Two little words that remove a roadblock
August 31st, 2017
The insolvency world continues to change at a rapid pace. Accountants are still getting to grips with the biggest rewrite of insolvency law in 30 years, brought about by the Insolvency (England and Wales) Rules that came into force in April 2017.
One of the most useful changes has been the introduction of “deemed consent” – a new concept that removes a barrier to progress that in the past has had advisers and directors tearing their hair out in frustration.
Look, putting a company into liquidation is not usually the happiest of times for owners and directors – and certainly not for the creditors who face the prospect of losing money. The best way of cutting losses and reducing frustration is to get on with the process as quickly and efficiently as possible.
Once it has been agreed that some form of insolvency process is the best way forward, the process effectively gets under way with agreement from the creditors on the next step. This is where creditors often shoot themselves in the foot because increasingly they do not respond to communications (calling for a creditors’ meeting, for example).
This lack of creditor engagement disrupts the process and can lead to a time-consuming and costly application to the Court.
How to account for this behaviour? It seems that creditors realised they were getting virtually nothing back from companies that went into liquidation so they stopped going to meetings and then stopped responding to requests for the appointment of a liquidator. They would just read the letter, bin it and go and do something else.
This made it difficult for directors and their accountants to move forward with the help of an Insolvency Practitioner. Lack of creditor engagement had become a real problem and a growing trend in the last few years.
Now, as part of the new Insolvency Rules, we have the introduction of Deemed Consent which basically allows a notice to be sent out to creditors setting out the decision that has to be taken and the date by which it has to be made. Creditors who do not reply to this notice are deemed to have consented to the decision.
There are, of course, checks and balances and we have a technical brief available on this development (ITB12 Deemed consent) which covers it in much more detail. This can be accessed by registering at www.ipd-uk.com/useful-stuff/ for our insolvency technical bulletins.
But essentially, Deemed Consent is a big step forward. We will have less people tearing their hair out and a much more efficient and cost-effective process that helps directors move on with their lives and maximises any returns for the creditors.