The Insolvency (Amendment) Rules 2008

JurisdictionUK Non-devolved
CitationSI 2008/737

2008 No. 737

Insolvency, England And WalesCompanies

The Insolvency (Amendment) Rules 2008

Made 13th March 2008

Laid before Parliament 14th March 2008

Coming into force 6th April 2008

The Lord Chancellor has consulted the Committee existing for the purposes of section 413 of the Insolvency Act 19861.

The Lord Chancellor, in the exercise of powers under section 411 of the Insolvency Act 1986, with the concurrence of the Secretary of State, and of the Chancellor of the High Court (by the authority of the Lord Chief Justice under section 411(7) of that Act) in relation to those rules that affect court procedure, makes the following Rules:

Citation, commencement and interpretation
S-1 Citation, commencement and interpretation

Citation, commencement and interpretation

1.—(1) These Rules may be cited as the Insolvency (Amendment) Rules 2008 and shall come into force on 6th April 2008 (“the commencement date”).

(2) In these Rules,

“the principal Rules” means the Insolvency Rules 19862(any reference to a numbered Rule being a reference to a rule so numbered in the principal Rules unless the context otherwise requires);

“the Act” means the Insolvency Act 1986 (any reference to a numbered section being a reference to a section of that Act).

Transitional provisions
S-2 Transitional provisions

Transitional provisions

2. The amendments to the principal Rules made by Rules 3, 4, 5, 6 and 7 of these Rules shall apply—

(a) to a creditors’ voluntary winding up—

(i) in respect of which the resolution is passed, or

(ii) where it commenced as a members’ voluntary winding up, for which the conversion to a creditors’ voluntary winding up under section 96 takes effect, or

(iii) in respect of which a notice is registered under paragraph 83 of Schedule B1 to the Act,

on or after the commencement date;

(b) to a members’ voluntary winding up for which the resolution is passed on or after the commencement date; and

(c) to a winding up of a company by the court where the winding up order is made on or after the commencement date except where the winding-up order is made following a resolution for a voluntary winding up passed by that company before the commencement date.

Amendments to the principal Rules

Amendments to the principal Rules

S-3 The principal Rules shall be amended as follows.

The principal Rules shall be amended as follows.

3. The principal Rules shall be amended as follows.

S-4 In paragraph (1) of Rule 4.218 (general rule as to priority),...

4. In paragraph (1) of Rule 4.218 (general rule as to priority), for the words “The expenses of the liquidation” at the beginning of that paragraph, to and including the words “by the official receiver” at the end of subparagraph (a)(iii), substitute the following—

“All fees, costs, charges and other expenses incurred in the course of the liquidation are to be regarded as expenses of the liquidation.

S-2

2 The expenses of the liquidation are payable out of—

(a) assets of the company available for the payment of general creditors, which shall be taken to include proceeds—

(i) of any legal action which the liquidator has power to bring in his own name or in the name of the company, or

(ii) arising from any award made under any arbitration or other dispute resolution procedure which the liquidator has power to bring in his own name or in the name of the company,

which shall, for the purposes of this subparagraph, also include—

(iii) any payments made under any compromise or other agreement intended to avoid legal action or recourse to arbitration or to any other dispute resolution procedure, and

(iv) payments made as a result of a settlement of any such action, arrangement or procedure in lieu of or prior to any judgment being given or award being made;

(b) subject as provided in Rules 4.218A to 4.218E, property comprised in or subject to a floating charge created by the company.

S-3

3 Subject as provided in Rules 4.218A to 4.218E, the expenses are payable in the following order of priority—

(a) expenses which—

(i) are properly chargeable or incurred by the provisional liquidator in carrying out the functions conferred on him by the court;

(ii) are properly chargeable or incurred by the official receiver or the liquidator in preserving, realising or getting in any of the assets of the company or otherwise in the preparation or conduct of any legal proceedings, arbitration or other dispute resolution procedures, which he has power to bring in his own name or bring or defend in the name of the company or in the preparation or conduct of any negotiations intended to lead or leading to a settlement or compromise of any legal action or dispute to which the proceedings or procedures relate;

(iii) relate to the employment of a shorthand writer, if appointed by an order of the court made at the instance of the official receiver in connection with an examination; or

(iv) are incurred in holding an examination under Rule 4.214 (examinee unfit) where the application for it was made by the official receiver;”

S-5 After Rule 4.218 insert— 4.218A Litigation expenses and...

5. After Rule 4.218 insert—

S-4.218A

Litigation expenses and property subject to a floating charge — general provisions

4.218A.—(1) In this Rule and Rules 4.218B to 4.218E—

(a)

(a) “approval” and “authorisation” respectively mean:

(i) where yet to be incurred, the approval, and

(ii) where already incurred, the authorisation,

of expenses specified in section 176ZA(3);

(b)

(b) “the creditor” means—

(i) a preferential creditor of the company, or

(ii) a holder of a debenture secured by, or a holder of, a floating charge created by the company;

(c)

(c) “legal proceedings” means—

(i) proceedings under sections 212, 213, 214, 238, 239, 244 and 423 and any arbitration or other dispute resolution proceedings invoked for purposes corresponding to those to which the sections relate and any other proceedings, including arbitration or other dispute resolution procedures, which a liquidator has power to bring in his own name for the purpose of preserving, realising, or getting in any of the assets of the company;

(ii) legal actions and proceedings, arbitration or any other dispute resolution procedures which a liquidator has power to bring or defend in the name of the company, and

(iii) negotiations intended to lead or leading to a settlement or compromise of any action, proceeding or procedure to which subparagraphs (i) or (ii) relate;

(d)

(d) “litigation expenses” means expenses of a liquidation which—

(i) are properly chargeable or incurred in the preparation or conduct of any legal proceedings, and

(ii) as expenses in the liquidation, exceed, or in the opinion of the liquidator are likely to exceed (and only in so far as they exceed or are likely to exceed), in the aggregate £5000.

(2) Litigation expenses shall not have the priority provided by section 176ZA over any claims to property comprised in or subject to a floating charge created by the company and shall not be paid out of any such property unless and until approved or authorised in accordance with Rules 4.218B to 4.218E.

S-4.218B

Litigation expenses and property subject to a floating charge – requirement for approval or authorisation

4.218B.—(1) Subject to Rules 4.218C to 4.218E, paragraphs (2) and (3) or (4) apply where, in the course of winding up a company, the liquidator—

(a)

(a) ascertains that property is comprised in or subject to a floating charge;

(b)

(b) has himself instituted or proposes to institute or continue legal proceedings or is in the process of defending or proposes to defend any legal proceeding brought or likely to be brought against the company; and

(c)

(c) prior to or at any stage in those proceedings, is of the opinion that—

(i) the assets of the company available for payment of general creditors are or will be insufficient to pay litigation expenses; and

(ii) in order to pay litigation expenses he will have to have recourse to property comprised in or subject to a floating charge created by the company.

(2) As soon as reasonably practicable after the date on which he forms the opinion referred to in paragraph (1), the liquidator shall identify the creditor who, in his opinion at that time—

(a)

(a) has a claim to property comprised in or subject to a floating charge created by the company, and,

(b)

(b) taking into account the value of that claim and any subsisting property then comprised in or secured by such a charge, appears to the liquidator to be the creditor most immediately likely of any persons having such claims to receive some payment in respect of his claim but whose claim would not be paid in full (“the specified creditor”).

(3) The liquidator shall request from the specified creditor the approval or authorisation of such amount for litigation expenses as the liquidator thinks fit.

(4) Where, in the liquidator’s opinion, two or more creditors who are holders of debentures secured by, or holders of, floating charges created by the company, meet the condition in paragraph (2), the liquidator is to seek from each of them (“the specified creditors”) approval or authorisation of such amount of litigation expenses as the liquidator thinks fit, apportioned between them (“the apportioned amount”) according to the value of the property to the extent covered by their charges.

(5) For so long as the conditions specified in paragraph (1) subsist, the liquidator may, in the course of a winding up, make such further requests to the specified creditor or creditors for approval or authorisation of such further amount for litigation expenses as he thinks fit...

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