On 3 March, new rules were laid before parliament that will require insolvency practitioners in England and Wales to provide upfront summaries of the estimated costs, together with details of the intended work and likely timescale, arising from their appointment. Changes to these estimates will require the consent of creditors.
The government has also tabled an amendment to the Small Business, Enterprise and Employment Bill, widening the threshold needed for creditors to call a physical meeting. The amendment is that 10% by value, 10% by number or 10 creditors, whichever is the smallest, will be the requirement to call a creditors’ meeting - the current threshold is simply 10% by value.
This is good news for landlords, who despite being a major stakeholder in any business rescue and turnaround, can often find themselves in the dark once an insolvency practitioner is appointed. While creditor or court consent is already required for fee rates, this is only for the hourly rates and challenging the costs can be difficult and time-consuming. Landlords can be left feeling alienated from a process even though their properties might be being used for that process, or even being abandoned as a result of it.
The sentiment is then exacerbated by seeing insolvency practitioners earn significant fees, while the landlord receives little, if anything, in the way of dividend from the insolvency.
Providing upfront time and cost estimates will bring greater transparency to the insolvency process and thus help increase confidence in an insolvency practitioner’s actions and intentions.
Administrations in particular can provide an essential turnaround function, but the level of costs when reported after the event can bring a surprise that muddies what, in many cases, is a successful outcome.
The changes in the requirements to call a creditors’ meeting will make it easier for landlords and other creditor groups to involve themselves in an insolvency case; 10% by number or 10 creditors will, in many cases, be far easier to achieve than 10% by value.
The insolvency regime can appear difficult to access for creditors and especially for landlords, who when faced with closing stores or purchasers in pre-pack administrations seeking discounts, may have preferred to treat the tenant failure as a fait accompli and devote energies to moving forwards. These new rules will provide landlords with a greater opportunity to engage in the process from the outset.
John Cook is revenue manager at Capital and Regional and chair of the BPF Insolvency Committee
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