Insolvency changes ahead: The Small Business, Enterprise and Employment Act 2015

Published 29 June 2015

The Small Business, Enterprise and Employment Act 2015 (SBEEA 2015) received Royal assent on 26 March 2015. From 26 May 2015, when the first provisions come into force, a number of key legislative changes will be introduced that will impact Insolvency Practitioners (IPs) and their regulators.

Key Changes

• The Secretary of State will have new powers to seek compensation orders against a disqualified director, with the proceeds of such compensation being distributed as determined by the court.
• The range of matters that a court must consider in determining "unfit conduct" is broadened so as to include consideration of the nature of the misconduct and the impact that it has had.
• The period for bringing disqualification proceedings is extended from two years to three.
• Causes of action that were previously the preserve of office–holders in their personal capacity can be assigned, including wrongful trading actions, transaction at undervalue and preference claims.
• An administrator can now bring actions for fraudulent and wrongful trading (previously the preserve of liquidators)
• Liquidators and Trustees will no longer be required to seek sanction of the court, a creditors committee, the Secretary of State or a meeting of creditors.
• An administrator can now extend his term in office for up to a year by consent from creditors (previously 6 months) employment creditors, administrators will no longer need the court's permission to make such a distribution.
• Physical meetings of creditors will no longer be the default mechanism for decision making by creditors.
  A new deemed creditor consent procedure in certain cases.
• The ability of creditors to opt out from receiving correspondence and reports (other than notices of dividend or proposed dividend, or where the court otherwise orders).
• Small debts (expected to be less than £1,000) will be exempt from a requirement to prove where the office-holder holds sufficient evidence that it is due.
• A reserve power has been taken so that pre-packaged administration sales to connected parties will be prohibited or subject to tighter controls. It is likely that the reserve power will be implemented following a review of the voluntary scheme arising from the Graham Review.
• The introduction of regulatory objectives for the recognised professional bodies (RPBs) and a range of sanctions available to the Secretary of State if those RPBs are not adequately fulfilling their role.
• The ability of the Secretary of State to apply to Court for direct sanction against Insolvency Practitioners where it is in the public interest to do so.

One of the objectives behind SBEEA 2015 was to implement savings to the cost of administering insolvency proceedings so that enhanced returns could be made to creditors. These changes are largely welcome, but an opportunity has perhaps been missed to go further. IPs often complain that they do not have the commercial freedom to deliver results for creditors and wider changes should perhaps have been considered. The changes made to the reporting and prosecution of director misconduct are welcome, but it remains to be seen whether there is any material change to the number of successful prosecutions and how the courts will make the impact assessments in relation to "unfit conduct". The intention behind the regulatory changes is to improve the performance of IPs as well as the RPBs, to increase confidence in the regulatory regime and insolvency framework and to ensure better and more consistent outcomes. These are lofty objectives and only time will tell whether the package of measures set out within the SBEEA 2015 will deliver real and measurable change.