VA’s revisited – happy, happy, happy!

Yes, I know, compliance consultants are not meant to say they are happy with anything, but there’s always a first time –

My first happy is that, after taking a little time off for a nervous breakdown, I have completed my new review packages for VA’s* (except moratorium CVA’s – life really is too short).

My second happy, is that (with the exception of the initial decision process – see my earlier blog on that subject) I can say that the fundamentals of VA’s remain largely the same.

And my third happy is about the R3 standard terms. As stated on their website and flagged in Dear IP, a new set of R3 standard terms is expected imminently – in fact a rather authoritative bird has chirped about the second week of June. So, if you have a VA in preparation, now, see if you can hold it up until the amended terms become available.

But if you can’t do that, the same bird has warbled that R3 think the old standard terms are fit for purpose in any event. I am not sure that is entirely true, because references to specific Rules like 12A.12-23 (use of websites for specific reports and conduct of meetings) probably don’t work in VA’s created after the Rule has actually been repealed. Some might suggest that because the successor rules are rarely significantly different to the 86 Rules, that one can just apply the former under the supervisor’s general discretion at paragraph 15 of the standard terms, but I am a little cautious about whether the Courts would agree so easily.   That said, if you are worried and can’t wait for the new standard terms, then why not amend the proposals themselves, so that the standard terms are only adopted with the new rule references substituted (see standard terms paragraphs 10(3), 22(3), 30, 46(2), 59(3), 62A(3), 62B(2), 71(2)(c) being the ones I have spotted).

You see – happy, happy, happy…

(*copies of all my new review checklists are available to purchase (free to clients, of course) on application – just ring or email me)

Modifications to proposals under the new Rules

Unless you do VA’s reasonably frequently, you may not have paid too much attention to the “exchanges” there have been between us compliance nerds and the Insolvency Service, on the decision process in VA’s.  But there is a genuine issue here and to cut a long story short, it really leaves only one practical way to get a VA proposal approved.

To explain – under Rule 15.31(8) a creditor’s vote, once cast, cannot be changed.  There is a certain innocent logic to this rule, but it does mean that if you try to get a proposal agreed by anything other than a virtual meeting (i.e. correspondence or electronic vote) then either the creditor must vote for or against the proposals as made.  There is no possibility of proposing modifications and because the vote is treated as cast when made (e.g. when the vote is received by post or correspondence) it’s already too late to negotiate.

So, what to do?

The easy way –  seek the decision by virtual meeting. Creditors proxies can include space to propose modifications and the process of voting can be done much as in the past. The only thing I would suggest is that your notice or, perhaps the proxy itself, ask for proposed modifications to be put in writing before the meeting takes place.  Of course, as discussed in my blog on S.100 appointments, there are technical issues to overcome with any virtual meeting process, so there may be firms for which virtual meetings remain a problem

The other way – If you aren’t confident about the above process, or you think you have a good chance of getting approval without modification then you can seek the decision by correspondence.  But if you do, watch out –

  1. Any proposed modification may well have to be dealt with as a vote against, as there is no provision in the Rules for postponing a decision or altering the terms of the proposed decision once the notice has been issued.
  2. Although Rule 2.25 (or 8.22) gives you scope to specify how modifications can be put forward and how you might deal with them, it doesn’t allow you to revise the proposals without starting the process afresh.
  3. Although you might arguably be able to use the required statement under Rule 2.25(5)(b) (or 8.22(3)(d)) to treat a request for modification as a request for a physical meeting, you would only be able to act on that, if you got to the threshold number or value, within five days of the notice being delivered.
  4. So, even if you had modifications that the creditors could agree, you would likely have to issue a fresh set of proposals under a whole new process in order to get a valid vote in favour.
  5. While I have thought of at least two rather devious and artful work-arounds, both are so complicated as to render the whole process rather pointless, at least in my view (though you are welcome to email me for the ideas, to see if you can work out something better).

Of course, if TIXX or HMRC or any of the others would issue a blanket request for all VA proposals to be dealt with by physical meeting, then we could all get back to a rational and safe method of dealing with VA’s. But in the absence of such a miracle, I am afraid we will have to stick to virtual meetings.

And finally – what about electronic voting? Really, really cumbersome, unless you already have the requisite majority in the bag, or your voting platform allows modifications to be put in with the votes (so far, I haven’t heard of one that does).

SIP 6 and minimum notice periods

Continuing my series of observations on the implications of the new Rules, I have just finished working through a simple question – should I give creditors anything more than the minimum notice on s.100 decisions?

The simple answer is “no”; the old SIP 8 requirement to issue the notices to members and creditors at the same time has been removed and so, certainly, the SIP committee doesn’t think so. But there are other related issues such as –

Q. Can one use a portal to deliver the statement of affairs and SIP 6 documents? A – No to the first, yes to the second.

Q. Can one can safely issue the notice of the meeting in the minimum period (five business days) but leave the statement of affairs until two days later? A – arguably not advisable.

Q. When should I issue the Gazette notice? A – tricky.

Q. Are you sure the RPBs will agree with you? A – No, but I think the arguments I have put forward make enough sense to rely upon, at least until there is any new guidance.

For a more detailed discussion of the pro’s and con’s, you can read my advisory note on the subject, here.

 

Deemed consent better for CVL appointments?

One of the most immediate questions for IPs will be which process to use for appointment in a section 100 process – though at least the choice is simple; deemed consent or virtual meeting, only (see R. 6.14(2)).

At first, the advantages and disadvantages of the two appear pretty obvious –

Deemed consent – If not objected to, the appointment is immediate without any awkward messing about with voting. However fees, whether pre- or post-appointment, cannot be agreed other than by a meeting process, meaning that one must seek a separate fee resolution later.

Virtual meetings – allow one to get all the resolutions one might want at the outset, (providing there is a quorum, of course). The only immediate disadvantage is in costs; virtual meetings have to be advertised and there are going to be at least some other costs in providing the virtual service.

Up until now, I had been making what I thought was a sensible suggestion – Deemed consent for small, simple jobs, with no substantial assets or investigation needed; virtual meetings for anything else.

BUT

As time has passed, the potential problems with virtual meetings have been multiplying. Here are a few –

  1. The difficulties of ensuring there is a secure means of attending and voting at the same time.
  2. Extra difficulties surrounding the identification of participants – partly resolved by password access but one still needs to be careful.
  3. Finding a reliable platform or software system to do both a) and b) for attendance from all areas of the UK, regardless of quality of connection AND one which allows the voting to be completed quickly. So far, I haven’t heard of such a system that doesn’t involve prohibitive cost.
  4. Potential problems that could arise because either objections or complaints of exclusion made after the meeting could lead to reversal or variation of resolutions retrospectively (See my blog of 7 April, “Objections anyone?”).

SO

I am recommending all my clients to use Deemed Consent in the first instance and not use virtual meetings until a reliable package comes along, and then only if their office has good broadband service. In doing so, prospective appointees should make sure their directors’ resolution contains a provision for an extra fee to be payable against costs of convening a physical meeting should that become necessary.

Of course, this does mean that one has to get one’s remuneration agreed separately, probably by correspondence, but we have been living with that issue in ADMs for several years, anyway. Not a perfect answer, I know, but the best I can give for now.

Objections, anyone?

You may not have heard the latest novel interpretation of the Rules that the Insolvency Service have provided. To say that quite a few knickers have got twisted following their announcement is an understatement.

The starting point for this fascinating journey is Rule 6.14(6)(a) which says that the request may be made at anytime between delivery of the notice and the day of the decision.

Up to now you may have thought, as did most of the compliance community, that this would include the day of the decision.  This, of course, was fine for a deemed consent process, as the creditors’ appointment wouldn’t actually be taken to be confirmed until 23.59 on the day of the meeting.

But for virtual meetings, this could surely cause a problem – if a virtual meeting was held at 11.00, but the objection threshold was reached at (say) 19.00, then the CVL appointment, whatever it had been, would have to be treated as void, as would any other resolutions passed at the meeting.

Now, fair enough – you might say that few people could imagine creditors demanding a physical meeting instead of a virtual meeting and in any event, surely they would do so earlier in the process – right? But we IPs are few! And we might just imagine a circumstance in which a creditor proving for more than 10% of the claims might, if unhappy with the appointment at the virtual meeting held at 11.00am, put in an objection at 14.00 to force a rematch, giving time to canvass more votes for their nominee.

But now the insolvency service has decided that the word “between” should not include the day of the meeting. Perhaps uncharitably, we think the IS may have thought of this interpretation after the event, as a way of circumventing the above scenario. But, as one suitably irritated friend put it, their suggestion seems equivalent to being asked to pick a number between 1 and 10, but not be able to choose either 1 or 10.

So – what to do?

Well – there is a surprising range of options –

  • Follow the earlier accepted interpretation of the Rules and allow objections after the meeting, up to 23.59 that evening, relying upon the members’ resolution to legitimize any appointment.
  • Follow the new Insolvency Service advice and stop objections at 23.59 the day before the meeting.
  • Follow a suggestion made by another of my compliance friends, to accept objections up to the start of the meeting (or perhaps the end of the meeting) but not after, on the grounds that it is a nonsense that a quorate and properly convened meeting can somehow be rendered void.

But the trouble is that, common sense or not, all our opinions must be subject to the judgement of the court and who knows what that might be.  Which leads me to a tentative response of –

  • Follow the insolvency service advice, having made sure that your notice states that any request must be received “between the delivery and decision dates (i.e. the xxth (the day before the meeting))”. But if the objection threshold is reached after that point, contact the objector(s) and say so, right away, so they can then complain to the Court if they want. With a defense that you were following the insolvency service’s advice, you should at least avoid any sanction for your decision.

In the alternative, of course, you could follow my earlier general recommendation for CVL appointments, of going for deemed consent in the first instance, thus avoiding this whole mess…