 164 of the Act defines commencement) and we have highlighted below the relevant commencement dates. Where we below stated “to be announced” this means it has not yet come into force and will commence upon the making of a Commencement Order.

The changes as set out below will be extremely important to all directors, companies and individuals with business in the future and it cannot be emphasised too strongly how important it is that you are prepared for these proposed changes. At Francis Wilks & Jones we can advise on all matters subject to these posts.

Together with Parliament’s wish to have more transparency in the economic market place, the attempt to simplify and reduce the time spent on matters by Administrators and Liquidators has been implemented at Sections 122-126 of the Act. This includes the abolition of the requirements to hold meetings in both individual and corporate insolvency proceedings and the removal of the requirement to circulate various notices and seek creditors approval as regards specific matters (the previous blog refers).

Please note that these changes have not yet commenced, and will commence once the appropriate Commencement Order has been passed.

However, from 26 May 2015 the provisions at Sections 127 – 132 of the Act will come into force to enable an Administrator’s term of office to be extended to one year (until then the maximum extension period was 6 months), the Administrator will be able to pay unsecured creditors out of Administration (where previously it can to be converted to a liquidation before this could occur) and a creditor claim for a “small debt” does not require any formal proof to be filed (as this can often incur expensive administrative costs where numerous small creditors are proving, which may outweigh the value of determining their claim).

The changes to creditors with “small debts” will also apply to bankruptcy proceedings.

At Francis Wilks & Jones we have comprehensive experience in dealing with such matters, either seeking extensions on behalf of appointed Administrators, provide assistance to directors and advising creditors.

Small Business, Enterprise and Employment Act 2015:Liquidator’s

Sanction of Liquidator’s Actions – COMMENCEMENT DATED 26 MAY 2015

This is part of a series of posts on the Small Business, Enterprise & Employment Bill that has now come into force on 26 March 2015 following the grant of Royal Assent and is now the Small Business, Enterprise and Employment Act 2015 (“the Act”).

This series of posts is intended to update the readers of the key changes, which should radically transform the transparency of the marketplace as regards the operation, control, ownership and risk associated to limited companies in the UK.

We have not addressed all of the issues described in our previous posts, to avoid duplication, but would welcome any queries from the reader in this respect.

The commencement of these changes is different dependant on which part of the Act is being reviewed (Section 164 of the Act defines commencement) and we have highlighted below the relevant commencement dates. Where we below stated “to be announced” this means it has not yet come into force and will commence upon the making of a Commencement Order.

The changes as set out below will be extremely important to all directors, companies and individuals with business in the future and it cannot be emphasised too strongly how important it is that you are prepared for these proposed changes. At Francis Wilks & Jones we can advise on all matters subject to these posts.

Historically, where the appointed Liquidator wished to deal with creditors or issue proceedings, there were strict rules (Schedule 4 to the Insolvency Act 1986) which governed which decisions required the involvement of creditors (referred to as obtaining creditors’ “sanction” of such proposals). Similar rules apply to Trustees in Bankruptcy (as set out in Schedule 5 to the Insolvency Act 1986).

This often involved a timely and expensive (in terms of the fees of the Liquidator and his/her staff) process, the result of which there was often little or no response from creditors, who generally as disinterested in the procedure of the liquidation.

The Act has assisted the Liquidator and creditors by further limiting the areas requiring creditors’ sanction, which should in turn also reduce the Liquidator’s costs incurred in dealing with such steps.

This provision will commence very shortly and so Insolvency Practitioners are well advised to consider whether any sanction is strictly necessary for any actions after 26 May 2015. At Francis Wilks & Jones we can assist and advise on such matters.

Small Business, Enterprise and Employment Act 2015 Administrators: Powers to bring fraudulent/wrongful trading claims

Administrators: powers to bring fraudulent/wrongful trading claims– COMMENCEMENT ORDER TO BE ANNOUNCED

This is part of a series of posts on the Small Business, Enterprise & Employment Bill that has now come into force on 26 March 2015 following the grant of Royal Assent and is now the Small Business, Enterprise and Employment Act 2015 (“the Act”).

This series of posts is intended to update the readers of the key changes, which should radically transform the transparency of the marketplace as regards the operation, control, ownership and risk associated to limited companies in the UK.

We have not addressed all of the issues described in our previous posts, to avoid duplication, but would welcome any queries from the reader in this respect.

The commencement of these changes is different dependant on which part of the Act is being reviewed (Section 164 of the Act defines commencement) and we have highlighted below the relevant commencement dates. Where we below stated “to be announced” this means it has not yet come into force and will commence upon the making of a Commencement Order.

The changes as set out below will be extremely important to all directors, companies and individuals with business in the future and it cannot be emphasised too strongly how important it is that you are prepared for these proposed changes. At Francis Wilks & Jones we can advise on all matters subject to these posts.

When it commences, section 117 of the Act will permit appointed Administrators to bring wrongful/fraudulent trading claims against directors (and also shadow directors as per the changes referred to in my previous blogs). This brings it into line with other types of claim, which may only be made against directors in insolvency proceedings.

Additionally, as with most insolvency claims, sums recovered as a result of fraudulent/wrongful trading claims will not be payable to a secured creditor with a floating charge over the company’s assets (as pre-insolvency this claim was not part of the company’s assets).

Curiously though, we envisage this will create unusual circumstances where an Administrator, who is usually appointed by the floating charge holder (or at least at their behest by directors) may not be able to benefit from this power but will have to seek a share of the proceeds (net of the Administrator’s fees and those of a subsequently appointed liquidator) together with other unsecured creditors.

Both Insolvency Practitioners, directors and banks (and any other secured creditor) should be fully aware of these changes. At Francis Wilks & Jones we can advise on such matters.

Small Business, Enterprise and Employment Act 2015: Insolvency

Insolvency Practitioners and amendment to D Report duties – COMMENCEMENT ORDER TO BE ANNOUNCED

This is part of a series of posts on the Small Business, Enterprise & Employment Bill that has now come into force on 26 March 2015 following the grant of Royal Assent and is now the Small Business, Enterprise and Employment Act 2015 (“the Act”).

This series of posts is intended to update the readers of the key changes, which should radically transform the transparency of the marketplace as regards the operation, control, ownership and risk associated to limited companies in the UK.

We have not addressed all of the issues described in our previous posts, to avoid duplication, but would welcome any queries from the reader in this respect.

The commencement of these changes is different dependant on which part of the Act is being reviewed (Section 164 of the Act defines commencement) and we have highlighted below the relevant commencement dates. Where we below stated “to be announced” this means it has not yet come into force and will commence upon the making of a Commencement Order.

The changes as set out below will be extremely important to all directors, companies and individuals with business in the future and it cannot be emphasised too strongly how important it is that you are prepared for these proposed changes. At Francis Wilks & Jones we can advise on all matters subject to these posts.

The Act has also now moved to increase the regulatory burden on Insolvency Practitioners and their report on directors’ conduct (which is usually a prerequisite before any disqualification proceedings are commenced).

In summary, and further to the previous blog, the changes as they affect IPs are as follows:

1. An immediate report on the director’s conduct must be prepared by the Official Receiver or Administrator/Liquidator (“the Office Holder”) to the Secretary of State at the date of insolvency OR at any time within a period “ending with that date”.
2. The report must be filed with the Secretary of State within 3 months or “within such longer period as the Secretary of State considers appropriate”.
3. There is an additional obligation to update this report should the Office Holder become aware of any material changes or new evidence which should have been included in the original report.
4. The initial conduct report is not required to be prepared and submitted by a second Insolvency practitioner appointment (for example where a liquidator is appointed after an administrator) unless new material comes to light which should have been included in the original conduct report.
5. This will no doubt theoretically increase the reporting duties of Insolvency Practitioners at a time when their fees are subject to criticism and closer review.

Obviously for both Insolvency Practitioners and Directors these changes will have a serious impact and should you require advice on these changes please do not hesitate to contact Francis Wilks & Jones.

Small Business, Enterprise and Employment Act 2015 :All Company Directors Must Now be Natural Persons

This is part of a series of posts on the Small Business, Enterprise & Employment Bill that has now come into force on 26 March 2015 following the grant of Royal Assent and is now the Small Business, Enterprise and Employment Act 2015 (“the Act”).

This series of posts is intended to update the readers of the key changes, which should radically transform the transparency of the marketplace as regards the operation, control, ownership and risk associated to limited companies in the UK.

We have not addressed all of the issues described in our previous posts, to avoid duplication, but would welcome any queries from the reader in this respect.

The commencement of these changes is different dependant on which part of the Act is being reviewed (Section 164 of the Act defines commencement) and we have highlighted below the relevant commencement dates. Where we below stated “to be announced” this means it has not yet come into force and will commence upon the making of a Commencement Order.

The changes as set out below will be extremely important to all directors, companies and individuals with business in the future and it cannot be emphasised too strongly how important it is that you are prepared for these proposed changes. At Francis Wilks & Jones we can advise on all matters subject to these posts.

All Company Directors must now be natural persons – COMMENCEMENT ORDER TO BE ANNOUNCED

Sections 87 and 88 of the Bill removes the ability to appoint corporate directors to the Board of Companies and insert a statutory requirement that ALL company directors must now be natural persons. There is however a provision that enables the Secretary of state to make exceptions to this rule, but we presume this will largely be in respect of government institutions, companies limited by guarantee and not-for-profit organisations.

A breach of this, both by the appointing company, the appointed company (if one is wrongly appointed) and directors of both of these companies (including shadow directors) may make these companies/their directors liable to criminal proceedings. The sentence is limited to a fine. However, it is important to note that the existence of any such criminal proceedings may make directors unable to continue acting in that capacity or alternatively they could later be deemed in breach of their fiduciary duties.

The amendments (new Section 156C of the Companies Act 2006) do provide for current corporate directors. They can remain appointed until 12 months from the day that the Act comes into force, and so these corporate directors (in respect of all UK companies) must be removed no later than 25 March 2016.

If you require any assistance on the impact or effect of any of these changes, or indeed you require assistance in making these changes and advice on the consequences,then please contact Francis Wilks & Jones.

Transparency of Companies: Beneficial Interests

This is part of a series of posts on the Small Business, Enterprise & Employment Bill that has now come into force on 26 March 2015 following the grant of Royal Assent and is now the Small Business, Enterprise and Employment Act 2015 (“the Act”).

Schedule 3 to the Act (via Part 7 at sections 81-82) inserts a new Section 9(d) into the Companies Act 2006 to require that all companies maintain a register of people who have a “significant control over the company” (called a PSC Register) and also a new Part 21A of the Companies Act 2006, to set out these requirements, with certain provisions applicable to both “registrable” (i.e. directly owned) and “non-registrable” persons (i.e. those owning through a legal entity such as a trust or offshore company).

This will undoubtedly have consequences for current offshore trusts and tax structures existing through offshore companies.

The Act requires that companies themselves be responsible for determining who should be put on a PSC Register and therefore this obligation (and the risk of error) falls to directors to ensure this register is correct. An error can result in directors being individually subject to criminal proceedings including a prison sentence of up to two years, so it is very important the PSC register is accurately maintained.

We expect that the definition of “significant control” will be widely interpreted but Schedule 1A to the Companies Act 2006 (as inserted) provides a definition that “significant control comprises an individual with at least a 25% shareholding (directly or indirectly) and exercises a “significant control”. However, the threshold for measuring this could be critical. Equally, as previously stated, this is undoubtedly increase the prevalence of shadow directors (although the Act provides for greater risk on their part), but ultimately proving someone is a shadow director is not always that straightforward.

No doubt such changes will have an incredible effect on various tax structures and the use of off-shore companies as shareholders through trust schemes.

However, this register will now be a public document filed at Companies House.

If you are a shareholder or director with concerns over such changes to the legislation, or alternatively may be a creditor or are otherwise concerned as regards the ownership of a company and its future, then please contact Francis Wilks & Jones who will be able to assist you with the details of such changes.