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The new Practice Direction on insolvency proceedings (February 2012)

Introduction

On 23 February 2012, with surprisingly little fanfare, the Chancellor of the High Court issued a new Insolvency Practice Direction (PD 2012). PD 2012 came into force with immediate effect. It not only replaces the existing practice direction (PD 1999) but also "all previous Practice Directions, Practice Statements and Practice Notes" relating to insolvency proceedings.

It had been apparent for some time that much of the existing published practice materials had long been rendered redundant or out or date by significant amendments to the Insolvency Rules 1986 (the Rules), other key legislation and the Civil Procedure Rules (and regular amendments thereto). A review was undertaken.

The authors of PD 2012 (which included the Bankruptcy and Companies Court Users’ Committee) seized the opportunity to not only update the insolvency practice materials but to generate a concise and user-friendly compliment to both the Insolvency Act 1986 (the Act) and Rules. 

PD 2012 is worthy of careful scrutiny: while much existing practice has been preserved, PD 2012 has introduced a number of key changes. Some of the highlights are set out below.

Service of court documents in insolvency proceedings

Significant new powers are provided for at an early stage in PD 2012. Amongst other things, section 6, which deals with the service of court documents in insolvency proceedings, has granted a significant number of insolvency practitioners the power to serve insolvency applications (as defined in the Rules) within the EU without the permission of the Court (see PD 2012 paragraph 6.5).

Procedural Matters

Formatting of Court Documents

Section 4 introduces strict guidelines as to the manner in which all court documents in insolvency proceedings are to be formatted.

New certificates

Practitioners beware: PD 2012 has introduced a series of new certificates that are to be completed in connection with key insolvency procedures. By way of example:

Section 9.1 sets out required text for a certificate to accompany any request that an application be dealt with in the urgent applications lists or urgently at any other time. Among other things, this certificate includes the telling phrase, "WARNING. If, in the opinion of the Registrar/District Judge, the application is not urgent then such sanction will be applied as is thought appropriate in the circumstances". More than ever before, practitioners will need to consider carefully whether an application truly warrants urgent consideration by the courts.

Section 14.3.1 dictates amended wording for the certificate that should be completed at the end of each bankruptcy petition (as to prior bankruptcy searches that have been carried out).

Applications to extend administration

In providing, at section 10.1, that applications to extend administrations are not be made less than a month before the end of the administration, PD 2012 has addressed the courts’ frequent complaint that administrators commonly left matters too late before seeking to extend the administration.

Companies

Section 11 provides revised guidance to the procedure that is to be followed in winding up proceedings. Key changes include:

  • The introduction of a provision at 11.3 that the statement of truth verifying the petition in accordance with Rule 4.12 should be made no more than 10 days before the issue of the petition.
  • At 11.7.2, PD 1999 has been updated to reflect the 5 day time limit for applications to rescind a winding up order set out in Rule 7.47(4).
  • Section 11.8, drawing from the superseded Practice Note: Validation Orders (Insolvency Act 1986, ss. 127 and 284) [2007] B.C.C.91 provides key guidance to applications for validation orders under section 127 of the Act. While much of the substance of that practice note survives, there are some changes- including the direction that evidence in support of an application includes details of any relevant bank account(s) with addresses and sort codes.

Personal insolvency

In a similar vein, section 13 provides revised guidance to procedures to be adopted in connection with statutory demands in personal insolvency proceedings. Key changes include:

  • At 13.1.1, critical clarification of the deemed date of service of statutory demands (which is, in essence, on the date applicable to the method of service set out in CPR Part 6.26 unless the statutory demand has been advertised).
  • Clarification at 13.4.3 and 4 as to those debts, upon which a statutory demand might be based, the court would not go behind on an application to set aside (or adjourn the application to set aside pending an appeal). The wording of PD 2012 now goes further than the pre-existing wording of "judgment or order" to include "liability order, costs certificate, tax assessment or decision of a tribunal".

Key developments in subsequent sections include:

  • Section 14 provides guidance in connection with bankruptcy petitions including, at 14.8, provisions for applications for validation orders. 
  • The omission of provisions relating to bankruptcy restriction orders (which sat previously at 16A.1 – 16A.24 of PD 1999).
  • Clarification, at section 18, of the evidence required in applications to limit the disclosure of information as to a person’s current address by reason of the possibility of violence.

Appeals

PD 2012 offers welcome clarity as to the procedure to be adopted in appeals in insolvency matters, providing as it does a straight forward guide to the destination of appeals and clarifying the incorporation of the CPR Part 52 appeals procedure in insolvency practice.

Remuneration of Appointees

Drawing upon the now superseded, Practice Statement: The Fixing and Approval of the Remuneration of Appointees (2004) [2004] B.C.C. 912., PD 2012 sets out the prevailing guidance as to any remuneration application made under the Act or Rules.

Conclusions

PD 2012 brings welcome clarity to Insolvency proceedings, drawing together disparate practice materials into one user-friendly document. It will help both those familiar and unfamiliar with insolvency proceedings to navigate key insolvency processes.

However, a note of caution. Given the range of changes introduced, practitioners should take the earliest possible opportunity to review any standard form documents they use to ensure they comply with the requirements of PD 2012.

A copy of PD 2012 can be found on the Insolvency Proceedings page of the Judiciary's website.