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Government plans will ‘reduce creditor trust and engagement’ in insolvency regime, says IPs


Jan 23, 2015 #North East

Allan Kelly pic oneProposals which will have the effect of limiting the number of physical creditors meetings in insolvencies will reduce creditor engagement and trust in the insolvency process, according to a survey of the insolvency profession by industry body R3.

The Small Business, Enterprise and Employment Bill, which is currently going through parliament, will stop insolvent individuals and directors of insolvent companies being held to account at physical meetings of creditors in most cases.

Almost four-fifths (78%) of the UK’s insolvency profession thinks the proposals will reduce creditor engagement in the insolvency process, while 86% believe the proposals will reduce trust and transparency in the insolvency regime.

The Bill’s proposals have also been criticised by creditor groups, including the Federation of Small Businesses and the British Property Federation. The FSB has described the proposals as ‘detrimental in some cases to small businesses’.

Allan Kelly, North East chair of R3 and a restructuring partner in Baker Tilly North East, says: “Over the past year, the Government has rightly emphasised the importance of creditor engagement in the insolvency process, but the proposals on creditor meetings run counter to this ambition.

“Limiting creditors’ opportunities to experience first-hand how the insolvency process works and making it more difficult for them to question insolvent individuals or directors of insolvent companies  will only serve to increase misunderstanding and mistrust, and will make it harder for creditors to feel they’ve received a fair deal.”

The Government hopes to see physical creditors meetings replaced with ‘virtual’ meetings and correspondence.

However, R3’s survey finds the insolvency profession unconvinced of the advantages of replacing all physical creditors’ meetings with virtual meetings:

– 74% of insolvency practitioners said physical meetings were ‘useful for finding out things I didn’t know before’; only 7% said this was true of virtual meetings.

– 65% said physical meetings were ‘good for getting the views or input of a large number of people’; only 8% said this was true of virtual meetings. 46% said virtual meetings were ‘not useful’ for getting the views of large numbers of people.

– 63% said ‘things often go wrong’ with virtual meetings, while only 1% said this about physical meetings.

–  48% of insolvency practitioners would describe physical meetings as more useful than virtual meetings; only 10% would describe virtual meetings as more useful than physical meetings.

–  87% of insolvency practitioners agree or strongly agree that virtual creditors’ meetings are not suitable in all cases.

Allan Kelly adds: “Physical meetings have many unique features that would be lost with a total switch to virtual meetings or correspondence.

“Physical meetings are often the one chance creditors have to question an insolvent individual or a company’s director – their body language in response to questioning can often be telling and can lead an insolvency practitioner to find out new things about a case.

“Physical meetings also give creditors a chance to talk with each other outside of the main meeting and share their experiences, which once again can sometimes turn up useful information for insolvency practitioners.

“Body language and informal meetings between creditors that are unlikely to know each other otherwise would be lost if physical creditors’ meetings were to be restricted.”

A debate on the Bill began in the House of Lords this week. Although the creditors’ meetings proposals attracted criticism from MPs during the Bill’s Commons committee stage, they were passed without debate at the Third Reading stage.

Insolvency practitioners also raised concerns with the cost of virtual meetings and difficulties some small businesses might have accessing virtual meetings.

43% of insolvency practitioners say virtual meetings are not accessible to everyone (compared to 27% for physical meetings).

A summer 2014 report by the Federation of Small Businesses found 45,000 businesses still rely on dial-up internet.

By admin