Curb on creditors’ meetings ‘will hit small firms hardest’ - Palmers Solicitors

Curb on creditors’ meetings ‘will hit small firms hardest’

A move to restrict physical creditors’ meetings has taken another step closer.

The government’s Small Business, Enterprise and Employment seeks to ban such meetings in an insolvency unless they are requested by ten per cent of creditors, a measure that has attracted opposition from bodies including R3 (the Association of Business Recovery Professionals) and the Institute of Chartered Accountants in England and Wales.

The Bill has now moved to the House of Lords after passing through the Commons, where an Opposition amendment to allow creditors’ meeting to be held at the request of one creditor was overturned on 19 November. Meetings are currently held at the discretion of insolvency practitioners.

The government says its goal in removing the requirement to hold physical meetings is to “increase creditor engagement by allowing development of communication as technology improves”. It has suggested that creditors could be involved through virtual meetings via the internet or electronic voting.

But in a submission on the Bill, R3 said that were insolvency practitioners to be prevented from holding physical creditor meetings, “small businesses in particular could be permanently excluded from engaging with insolvencies, returns to creditors could be less, and the cost of some insolvencies could increase”.

It said that research had found that 86 per cent of unsecured creditors – including small businesses – either attended or voted by proxy at initial creditors’ meetings and it was these that the government’s proposal would hit hardest.

It added: “Ten per cent of creditors required to call a physical meeting does not sound onerous but this could build in delays to the insolvency process and also increase costs.

“In a recent insolvency of a wedding gift website, ten per cent of the value of creditors was equivalent to hundreds of individuals. In the case of small businesses, where debts are typically low in value, it would take a large number of creditors to constitute the ten per cent threshold required to hold a physical meeting. Individual creditors with a small but important ‘stake’ could struggle get a meeting called.”

While the final form of the legislation remains to be confirmed, Palmers can provide expert advice to creditors to assist in deciding the most appropriate approach for maximising the return of money owed, from issuing and serving statutory demands through to advice and representation in insolvency proceedings or in the enforcement of judgements. For more information, please contact Andrew Skinner