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Introduction To The Insolvency Act 1986

The Insolvency Act 1986 is a piece of legislation that governs the conduct of insolvency proceedings in UK. This article is a brief introduction (only) to this Act.

There are lots of other acts of parliament that have provisions that support the Insolvency Act 1986 or act is as its sidekick such as secondary legislation like the Insolvency (England and Wales) Rules 1986. However, the Insolvency Act 1986 is one of the UK parliament’s core fixtures. It has been on the statute book since around err 1986. Without it the rules that shape and structure insolvency would not exist in one dominant well ordered place. 

insolvency act 1986

Consolidating Legislation

The Insolvency Act 1986 is to insolvent estates what the Companies Act 2006 is to companies.

The introductory text as originally introduced said:

An Act to consolidate the enactments relating to company insolvency and winding up (including the winding up of companies that are not insolvent, and of unregistered companies); enactments relating to the insolvency and bankruptcy of individuals; and other enactments bearing on those two subject matters, including the functions and qualification of insolvency practitioners, the public administration of insolvency, the penalisation and redress of malpractice and wrongdoing, and the avoidance of certain transactions at an undervalue

What Is The Purpose Of The Insolvency Act 1986?

Insolvency as a concept rests on the flaky foothold of an entity with a dwindling pool of assets being chased by a group of creditors. When individuals and companies are insolvent and unable to pay their debts when they fall due they reasonably require a series of rules and regulations to guide them down the path towards a resolution and finality. 

The Insolvency Act 1986 affords those fighting the effects of insolvency the tools to attempt to address their problems. It enables companies to put in place rescue procedures if a business can be saved. It provides the pathway for failed businesses to be wound up in an orderly fashion such as that of Creditors Voluntary Liquidation

And yes, it enables those who have lost money whilst trading with companies and individuals to pursue their debts and anticipate misconduct will be properly dealt with.

If such regulations did not exist then there would be no order to how creditors ought to share the assets of an insolvent company or what type of Director conduct might be considered particularly egregious.

This legislation also introduced the licensing of Insolvency Practitioners to provide added structure to their regulation.

Changes Over Time To The Insolvency Act 1986

As with all developing features in society, the Insolvency Act 1986 has embraced developments in the 21st Century. 

No longer are Meetings of Creditors the norm to get Directors and creditors into the same room together as the start of a formal insolvency appointment. These have largely been usurped by Decisions Procedures that can take place via correspondence or virtual meetings. No longer is Administrative Receivership the standard debt collection procedure of the holder of a floating charge; it is now Administration bolstered by its Moratorim that freezes creditors attempting to enforce their debts through proceedings. Creditors can now have reports delivered to them through websites instead of waiting for the post (snail mail as some might refer) to arrive.

And yet there are some things that have gone full circle back to where they started from or nearly so. For example, the HMRC Crown Preference returned which again gives HMRC preferential status when it comes to handing out the assets of an insolvent estate in certain cases.

Having weathered the storm for a period well over 30 years the Insolvency Act 1986 looks here to stay for a good while longer.

Author: Elliot Green
Last Updated: May 20, 2024

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Disclaimer: What Is The Insolvency Act 1986?

This page is not legal advice and is not to be relied upon as such. This article is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.

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