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Insolvency Update: Changes that take effect from April 2016

May 2016

Insolvency Express Trials

The Department of Justice has issued a practice direction in connection with the new insolvency express trials pilot.

The pilot scheme operates from 1 April 2016 for a period of two years. It applies to proceedings before the Bankruptcy Registrars in the Bankruptcy and Companies Courts of the Chancery Division of the High Court.

It is designed to deal with simple applications made to a Bankruptcy Registrar:

  • which can be disposed of in no more than two days;
  • which require limited directions (as opposed to case management) and disclosure of documents; and
  • where the costs of each party will not exceed ¬£75,000 (excluding VAT and court fees but including any conditional fee agreement uplift).

New Procedure for Debtor Bankruptcy Petitions

With effect from 6 April 2016, debtor bankruptcy petitions will no longer be made to the Courts.  Instead, applications will be submitted online via the central UK Government website, gov.uk, to an adjudicator within the Insolvency Service.

The fee to submit an online application for bankruptcy will be ¬£130.  Applicants, or someone on their behalf, will be able to pay online or in cash and will also be able to pay in instalments (online only).  

The new procedures will not apply to partnerships or deceased insolvent estates.

Changes to the Director Conduct Report Process

Changes to the process under which insolvency practitioners report on director conduct are to be implemented from 6 April 2016.  The main change is that insolvency practitioners will be required to report on director conduct within three months of their appointment using a single online return.  This replaces the D1/D2 forms which need to be submitted within six months.

Conditional Fee Arrangements and Cost Recoveries in Insolvency

With effect from 6 April 2016 the reforms to cost recoveries in cases founded by conditional fee arrangements recommended by the Jackson report will apply to insolvency litigation.  This means that success fees and after the event insurance premiums will no longer be recoverable in insolvency proceedings brought by liquidators, administrators, trustees in bankruptcy, and companies in liquidation or administration.

Taxation of Distributions in Winding Up

HMRC announced changes which may impact upon the tax treatment of distributions in a winding up with effect from 6 April 2016.

The way in which dividends (and other company distributions) are taxed have been fundamentally reformed for individual recipients.  The changes may increase the incentive to arrange for returns from a company to be taxed as capital rather as than income, attracting tax at lower Capital Gains Tax rates, rather than the new dividend tax rates.  At present, the information available is that set out in a consultation paper on the proposed changes issued by HMRC in December 2015 and the provisions contained in the 2016 Finance Bill.  Some of the changes may affect distributions made in a winding up.

The changes will also introduce a new Targeted Anti-Avoidance Rule, which will deny capital treatment on a distribution in winding up where certain conditions are met. 

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