17. Legislation
Legislation
This section contains content published after 1 January 2020. Articles published before this date can be found on the National Archives here
The Victims’ Payments Regulations 2020 (S.R. 2020 No. 103) came fully into force on 29 May 2020. The Regulations provide for the establishment of a ‘Victims Payment Board’ to make payments to persons injured in incidents related to the troubles in Northern Ireland.
Payments can be made to anyone injured in an incident in the United Kingdom. Subject to eligibility conditions, payments may also be made in respect of incidents which took place elsewhere in Europe. Payments will normally be made monthly but can also take the form of a lump sum.
Any payments made under the Victims’ Payments Regulations 2020 are exempt from being treated as part of a bankrupt’s estate. Regulation 28(2) provides:
“(2) On the bankruptcy of any person entitled to payments under these Regulations, no such payment, or entitlement to payments, is to pass to any trustee or person acting on behalf of the creditors”.
Any queries regarding this article should be directed towards email: insolvency@economy-ni.gov.uk
Issue 122 of Dear IP advised that draft regulations entitled “The Administration (Restrictions on Disposal etc to Connected Persons) Regulations 2021 (“the Regulations”) were laid before Parliament on 24 February 2021.
The Regulations come into force on 30 April 2021, and apply to England, Scotland and Wales. As from this date, an administrator cannot proceed with the sale, disposal or hiring out of all or a substantial part of a company’s assets to a connected person within 8 weeks of the commencement of administration, unless there has been either:
- creditor approval; or
- the connected person has obtained a report on the reasonableness of the disposal from an individual qualified to do so within the meaning of the Regulations and referred to as an “evaluator”
Creditor approval
Where the creditor approval route is used, and an administrator seeks a decision from the company’s creditors under paragraph 51(1) of Schedule B1 to the Insolvency Act 1986, the rules and procedures set out in the Insolvency (England and Wales) Rules 2016 and The Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018 for seeking approval of the administrator’s proposals apply.
The Regulations do not specify a requirement for the decision to be made by a qualifying decision procedure, and therefore the deemed consent procedure can be used. Deemed approval of a proposal where the administrator has made a statement under paragraph 52(1) of Schedule B1 cannot be used, however, since this would not meet the requirements of paragraph 4(2)(b) of the Regulations.
A report from an evaluator
Where the connected person obtains a report from an evaluator, the evaluator’s report must include a statement as to whether they are satisfied that the consideration and the grounds for the disposal are reasonable, or if they are not satisfied that the consideration and the grounds are reasonable in the circumstances.
An administrator must consider the evaluator’s report before making any disposal but is not bound by it. An administrator can proceed with a disposal even where an evaluator has stated that they are not satisfied that the disposal is reasonable, if the administrator considers that it would be in the best interests of creditors to do so.
Where this is the case, or where the evaluator’s report contains details of any previous report stating that an evaluator was not satisfied that the disposal was reasonable, the administrator must provide a statement setting out their reasons for proceeding with the sale.
The administrator is required to send a copy of the evaluator’s report (which may exclude any information that is confidential or commercially sensitive), and, where appropriate, any statement made on the reasons for proceeding with the sale, to:
- be registered at Companies House
- creditors of the company
The documents must be sent at the same time as the administrator sends their statement of proposals, and for the purposes of sending to Companies House should be included as an annex to the proposals. Companies House have confirmed that form AM03 has been updated with additional tick boxes for notification of the inclusion of the above-mentioned documents.
A copy of The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 can be found here: https://www.legislation.gov.uk/ukdsi/2021/9780348220421/contents
Guidance has been prepared to accompany the Regulations. The guidance is intended to aid connected persons, Insolvency Practitioners and evaluators to understand their responsibilities under the new legislation. A copy of the guidance can be found here:
We understand that similar legislation is intended to be introduced in Northern Ireland before the end of June.
Amendments to Statement of Insolvency Practices
The Joint Insolvency Committee (JIC) has updated the requirements in SIP 13 (Disposal of assets to connected parties in an insolvency process) and SIP 16 (Pre-packaged sales in administration) to align with the new Regulations. The revised SIPs come into effect on 30 April 2021, the same day as the Regulations. Insolvency Practitioners should look on the websites of their relevant regulatory body for the revised SIPs.
There have been a number of questions about the intentions behind the revised version of SIP 16. The JIC has provided the following information:
- The changes made to SIP 16 have been limited only to those necessary to accommodate the change in the law.
- If the purchaser is a connected person (as defined in the Regulations) SIP 16 now highlights the additional statutory requirements placed on the purchaser and the administrator (paragraphs 5 and 11 of SIP 16). The SIP also requires the disclosure of the qualifying report with the SIP 16 statement (Appendix – disclosure requirements). These obligations only apply where the purchaser is a connected person (as defined in the Regulations).
- SIP 16 continues to emphasise the need for transparency in a pre-pack sale, particularly when there is some connection between the insolvent entity and the purchaser, even if the connection is not defined in the legislation. SIP 16 has always recognised that in such circumstances a greater level of detail will need to be provided to creditors to explain that the transaction was in their best interests.
- The amendment made at paragraph 6 of the SIP introduces a more subjective test for a connection between the insolvent entity and the purchaser and the Insolvency Practitioner will need to take a view on the level of detail which will need to be provided to creditors to explain the transaction.
SIP 16 will be reviewed and amended further during the next 6 to 12 months. Any questions or difficulties with the SIP should be reported to the JIC Secretariat, via the Insolvency Practitioners Association.
Any queries about this Dear IP article should be directed to: Policy@insolvency.gov.uk
Permanent procedural rules for England and Wales and Scotland for the new Part A1 moratorium introduced by the Corporate Insolvency and Governance Act 2020 (CIG Act) are due to come into force on 1st October 2021. The permanent rules will replace the temporary rules in Schedule 4 of the CIG Act.
The Insolvency (England and Wales) (Amendment) (No.2) Rules 2021, and the Insolvency (Scotland) (Company Voluntary Arrangements and Administration) (Amendment) Rules 2021, and the Insolvency (Scotland) (Receivership and Winding up) (Amendment) Rules 2021 incorporate rules for the moratorium into the principal 2016 and 2018 Rules for England and Wales and Scotland respectively.
The policy of the permanent rules follows closely that of the temporary rules.
Following feedback from users of the temporary rules, the opportunity has been taken to improve the operation of the moratorium by making some policy changes. For example, many of the notice periods relating to the moratorium are now expressed as “business days” to align with the convention used in the 2016 and 2018 Rules for other insolvency procedures. Also, for the purpose of deciding whether to bring a moratorium to an end, the permanent rules provide that the monitor must disregard debts they have reasonable grounds for thinking are likely to be paid or compounded to the satisfaction of the creditor within 5 days of the monitor’s decision. This will provide additional flexibility for companies to explore rescue and restructure of their businesses.
In Scotland, rules for court procedure are contained in the Rules for the Court of Session and the Sheriff Court Company Insolvency Rules and the Scottish insolvency rules should be read together with those court rules.
Any enquiries regarding this article should be directed towards email: policy.unit@insolvency.gov.uk
On Thursday 9 September 2021, the Government laid regulations to replace the current temporary restrictions on the use of statutory demands and company winding up petitions that were introduced by the Corporate Insolvency and Governance Act 2020 to protect businesses affected by the Coronavirus pandemic, and which are due to expire on 30 September 2021.
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 are due to come into force on 1 October 2021 and introduce the following new targeted criteria to taper the effects of the current measures:
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Increasing the debt that must be owed to present a company winding up petition to £10k;
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Creditors must seek proposals from the debtor business for repayment of the debt, giving 21 days to respond before they can proceed with a winding up petition; and
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Commercial Landlords must still demonstrate to a court that debts are not Coronavirus related until the end of March 2022.
This will promote a gradual return to the normal functioning of the insolvency framework, minimising the possible effects following withdrawal of the current provisions and extending some of the support to companies impacted by the effects of Coronavirus.
Any enquiries regarding this article should be directed towards email: policy.unit@insolvency.gov.uk
The Department for Levelling Up, Housing and Communities laid the Building Regulations (Higher-Risk Building Procedures) (England) 2023 and the Building Regulations etc. (Amendment) (England) Regulations 2023 on 17 August 2023. The regulations place new requirements on Insolvency Practitioners and other appointed officeholders in relation to any work they undertake involving a higher-risk building.
You must be aware of these requirements to ensure you remain compliant with the law.
The regulations deliver the recommendations of Dame Judith Hackitt in her report “Building a Safer Future” and cover the technical detail underpinning the new, more stringent regime for the design and construction of higher-risk buildings. The regulations will fundamentally reform the way buildings are designed and built to ensure safety of those who live in them. The regulations can be found here: The Building Safety Act: secondary legislation - GOV.UK.
The Building Regulations (Higher-Risk Building Procedures) (England) 2023 introduce a new bespoke approach to building control for blocks of flats, hospitals and care homes of 18 metres or more, or seven storeys or more, under the new Building Safety Regulator (“higher-risk buildings” in design and construction). These regulations include provisions related to the insolvency of a client for whom higher-risk building work is being carried out. The regulations come into force on 1 October 2023. The regulations also include transitional provisions in relation to in-scope projects that have notified their building control body of their plans before 1 October 2023.
As part of this new approach to building control, new requirements will need to be followed by those involved in the commissioning, designing and constructing of a higher-risk building. There will be duties and requirements placed upon the named entity instructing the building work, “the client”. These are introduced by the Building Regulations etc. (Amendment) (England) Regulations 2023 and apply to all building work.
The client must make suitable arrangements for planning, managing and monitoring a project, including the allocation of sufficient time and resource, to deliver compliance with building regulations. In practice, this means appointing the right people, with the right competencies (the skills, knowledge, experience and behaviours or organisational capability) for the work, and ensuring that those they appoint have systems in place to ensure compliance with building regulations. This also includes following the procedural requirements of the new higher-risk regime where the proposed project is higher-risk building work e.g., applying for building control approval before work begins, when there is proposed changes to the originally approved plans and on completion of building work.
While considered unlikely, there will be scenarios where the client on a project changes. This may be because a client decides to sell the project to another entity, a client dies before the project is completed, or the client becomes insolvent. Regulation 27 and 28 of the Building Regulations (Higher-Risk Building Procedures) (England) 2023 outline requirements that must be followed where the client changes on a project and where a client experiences financial difficulty, e.g. becomes insolvent.
Regulation 27 prescribes the process that must be followed when there is a change to the client of higher-risk building work. The requirements place certain requirements on the outgoing client and the new client. The requirements are necessary to ensure that it is always clear who is the client of the project, that the client is aware of their responsibilities and that there is a clear audit trail of key information relevant to the higher-risk building in design and construction.
A duty is placed on the outgoing client to share the “golden thread of information” about the building, documentation describing compliance arrangements, and a declaration that the work to date complies with all applicable building regulations with the new client, before they cease to be the client, or within 14 days. It will be a criminal offence under section 35 of the Building Act 1984 for an outgoing client to fail to share this information.
The new client of the project will be required to submit a notification to the Regulator within 28 days after becoming the client. The notification must include:
- Their contact details and the date they became the client;
- The date the outgoing client ceased to be the client;
- Confirmation that they have received the necessary documents from the outgoing client and are aware of their responsibilities; and,
- A copy of the signed declaration from the outgoing client that, to the best of their knowledge, the building work at the point of handover is compliant with building regulations.
The client of higher-risk building work is the person or entity for whom a project is carried out and therefore, the change of client process will only need to be followed where someone other than the original client is the entity instructing higher-risk building work.
There may be scenarios where a client becomes insolvent and an entity is appointed to act in relation to the client, either to rescue the business or to sell assets and make payments to creditors. Similarly, a fixed charge receiver or a Law of Property Act receiver may be appointed by the holder of a fixed charge over the higher-risk building.
Given the role of an Insolvency Practitioner and other appointed officeholders, we would not expect a change of client to occur where an Insolvency Practitioner, or other officeholder, has been appointed in relation to the client of a higher-risk building project and the relevant property remains vested in that client. As a result, we would not expect an Insolvency Practitioner to assume the duties and obligations of the client in this scenario, and the change of client process would only need to be followed when the project is sold. However, the circumstances surrounding insolvency and receivership are complex and the exact responsibilities of the client and appointed officeholders would be dependent on the insolvency proceedings or receivership and the type and status of the higher-risk building work being carried out.
There may be scenarios where a trustee in bankruptcy has been appointed in relation to a client, or the client’s property vests in a liquidator under section 145 of the Insolvency Act 1986, but no building work has been carried out since their appointment or vesting. In these scenarios, when no further building work has been carried out, the appointed officeholder under the 1986 Act is not considered to be the client, but there will be additional requirements the appointed officeholder must comply with to ensure that key information related to the design and construction project is shared with the right people at the right time.
Where a higher-risk building in the design and construction phase ‘vests’ in an appointed officeholder, the appointed officeholder is required to provide a copy of the golden thread information and other information detailing the work comprised in the project to a new client once the asset is sold. If the appointed officeholder is unable to share the relevant documentation, they should explain the reason why to enable the new client to include this in their notice to the Building Safety Regulator. These requirements are set-out in Regulation 27(4).
Regulation 28 sets out certain requirements that must be met in the event of a client experiencing an insolvency event, or a receiver being appointed by the courts or by a mortgagee. The procedure is necessary to ensure the Regulator is informed when a client of a higher-risk building is in financial difficulty. While insolvency is unlikely to result in a change of client until the asset is sold to a new client, it is important that the Regulator is notified when an insolvency event occurs as a material financial impact on the client may impact on the design and construction of the higher-risk building.
When ‘debtor in possession’ proceedings are enacted, there is a requirement on the client to notify the Regulator of this fact within 14 days. This notification must provide information on the insolvency proceedings taking place. The requirements are set-out in regulation 27(1) and 27(2). The notification must:
- State they are the client in relation to the project;
- Provide their contact details and a company registration number, where applicable;
- Give details which are sufficient to identify every project of the client which relates to a higher-risk building; and,
- Provide so much of the information referred to in the table in rule 1.6 of the Insolvency (England and Wales) Rules 2016 as is known to them.
For all other insolvency proceedings or appointments of official receivers, it will fall on the appointed person acting on behalf of the insolvent company or individual to notify the Regulator of this fact within 14 days of their appointment. As set-out in Regulation 28(4), an appointed person is prescribed as an administrator, administrative receiver, a receiver appointed by the courts or by a mortgagee, a liquidator or a trustee. Regulation 28(3) prescribes that the notification given to the Building Safety Regulator must:
- State the name and address of the client which the appointment relates to, and give details which are sufficient to identify every project of the client which relates to a higher-risk building;
- Identify the nature of the appointment held in relation to the client;
- State their name, address, telephone number and email address;
- Provide so much of the information referred to in the table in rule 1.6 of the Insolvency (England and Wales) Rules 2016 as is known to them.
The Regulator will not be able to enforce against an appointed officeholder should they fail to meet these requirements within 14 days. The protection against enforcement reflects the role of appointed officeholders and the often-challenging circumstances surrounding insolvency and receivership. However, the deadline is important to ensure appropriate building information handover and safety of the building.
Regulation 28(5) prescribes that where any property in relation to a higher-risk building is disclaimed under section 178 or 315 of the Insolvency Act 1986, the disclaimer of the property must give a copy of the notice of disclaimer under rule 19.2 of the Insolvency (England and Wales) Rules to the Regulator within 28 days.
You can find further information on the above policies in the following government response:
The regulations described in this article are part of a wider package of building safety reforms to improve the safety of higher-risk buildings throughout their lifecycle. In August, the government also laid regulations to introduce the new in-occupation regime where dutyholders must demonstrate that they are managing the building safety risks of an occupied higher-risk building on an ongoing basis. The next set of regulations supporting the in-occupation regime will be laid in Parliament in the Autumn, and will also include provisions of information about insolvency events to the Building Safety Regulator. The Department of Levelling Up, Housing and Communities will provide further information in the next ‘Dear Insolvency Practitioner’ update on these new requirements.
Enquiries regarding this article may be sent to: