The Insolvency (Scotland) Amendment Rules 2003

Explanatory Note

(This note is not part of the Rules)

These Rules amend the Insolvency (Scotland) Rules 1986 (S.I. 1986/1915) (“the 1986 Rules”), substituting, in Schedule 1 to these Rules, a new Part 2 (Administration) and associated Forms for the existing Part 2 of the 1986 Rules and making other changes consequential on amendments made to the Insolvency Act 1986 (c. 45) by the Enterprise Act 2002 (c. 40).

The new Part 2 of the 1986 Rules governs the administration procedure that was introduced as Schedule B1 to the Insolvency Act 1986 by section 248 of the Enterprise Act 2002 in substitution for Part II of the Insolvency Act 1986. The substituted Part 2 of the 1986 Rules draws substantially on the existing Rules but makes new provisions in consequence of the revised and extended administration procedures introduced by the Enterprise Act 2002. In particular, under Schedule B1, provision is made for two new routes into administration without court order, with appointment of the administrator being made by notice by the company, the directors or the holder of a qualifying floating charge, in addition to the existing procedure for entry by court order.

Administration is subject to new time limits to ensure that the process is conducted quickly and efficiently. Administrators are required to send copies of their proposals to creditors within 8 weeks, and hold a creditors' meeting within 10. There is also a time limit of 12 months as the initial maximum duration of the whole administration procedure and the administrator must fulfil his duties as soon as reasonably practicable. The administrator may extend any of the time limits with the permission of the court, or with the consent of creditors.

The administrator is required to rescue the company, as a going concern, wherever this is reasonably practicable. In those cases where it is not possible, the objective is to provide a better result for the creditors of the company as a whole than would be achieved in an immediate winding up and only where this is not possible will he or she realise property to make a distribution to secured or preferential creditors.

The administrator has powers to make payments to preferential and secured creditors in all circumstances, and to unsecured creditors with the permission of the court.

The administrator is, on the lodging of an appropriate notice, able to move the company from administration into creditors' voluntary liquidation so that payments can be made to unsecured creditors without the leave of the court or, alternatively, to move from administration to dissolution in those cases where there are no further assets to be distributed.

The costs to business of the commencement of the provisions of the Enterprise Act 2002 are determined in the Regulatory Impact Assessment prepared for that Act. Copies of the assessment are available from Policy Unit, The Insolvency Service, 21 Bloomsbury Street, London, WC1B 3QW.0 11 062428 9