(First published in Dear IP no. 10, April 1989)

Article Withdrawn December 2006

(First published in Dear IP no. 20, January 1992)

Article Withdrawn December 2006

(First Published in Dear IP no. 50, June 2000)

Article Withdrawn December 2007

5. Administrator's Statements of Proposals 

The Insolvency Service has become aware that a number of proposals being issued by administrators under paragraph 49 of Schedule B1 to the Insolvency Act 1986 are not complying with the letter of the law, let alone its spirit. 

One of the aims behind the changes introduced by the Enterprise Act 2002 was to promote collectivity and transparency in corporate insolvency proceedings.  Creditors should be given sufficient information to allow them to participate in the proceedings in a meaningful way.  

Details of what must be included in an administrator’s statement of proposals are set out in paragraph 49 of Schedule B1 and Rule 2.33 of the Insolvency Rules 1986, inserted by the Insolvency (Amendment) Rules 2003.  

Rule 2.33(2)(m) provides that the proposal should contain details on how it is envisaged that the purpose of administration will be achieved.  Paragraph 111(1) of Schedule B1 provides that “the purpose of administration” means an objective specified in paragraph 3.  From this it is clear that administrators should not simply include all three objectives in the proposals, with no attempt to identify which is the relevant objective. 

This view is supported by the provisions of paragraph 49(2)(b) which states that where applicable the statement of proposals should explain why the administrator has formed the view that the objective mentioned in paragraph 3(1)(a) or (b) cannot be achieved.  If it were acceptable for a proposal simply to set out the three objectives, then there would have been no reason to include the provisions in paragraph 49(2)(b).  

None of the above would prevent an administrator setting out in the statement of proposals a comparison of what would be the outcome for creditors if it were possible to rescue the company as a going concern against what would be achieved from, say, selling the constituent businesses to different buyers.  If the second objective gave a different result in timing or quantum the creditors could choose the objective that they prefer. 

General enquiries may be directed to Policy.unit@insolvency.gsi.gov.uk;  Telephone 020 7291 6740

6. Conclusion of administrator’s appointment

In the recent case of Ballast Plc and others [2004] EWHC 2356, the High Court held that, following the making of an administration order, it was possible for the company concerned to go straight into creditors’ voluntary liquidation using the provisions of paragraph 83 of Schedule B1 to the Insolvency Act 1986, or into dissolution using the provisions of paragraph 84 of that Schedule.  There was no need for the administrator to apply to the court for orders under paragraphs 79 or 85. 

The Judge considered that paragraph 79 provides a separate exit route from administration to that provided by paragraph 83.  The purpose of paragraph 79, where the circumstances set out in paragraph 79(2) or 79(3) were met, was to enable the court to make an order which would bring the administrators’ appointment to an end on a different date from the one on which it would otherwise come to an end. 

In a case where the administrator uses the provisions of paragraph 83 the registration of the relevant notice by the Registrar of Companies has the effect of bringing the appointment of the administrator to an end and discharging the administration order.  The Judge considered that an application for an order under paragraph 79, in such a case, would be an unnecessary duplication. The Judge also considered that the same interpretation should apply when paragraph 84 is used as an exit route from administration. 

The Judge made a parenthetical comment that he understood that paragraph 84 could only apply in cases where there had been no property at any time during the administration. The Insolvency Service would confirm that the policy intention behind this provision was to include it as an exit route in cases where assets had been realised and the proceeds had been distributed to creditors as a consequence of which the company no longer had any property. 

Generally speaking, it would be inappropriate for a company to enter administration if it had no assets, and if it had the administrator would be under a duty to make an application to the court under paragraph 79(2).  One possible exception to this is where an individual company, which was part of a group, entered administration with the other group companies. 

It is the view of the Insolvency Service that if paragraph 84 were not available as an exit route in such cases it would be difficult to see what an administrator could do in a case where the assets had been realised and distributed. Clearly a paragraph 83 creditors’ voluntary liquidation would not be available as there would not be a prospective distribution to unsecured creditors, and a paragraph 79 application or paragraph 80 filing would end the administration but leave the company in limbo. 

Taking all of this into account, the view of the Insolvency Service is that the only sensible interpretation of the legislation is that paragraph 84 provides an exit route out of administration for companies whose assets have been realised and distributed during the administration. 

General enquiries may be directed to Policy.unit@insolvency.gsi.gov.uk;  Telephone 020 7291 6740

7. Pre-appointment time on administrations

The Insolvency Service has been made aware that some insolvency practitioners have questioned why they are not allowed to claim pre-appointment time as expenses of the administration. 

Costs incurred prior to the administration are essentially a matter between the relevant insolvency practitioner and the party instructing them. For example if a company has concerns regarding its financial situation and approaches an insolvency practitioner for advice, then payment of fees incurred would be a matter between the company and the insolvency practitioner. In such a case any fees outstanding, at the date the company entered administration, would, in our view, rank as an unsecured claim. 

However, time spent by a proposed administrator, prior to any appointment, in determining that it is reasonably likely that the purpose of the administration would be achieved and to enable them to complete Form 2.2B, are arguably costs and expenses of the appointer/applicant for the purposes of Rule 2.67 (1)(c) of the Insolvency Rules 1986 which provides that the following expenses are payable within the order of priority specified: 

‘where an administration order was made, the costs of the applicant and any person appearing on the hearing of the application and where the administrator was appointed otherwise than by order of court, any costs and expenses of the appointer in connection with the making of the appointment and the costs and expenses incurred by any other person in giving notice of intention to appoint an administrator.’

General enquiries may be directed to Policy.unit@insolvency.gsi.gov.uk;  Telephone 020 7291 6740

8. Relevant Court

In a recent decision in the Birmingham District of the High Court (Brownridge Plastics Limited) Mr Justice Hart held that for the purposes of the Insolvency Act 1986 (“the 1986 Act”), a company incorporated in Scotland can only enter administration by filing the requisite Notice of Appointment and the other prescribed documents with the relevant court in Scotland.

Consequently, a company incorporated in England and Wales can only enter administration by filing the requisite Notice of Appointment and the other prescribed documents with the relevant court in England and Wales.

Relevant Court – Legislative Definition

The expression “the court” is not defined in section 251 of the 1986 Act and has, therefore, to be construed in accordance with section 744 of the Companies Act 1985, which provides: “In this Act, unless the contrary intention appears, the following definitions apply” and then “the court”, in relation to a company means the court having jurisdiction to wind up the company”.

Sections 117 and 120 of the 1986 Act, respectively, define the courts that have jurisdiction to wind up a company registered in England and Wales and Scotland.

General enquiries may be directed to Policy.unit@insolvency.gsi.gov.uk;  Telephone 020 7291 6740

9. Climate Change Agreements – hidden assets? 

The Department for Environment, Food & Rural Affairs (Defra) has asked the Insolvency Service to draw insolvency practitioner’s attention to the need for them, whilst acting as administrator, to provide data in relation to energy efficient targets applicable to certain businesses and the possible reduction in the value of the company where they fail to do so. 

If you are appointed as an administrator of a company, particularly those operating in high energy usage industries, do you look out for environmental schemes that may affect the company’s balance sheet, profitability and re-sale value? One such scheme is the Climate Change Agreement.  

This scheme gives companies an 80% reduction in the Climate Change Levy (the tax paid on energy use) in return for meeting challenging energy efficiency targets. Companies must report their data every two years. The next 12 month reporting period starts in October 2007 and most companies will report within the last three months of 2008. But if, because of administration and possibly a change of ownership, records have not been kept for the whole year showing that targets have been met, the company can lose its eligibility to pay the reduced rate of CCL for two years. This could have serious implications for the viability of some companies, and hence for their re-sale value.  

There have been occasions in the last reporting period in 2006, for which results are just now being collated by Defra, where a company in administration cannot provide the required data to prove that they have met the energy efficiency targets. This has resulted in such companies losing the entitlement to pay the reduced rate of CCL for two years. It is therefore important for the future of companies in administration that the administrator checks whether the company had a Climate Change Agreement. The insolvency practitioner must also ensure that data is preserved and if necessary passed onto a new owner, especially if ownership is transferred within, or just at the end of, the reporting period.  A change of ownership will not be taken into account when the targets are assessed, because the agreements cover the site, not the owner. The slate is not wiped clean on change of ownership! 

There may be cases where a company is in administration at the time when the data on CCA performance should be reported to Defra via the trade association.  If the administrator reports the data, consisting of energy use and throughput figures, and if the company has passed its CCA target (with the purchase of allowances in the UKETS if necessary to make up any shortfall in meeting the target), the company will be eligible for the discount from the CCL for the following two years, which will add value to the facility.    

What should insolvency practitioners look out for?  

Climate Change Agreements are typically held by manufacturing industries which are subject to Part A of the Integrated Pollution Prevention and Control Regulations 2000, or qualify as energy intensive under new rules introduced in 2006. A list of eligible sectors, with the agreements that contain descriptions of the eligible processes can be found on the Defra website at http://www.defra.gov.uk/environment/ccl/agreements.htm 

Further background on the Agreements are also on the website at http://www.defra.gov.uk/environment/ccl/index.htm 

When acting as administrator of a company (usually a manufacturing company, but also pig and poultry farms and some services such as cold storage), insolvency practitioners should check with the company’s staff whether there is a CCA for any sites within the company, or if the staff have changed, check with the relevant trade association who manage the collection of the data for their sector. Lists of currently eligible companies are at present published by HMRC; from the autumn this year the list will be published on Defra’s own website. They are currently located in the “Excise & Other” area of the HMRC website and are called Climate Change Levy: Reduced Rate Certificates. 

Trade associations will be happy to advise on how to proceed.  Their contact details can be found at http://www.defra.gov.uk/environment/ccl/pdf/contacts.pdf 

If you have any queries regarding this article in the first instance you should visit the Defra website: http://www.defra.gov.uk/environment/ccl/index.htm; further contact details are provided on that site.

10. Substantial property transactions involving directors 

Sections 190-196 of the Companies Act 2006 (‘the Act’) deal with substantial property transactions involving directors.  They came into force on 1 October 2007 and replace sections 320-322A of the Companies Act 1985.  As before, the provisions require that any arrangement under which a director, or a person associated with a director, acquires a substantial asset must have shareholder approval, failing which the transaction is voidable at the instance of the company. 

However, there is an exemption to the above for transactions entered into by companies that are subject to certain insolvency procedures.  Previously, this exemption applied only to insolvent liquidations, but by virtue of section 193 of the Act this exemption has, with effect from 1 October 2007, been extended to companies in administration. 

Insolvency practitioners should note that the new exemptions do not extend to administrative receivership, so the position regarding disposals to directors, or companies controlled by directors of the vendor company where the vendor company is in receivership, remains the same. 

Any enquiries regarding the above should be directed toward Toby Watkinson, IP Policy Section, Area 5.7, 21 Bloomsbury Street, London, WC1B 3QW; telephone: 020 7637 6566; email: toby.watkinson@insolvency.gsi.gov.uk  

General enquiries may be directed to IPPolicy.Section@insolvency.gsi.gov.uk

Telephone: 0207 291 6772

11. Progress reports in an administration, following an extension 

Rule 2.47 of the Insolvency Rules 1986 states that the administrator’s progress reports must cover the six months commencing on the date that the company entered administration and for every subsequent period of six months.  Rule 2.112 states that a further progress report, from the date of the most recent progress report (if any) or the date the company entered administration, must be prepared in support of an application to extend the administration. Insolvency practitioners are reminded that, if any application for an extension has been made, the next progress report should be prepared within the original six-monthly reporting cycle from the date that the company entered administration, not six months from the date of the further progress report in support of the extension. 

Any enquiries regarding the above should be directed towards Steven Chown, Policy Unit Area 5.7, 21 Bloomsbury Street, London, WC1B 3QW; telephone: 020 7637 6501 email: steven.chown@insolvency.gsi.gov.uk 

General enquiries may be directed to Policy.Unit@insolvency.gsi.gov.uk

Telephone: 0207 291 6740

12. Extension of administration period via blanket resolution in the proposals 

It has been brought to our attention that it has become a growing practice for administrations to be extended by the use of a ‘blanket resolution’ included as part of the administrator’s proposals. Such blanket resolutions run counter to the spirit of the legislation and should only be obtained in exceptional circumstances.  

Paragraph 76(2)(b) of Schedule B1 to the Insolvency Act 1986 states that “an administrator’s term of office may  be extended for a specified period not exceeding six months by consent”. We have been made aware that this consent is often obtained at the first meeting of creditors with the administrator’s proposals including a conditional resolution regarding the extension of the administration, along the lines that if the administrator should think it desirable, then the administration would be extended by an additional six months. 

However, the intention behind this provision is that the power is given to the creditors to agree to extend the administrator’s term of office; they agree and they extend. The power is not to agree to delegate to the administrator a power to decide whether he (the administrator) should extend his term of office which has provisionally been agreed by the creditors. 

Therefore, in our view, this practice is questionable.  

We accept that there will be cases where such a resolution may be desirable, such as in cases where at the date of the initial meeting, the administrator formed the view that it was reasonably foreseeable that the administration may need to be run for more than twelve months, for example, where there are large book debt collections which cannot realistically be completed in under a year. A resolution of this type would clearly reduce costs as compared with seeking the consent of creditors at a later stage in the administration.  

The contents of the administrator’s proposal are set out in paragraph 49(2) of Schedule B1, and must, in particular, deal with prescribed matters, which are set out in Rule 2.33(2) of the Insolvency Rules 1986. Rule 2.33(2)(q) might assist where it is clear from the outset that a year will not be sufficient time in which to complete the administration. Rule 2.33(2)(q) states “such other information (if any) as the administrator thinks necessary to enable creditors to decide whether or not to vote for the adoption of the proposals”. It is our view that this provision envisages an extension to only be included where it is necessary. It should not be included as a matter of course, notwithstanding that it may save costs by obviating the need for a further creditors’ meeting. Saving costs, alone, though a laudable aim, is not likely to provide sufficient reason for inclusion, as under paragraph 78(3) of Schedule B1, consent can be given in writing as an alternative to being signified at a creditors’ meeting. 

Therefore, unless inclusion of a provision for extension is necessary to allow the creditors to decide whether to adopt the proposal, we do not think it is permissible to include such a provision, as to do so in other circumstances would not be in keeping with the stated principle of speed in facilitating the administration procedure (paragraph 4 of Schedule B1). 

Rule 2.112(2) provides that a request to creditors for an extension of the administration must be accompanied by a progress report, which is a clear inference that there must be an interval between the commencement of the administration and seeking the extension in which the administrator has, at the least, sought to progress the administration.  

If such resolutions were obtained as a matter of course, no matter whether consideration is given to the question of likely duration of the administration, this would run counter to the spirit of the legislation, and best practice would dictate that it is not appropriate to include such a provision.  

Any enquiries regarding this article should be directed towards Muhunthan Vaithianathar, Area 5.7, 21 Bloomsbury Street, London, WC1B 3QW, telephone: 020 7637 6515, email: Muhunthan.Vaithianathar@insolvency.gsi.gov.uk 

General enquiries may be directed to Policy.Unit@insolvency.gsi.gov.uk

13. Pre-packaged administrations and SIP 16

Statement of Insolvency Practice (SIP) 16 came into force on 1 January 2009, and is intended to give greater transparency to the operation of pre-packaged administrations by giving creditors improved information about the sale of a business. 

Insolvency practitioners will be aware of the background to the introduction of the new SIP 16 and of measures being implemented by the Insolvency Service to monitor compliance with the new requirements, the detail of which was set out in a Dear IP letter to all insolvency practitioners on 28 January 2009.  The full text of that letter is available on our website at the following address: 

http://www.insolvency.gov.uk/insolvencyprofessionandlegislation/iparea/prepackleter.doc 

We would like to remind insolvency practitioners of the requirement to send the relevant information required by SIP 16 to creditors at the earliest available opportunity, which we would expect in all but exceptional cases to be with the first notification to creditors.  In addition, the relevant SIP 16 information must in every pre-pack case also be sent to the Insolvency Service at the following address: 

Insolvency Practitioner Policy Section, The Insolvency Service, 21 Bloomsbury Street, London WC1B 3QW; or email to IPPolicy.Section@insolvency.gsi.gov.uk 

However, we would ask you to note that we do not routinely require the administration proposals document, unless that is the only place where the SIP 16 information has been provided, nor do we require information on administrations where businesses or assets have been sold other than through a pre-pack. 

We would also like to thank insolvency practitioners for their co-operation in this regard and for the SIP 16 information that we have received to date. 

Any enquiries regarding this article should be directed towards Toby Watkinson, IP Policy Section, Area 5.7, 21 Bloomsbury Street, London WC1B 3QW; telephone: 020 7637 6566;  email: toby.watkinson@insolvency.gsi.gov.uk  

General enquiries should be directed towards IP Policy Section, Area 5.6, 21 Bloomsbury Street, London, WC1B 3QW; telephone: 020 7291 6772; email: IPPolicy.Section@insolvency.gsi.gov.uk

14.  Statement of Insolvency Practice 16 – Guidance for Insolvency Practitioners

The following guidance has been produced in consultation with the Recognised Professional Bodies (RPBs) and has been issued to all insolvency practitioners by the Insolvency Service.  The guidance has been framed in the light of The Service’s experience of reviewing SIP 16 disclosure information during the course of 2009.  The purpose of the guidance is to assist practitioners in complying with the disclosure requirements of Statement of Insolvency Practice (SIP) 16 when undertaking pre-packaged sales in administrations. The RPBs have seen this guidance and have agreed to have regard to it when considering possible failures to comply with SIP 16 by  practitioners licensed by them.

INTRODUCTION 

Practitioners are reminded that the key principle of SIP 16 is contained in Paragraph 8 of the SIP: 

It is important that [creditors] are provided with a detailed explanation and justification of why a pre-packaged sale was undertaken, so that they can be satisfied that the administrator has acted with due regard for their interests.   

Practitioners should note that the experience of the Insolvency Service in reviewing SIP 16 statements submitted shows that giving a short response to the bullet point disclosure requirements listed in paragraph 9 of the SIP alone is unlikely to provide the detailed explanation and justification required by paragraph 8.                                                                                               

Practitioners should aim to provide sufficient information to ensure that creditors do not need to ask further questions of the practitioner about the justification for the pre-packaged sale and details of it.   

Practitioners should satisfy themselves that the information disclosed provides the detailed explanation and justification required. It should be remembered that not all creditors will be familiar with the trading activities of the company and they may be unaware that the company has been experiencing financial difficulties.  Sufficient background information should be provided for creditors to be able to ascertain the context in which the practitioner has been appointed, including following: 

• What the company did
• What financial pressures the company was under and the primary cause of the company’s insolvency
• In the case of a qualifying floating charge appointment how the company was in default and in all other cases why the company was insolvent
• Where relevant, why the pre-packaged sale has been used as a vehicle for some form of corporate restructuring (e.g. debt/equity swaps etc.)
• Any issues which have necessitated a speedy sale of the assets / business.

In some situations practitioners may consider it undesirable to disclose certain information (e.g. because it might hamper further realisations and thus not be in the interests of creditors).  Specific provision is made for this in paragraphs 10 and 12 of the SIP; however, where information is being withheld the reason for this should be disclosed in all but the most exceptional of situations.   

TIMING 

Paragraph 11 of the SIP provides that unless it is impracticable to do so the relevant information should be sent with the first notification to creditors.   

One of the fundamental purposes of the SIP is to make it clear to creditors at an early stage why a pre-packaged sale has been carried out, shortly following appointment, and that the practitioner has acted with regard to their interests.  This purpose would be defeated if the SIP 16 disclosure was simply to be included in the administration proposals several weeks after appointment.   

It is expected that in the majority of cases SIP 16 information should be sent to creditors within a few days of the practitioner’s appointment or upon completion of the sale.  In all but the most exceptional of cases SIP 16 information should be sent to creditors within 14 days of the completion of the sale.  If practitioners have been unable to meet this requirement they should explain the reasons for the delay in their disclosure. 

The convenience of the practitioner should not be a factor in considering what may be impracticable and a failure to have collated the information or undertaken adequate preparatory work will not justify late disclosure.  

It is envisaged that practitioners will be collating the requisite information from the moment the decision to execute a pre-packaged sale is taken to enable them to provide the information to creditors in accordance with the timescale above. 

guidance on SPECIFIC disclosure requirements 

The following three requirements of paragraph 9 of the SIP relate to how the practitioner became involved in the negotiations and the marketing activities undertaken, which led to the pre-packaged sale. The information provided should be sufficient to enable the creditors to readily understand the extent of the work undertaken by the practitioner before their appointment as administrator and the  process that led to the decision to sell to the eventual purchaser. 

The source of the practitioner’s initial introduction 

The name of any introducer and their relationship to the company and/or the directors, and the circumstances leading to the referral, form an integral aspect of the detailed explanation required for creditors to understand the circumstances leading to the pre-packaged sale and the context in which the practitioner became involved. These details should, therefore, be disclosed under this heading. 

Practitioners should also disclose the date of their formal engagement by the company when detailing their involvement. 

The extent of the practitioner’s involvement prior to appointment 

Sufficient information should be provided by practitioners to identify any previous relationship between the practitioner (which should include the practitioner’s firm) and the company and/or directors. 

Many creditors will have only a limited understanding of formal insolvency proceedings and an explanation that the practitioner, not the directors, has undertaken the sale negotiations with the prospective appointment of an administrator in mind, may help to avoid misunderstandings. 

Any marketing activities conducted by the company and/or the practitioner  

In order for creditors to understand the circumstances leading to the pre-packaged sale, the practitioner should disclose details of the process that led to the decision to sell to the eventual purchaser.  It is recognised that the degree of marketing will vary on a case by case basis and that practitioners will have considered many factors in reaching the decision to conduct any marketing exercise or, in some cases, not to market the business.   

Details of the nature of any marketing activities that were carried out by the company and/or practitioner should be provided or alternatively an explanation provided as to why it was decided not to undertake any marketing.  If the business was marketed, and a number of expressions of interest and/or offers were received, it is important that  summary information about the outcome of the marketing (such as the number of offers received, the range of consideration offered and the fact that the best offer was accepted) are disclosed, so that the outcome of the marketing exercise is clear. 

INFORMATION REGARDING ASSETS 

The following three requirements of paragraph 9 of the SIP relate to the description, valuation and sale of the assets of the company.  This information should be disclosed showing the various categories of assets of the company in a comprehensible format, so as to allow the creditors to readily understand the values of the assets within the company and how these have been sold. 

Any valuations obtained of the business or the underlying assets 

Practitioners will be aware of the importance of ensuring that independent valuations are carried out wherever possible.  The level of detail that practitioners will be able to provide will depend upon the type of valuation that has been carried out and nature of the assets, but generally: 

• valuations should be disclosed with sufficient detail for creditors to understand the values placed upon the various categories of assets. Where it is otherwise unclear, information should be provided as to how any value attributed to goodwill has been determined.
• the basis upon which the business has been valued. This may include valuations on a going concern or break up basis, and any valuations of the underlying assets of the business, whether in-situ or ex-situ.
• the name of the valuer used should be included in all cases.

Where valuations have not been obtained by the practitioner an explanation should be provided as to why not.  Alternatively information should be provided as to what reliance, if any, has been placed on valuations previously obtained by the company or its lender(s), such information being in the same format as above. 

Details of the assets involved and the nature of the transaction 

Practitioners should provide details of the assets by reference to categories as noted above and provide other related information regarding assets sold whose value is complex or not readily ascertainable (e.g. rights of action or a sale of shares in a subsidiary).   

Details should also be provided of significant assets not included in the sale agreement. 

The consideration for the transaction, terms of payment and any condition of the contract that could materially affect the consideration 

Practitioners should ensure that disclosure of the sale consideration is broken down by asset category as noted above; asset categories should, wherever possible, correspond to the categories used to report any valuation obtained, allowing creditors to compare realisations with valuations. In the case of group companies, creditors should be able to understand how the consideration is being apportioned between companies within the group if it is relevant. 

When there is a significant difference between the valuations and realisations practitioners should provide an explanation why that is the case.   

In circumstances where an element of the consideration has been deferred, or where the level of consideration is dependent upon the future performance of the purchaser, however so defined (e.g. turnover, profits, the achievement of particular targets or the outcome of negotiations with third parties), the structure and timescale of any such payment should be made clear. 

Details should be disclosed of any security obtained for deferred consideration, or alternatively confirmation should be provided that no security has been obtained. 

Any enquiries regarding this article should be directed towards Toby Watkinson, IP Policy Section, PO Box 15390, Birmingham, B16 6HP  telephone: 020 7637 6566;  email: toby.watkinson@insolvency.gsi.gov.uk  

General enquiries should be directed towards IP Policy Section, PO Box 15390, Birmingham, B16 6HP  telephone: 020 7291 6772; email: IPPolicy.Section@insolvency.gsi.gov.uk

15. Notice of intention to appoint an administrator  

The Insolvency Service has been asked to provide its view on the circumstances in which a copy of the Form 2.8B notice of intention to appoint an administrator is required to be given to the persons specified in Rule 2.20(2) of the Insolvency Rules 1986 by either the directors or the company (depending on who is seeking to effect the appointment). 

It is our view that, when read together, paragraph 26(2) of Schedule B1 of the Insolvency Act 1986, Rule 2.20 and Form 2.8B should be interpreted to mean that paragraph 26(2) does not give rise to a standalone requirement to give notice of the intention to appoint an administrator.  Form 2.8B is not a form that can be completed unless notice of intention to appoint is also being given under paragraph 26(1). Rule 2.20(2) requires that specified persons must be given a copy of the Form 2.8B notice (given under paragraph 26(1)) and a copy of the form cannot be made and given where no original form exists. To interpret paragraph 26(2) as requiring a standalone notice independent of paragraph 26(1) would serve no useful purpose and would be contrary to the policy intention.  

The Insolvency Service has commenced preparation of the new insolvency rules following the delivery of the first two phases of rules modernisation in April 2009 and April 2010.  We have now started to publish draft parts of the proposed new rules on The Insolvency Service website to give stakeholders the opportunity to familiarise themselves with the new structure and drafting of these rules and to provide any feedback. When preparing the new rules on Administration, we propose to clarify the content in current Rule 2.20 to follow the interpretation given above.   

Any enquiries regarding the above should be directed towards Neil Ogilvie, Zone B, 3^rd Floor, 21 Bloomsbury St, London WC1B 3QW, telephone: 020 7637 6307, email: Neil.Ogilvie@insolvency.gsi.gov.uk    

General enquiries may be directed to: policy.unit@insolvency.gsi.gov.uk Telephone: 020 7291 6772

16. Extensions to administration in Scotland 

Insolvency practitioners have drawn The Insolvency Service’s attention to the fact that Scottish courts have been unwilling to grant administration extensions under paragraph 76 of Schedule B1 to the Insolvency Act 1986 in cases where creditors have not been provided with an opportunity to object to such an extension.   

The Insolvency Service considers that it would be a burden to require administrators to separately contact the creditors shortly prior to applying for an extension, for little corresponding benefit.  However, it is mindful of the concerns of the Scottish courts and of the possible difficulties that insolvency practitioners could encounter were those concerns not adequately addressed.   

Accordingly (and following correspondence with court officials), it is proposed  that, where the administrator, based on his or her professional judgment, anticipates (at the date of the first progress report) that there will be a need to extend the administration beyond 12 months, that the progress report be used to relay this information to creditors. In doing this, the report should also provide an email address to which any concerns about the extension can be sent.  If an extension is subsequently required, the administrator can prove to the court, if necessary, that creditors have had an opportunity to object to the extension (and draw the court’s attention to any such objections received). 

The Insolvency Service does not anticipate that such statements will be put into progress reports as a matter of routine, as to do so will be unlikely to address the concerns of Scottish judges. Rather this content should only be included where there is a realistic expectation that an extension will become necessary and that such an application would be made within three or four months of the progress report in question.

Any enquiries regarding this article should be directed towards Steven Chown, 21 Bloomsbury St, London WC1B 3QW telephone:  020 7637 6501  email:  steven.chown@insolvency.gsi.gov.uk  

General enquiries may be directed to email:  policy.unit@insolvency.gsi.gov.uk Telephone:  020 7291 6772

17. Administration expenses: Financial Support Directions and The Pensions Regulator 

On 10 December 2010 Mr Justice Briggs delivered a judgment in the High Court in actions brought by the administrators of the Lehman Brothers and Nortel Groups to the effect that where a Financial Support Direction (FSD) is issued to an insolvent company after the commencement of its administration, the cost of complying with it is an expense of the administration and must be paid before any disbursement to unsecured creditors (and also ahead of the administrator’s remuneration in the priority of expenses). The administrators have been given permission to appeal but we are considering its implications in any event. This will include discussing the judgment with representative bodies over the coming weeks.  

The FSD, which is part of the Pensions Regulator’s anti-avoidance regime, was introduced by the Pensions Act 2004 alongside the creation of the Pensions Protection Fund (PPF). A FSD, which requires reasonable financial support to be put in place for a scheme by its employer or those connected or associated with the employer, was intended to protect scheme members' benefits and reduce the risk of calls on the PPF. The Pensions Regulator’s powers include conditions set out in the legislation that limit their use and the Regulator is required to act reasonably, mindful of other directly affected parties. The judgment found that this was highly relevant in mitigating administrators’ concerns as the Regulator can and should identify a level of financial support that takes account of creditor claims.  

The Regulator has published a statement on its web-pages in response to the judgment, which confirms that it will not alter its approach to determining FSDs in any situation including its duty to act reasonably in using these powers and to have regard to the interests of those directly affected by them. The Regulator’s statement is available at  http://www.thepensionsregulator.gov.uk/press/pn10-26.aspx 

The issue of administration expenses is one that has been raised by several stakeholders during the engagement we have been undertaking in recent months as part of our work to modernise the Insolvency Rules in England and Wales. This judgment adds weight to the case for reviewing Rule 2.67 and the administration expenses regime and we will therefore discuss this rule more generally when we meet with representative bodies early in the new year.  We will keep practitioners and other stakeholders informed of the outcome of those discussions and of any changes we might subsequently propose to make.  We are grateful for the numerous responses which have been submitted to the letter we published at the end of October 2010 inviting views as to whether or not we should proceed with a full re-write of the1986 Rules. Those responses are in the process of being considered and we expect to be able to announce Ministers’ decisions on the way forward early in the new year.  

Any enquiries regarding this article should be directed towards Tom Phillips Zone B, 3^rd Floor, 21 Bloomsbury St, London WC1B 3QW, telephone: 020 7637 6307, email: tom.phillips@insolvency.gsi.gov.uk