Insolvency Service Stakeholder Newsletter (Autumn 2015)

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Autumn 2015


Need to know on new measures

Cut red tape regulation

Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015

It’s not often that we see changes to primary legislation around the UK’s insolvency regime, but last year saw insolvency provisions included in both the Deregulation Bill and the Small Business, Enterprise and Employment Bill. 

The legislation introduces changes to reduce red tape and regulatory burdens for business, citizens and the third sector; help hold directors to account; and make sure creditors get what they are owed.

Some measures have already come into force in May and October 2015 (the effect of some of these changes may take time to manifest, e.g. when it comes to disqualification cases). Others are planned to come into force in April and October 2016. 

disqualification regulation

Broadly speaking, the changes fall into three areas:

(1)   Insolvency process

  • Streamlining insolvency processes to reduce costs, e.g. abolishing little-used procedures like Deeds of Arrangement or Fast Track Individual Voluntary Arrangements

(2)   Director disqualifications

  • Strengthening the Directors Disqualification regime and introducing a compensation regime for creditors who have lost money through the director’s misconduct
  • Streamlining reporting timescales and processes for insolvency practitioners and official receivers reporting director conduct to the Secretary of State

(3)   IP regulation

  • Strengthening the regulatory framework for insolvency practitioners by introducing regulatory objectives and providing the Secretary of State with a range of sanctions where a Recognised Professional Body is not fulfilling its role as a regulator
  • Changes to allow the partial authorisation of insolvency practitioners to specialise in personal or corporate insolvency

For more information about these changes please follow this link.

Other Changes

In addition to the changes in both Acts, 2015 has seen a number of other changes which have implications for those involved in the insolvency regime:

The Insolvency (Amendment) Rules 2015 came into force on 1 October 2015, requiring IPs to provide creditors with an upfront estimate of their fees and expenses when charging on a time and rate basis. These rules aim to increase transparency for creditors and give them an early indication of the costs of an insolvency case.

Regulations to support company rescue also came into force in October 2015, to prevent IT and utility companies exercising insolvency-related contractual rights to terminate, or vary terms of, supply to companies in administration or which are subject to a voluntary arrangement. 

On 1 October 2015, changes to debt relief orders (DROs) and the bankruptcy creditor petition limit came into force. These changes will make it easier for the financially vulnerable to manage problem personal debt and avoid them being forced into bankruptcy for low levels of debt.  The changes are as follows:

  • DRO liability limit increased from £15,000 to £20,000
  • the DRO asset limit increased to £1,000, plus a vehicle (worth not more than £1,000)
  • the maximum surplus income a person can have to qualify for a DRO remains at £50 per month
  • there will be light touch monitoring of the intermediaries to maintain consistency
  • the level of minimum debt that can trigger bankruptcy has risen from £750 to £5,000 (the bankruptcy creditor petition level was last set in 1986)

Going digital: insolvency services go online

RPS infographic (Nov 2015)

In today’s world, our customers expect to be able to access government services and complete transactions online, as they do for other services like banking, train bookings and supermarket shopping. Online services are often easier and more convenient for people to use, and cheaper for us to provide, saving taxpayers’ money.

The Insolvency Service is a leader in the government’s plan to adopt a Digital by Default approach to the delivery of public services. Our aim is to deliver digital services that are so straightforward and convenient to use that those who can use them will, while those who can’t are able to access support so they aren’t excluded.

A key example of this is moving the application process for redundancy payments online: on the 1st September, after extensive carefully phased testing, our first fully digital Redundancy Payments Service (RPS) was introduced. Paper applications for redundancy payments are no longer being accepted, but we have introduced a telephone-based service for claimants unable to complete their application online to talk to assisted digital advisors who will complete the online forms on their behalf. Early research with users of the new service shows high levels of customer satisfaction.

We currently have further two digital projects in development: Online Debt Solutions, which will enable debtors to submit an online application for bankruptcy (see more about this service below); and Business Intelligence, which will replace ‘D’ return reporting of company director behaviour by insolvency practitioners with a new online conduct report. Both services are planned to be introduced in 2016.

We will continue to invest in improving our customer services. Our new digital services have been developed by carefully researching what customers need, modifying and adjusting the systems based on feedback from users about how easy they are to understand and use. Over the coming months we will be looking to see what other services we can move online and when. 

Developing online debt solutions: test, test and test again

debt insolvency

As part of the Insolvency Service’s work to deliver more of our services digitally, from April 2016 we will be introducing a new system to deliver online debt solutions (also known as debtor petition reform), removing the courts from making debtor petition bankruptcy cases. 

Going forward, debtor petitions will be submitted via an online bankruptcy application and administered by a Secretary of State-appointed adjudicator. Liz Thomas, currently Deputy Director of Business Services, has been appointed as the Adjudicator and will be taking up the role from April 2016.

We are also improving the existing web application for Debt Relief Orders (DROs) – an alternative to bankruptcy for people with debts of less than £20,000 and few assets. 

Also in the planning is for debtors to be able to learn about their options for debt management or relief through GOV.UK.  This will help them to get a provisional idea of what might be the most appropriate and sustainable solution to their personal circumstances. GOV.UK will offer information about the available options (not formal debt advice) and signpost to debt advice organisations.  

During the development phase of the new service we have carried out user research on a fortnightly basis with individuals who have problem debt.  At these sessions we ask individuals to road test prototypes of the new bankruptcy and DRO applications, to ensure the online steps are easy to understand and complete. 

Working closely with organisations from the debt advice sector to identify suitable participants, we will shortly be inviting individuals to use our bankruptcy application system to generate a statement of affairs. The statement of affairs can then be printed and presented to the court in the usual manner; the court retains the power to grant a bankruptcy order at first instance until April 2016. 

We want to make sure all our online services are as clear and simple to use as possible. By working with individuals who have decided to apply for bankruptcy, we will gain insight on how individuals manage the form at a time of financial distress, helping us to refine the system to make it work for the public. 

Official Receiver casebook: SSI & Kids Company

Kids Company

In recent months our Official Receivers have been involved in two very high profile and complex liquidations: 

In August, the court appointed the Official Receiver as liquidator for Kids Company, a charity providing support to vulnerable children, based primarily at 17 sites in London and Bristol, with outreach activities at a further 100 schools. 

The case is of substantial public interest and has required the Official Receiver to work closely with other parts of government and the public sector, as well as others who dealt directly with the charity. The Public Accounts Committee also held an inquiry into the charity’s closure. 

It has presented significant technical and administrative challenges, with data protection issues, liaison with local authorities regarding at risk children, securing assets including over 1,000 computers and over 2,000 boxes of records and managing the redundancy of 650 employees, as well as liaison with more than 200 self-employed contractors, many of whom had mobile phones and IT provided by the charity.

Molten steel

Most recently, the Official Receiver in the North East was appointed liquidator for Sahaviriya Steel Industries UK (SSI), which operated the steelworks at Redcar steel mill. The mill employed 2,100 staff, and had operating coke ovens, a power station and blast furnaces which needed to be maintained in a ‘steady state’ while a search was made for potential investors. 

The case attracted substantial press interest and led to the formation of a special task force by the Secretary of State for Business, Innovation and Skills, to work on options for the site and to provide active support for redundant staff to seek alternative employment or retraining. 

A major challenge has been to continue to operate the site safely, and latterly to manage its safe closure, once it became clear that there were no willing buyers for the mill. A large number of former SSI employees were taken on by the Official Receiver for this purpose and several hundred continue to keep the site maintained while the administration continues.

Focus on: Crown Debt scams - a £400m problem

Crown Debt infographic (Nov 2015)

Sometimes, Crown cases can be viewed as less important or exciting than other allegations, such as those relating to scams - “Its just companies not paying their taxes, isn’t it?” is a common perception. However, seen in context it's clear that there is a significant public interest in pursuing these cases. 

For a start, the sums of money involved are sizeable: we estimate that the total revenue lost to HMRC in Crown cases in 2014–15 alone was nearly £400 million, with the amount due to HMRC often building up over a long period of time.

Moreover, the amounts owned to HMRC by those companies whose directors were disqualified for unfair treatment of the Crown represented over 80% of the total liabilities of those companies.

Unfortunately, these cases are all too common. In 2014-15, over 680 disqualifications obtained under section 6 of the Company Directors Disqualification Act (CDDA) involved cases where the Crown was treated unfairly in comparison to other creditors. Cases of this type can range from instances where a director has made a conscious decision to pay other creditors (or themselves) and not HMRC to those where HMRC has been actively defrauded.

Whatever means unscrupulous directors use to treat the Crown unfairly, these cases all impact on every law-abiding taxpayer. Deliberate neglect of tax affairs in not a victimless action: it not only deprives the government of funds for essential public services, it also introduces unfair competition into the marketplace.

Measuring our effectiveness

Insolvency Service Annual Report 2014-15

The Insolvency Service’s Annual Report for 2014-15 was published on 15 September. It showed significant successes, but also challenges as we continue to build on the restructuring that has taken place.

In 2014-15 we dealt with 19,029 new bankruptcies and 3,570 new insolvent companies, and made progress concluding the outstanding case administrations we had at the start of the year.

We made 26,352 Debt Relief Orders, providing a debt solution to some of the most vulnerable people in society; 100% of the orders were made within 48 hours of the application being submitted, against our target of 95%.

We exceeded our published target for Reports to Creditors by 10% for company and 6% for bankruptcy cases. Acting as trustee and liquidator we have distributed over £28m to creditors, with asset recoveries buoyed by recoveries of over £29.5m from the mis-selling of Payment Protection Insurance (PPI). Our Estate Account Services dealt with 112,440 payments in and out of the Insolvency Service Account and processed 98.2% within 4 days.

Our Public Interest Unit dealt with a number of high profile compulsory liquidations often where the public have lost money through a “scam”, such as pressure selling of worthless carbon credit certificates and wine investment scams.

Overall, the agency exceeded every one of its published targets, a mixture of measures which cover value for money, customer/stakeholder satisfaction and operational effectiveness. In particular we were delighted to achieve a 95% customer satisfaction rating (against our target of 90%), which is in the upper quartile of comparable public bodies.

The full report can be viewed here.

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