On 6 April 2017, new Insolvency Rules came into force which will affect creditors’ rights in most insolvency procedures. More information on the insolvency changes generally are available in this blog post.
One of the key changes in the new rules is the abolition in corporate insolvencies of creditors’ meetings. Creditors will no longer be asked to attend in-person meetings as a matter of course. Instead, in-person meetings will only be held where requested by 10% of the creditors in a case (in value or number) or by 10 individual creditors. Various substitutes for face-to-face meetings are introduced, including decisions on the affairs of the insolvent debtor being made by correspondence or electronic voting. These substitutes are likely to become the norm in insolvency processes.
These changes will impact on commercial contracts governed by English law. Currently, many contracts are drafted so that “Insolvency” is defined to include the holding of a creditors’ meeting in relation to one of the contracting parties. The fact that the party is deemed insolvent pursuant to this definition can, in turn, often give the other contracting party the right to terminate the contract. In light of the new Insolvency Rules, definitions of ‘Insolvency’ (or similar terms) and termination rights must be updated so that termination rights kick in at the right time.