The UK insolvency framework is set for another period of review as the Insolvency Service launches a wide-ranging consultation into the Insolvency (England and Wales) Rules 2016. The review is designed to ensure the rules remain for purpose, improve efficiency and reflect the changing landscape of insolvency practice, particularly in relation to artificial intelligence (AI), digital assets and cryptocurrencies.

For insolvency practitioners, office holders and restructuring professionals, the consultation offers an opportunity to shape the future of insolvency law while addressing practical issues that affect the day-to-day administration of insolvencies.

Why are the insolvency rules being reviewed?

The consultation builds upon the Insolvency Service’s previous review in 2022 and forms part of its statutory post-implementation review of the current insolvency rules.

Since the rules came into force, insolvency practice has continued to evolve. Electronic filing has become commonplace, digital technologies are increasingly embedded into professional services, and insolvency practitioners are more frequently dealing with cryptocurrency and other digital assets.

The Insolvency Service is therefore seeking feedback from insolvency practitioners, legal professionals, creditors and other stakeholders on whether the rules continue to achieve their intended purpose while identifying opportunities to reduce unnecessary administrative and regulatory burdens.

Improving efficiency across insolvency procedures

A key objective of the review is to make insolvency proceedings more efficient without compromising protections for creditors.

Among the proposals being considered are:

• Whether certain uncontested court applications still require court approval
• Whether information currently provided to creditors remains useful and proportionate
• How procedures for smaller insolvencies could be streamlined to reduce costs and delays

These measures are intended to modernise insolvency practice while ensuring office can administer estates as efficiently as possible.

Artificial intelligence and insolvency

One of the most important areas covered by the consultation is the increasing use of artificial intelligence.

AI tools are already being used to assist with tasks such as:

• Reviewing documents
• Analysing financial information
• Automating administrative processes
• Supporting investigations

The Insolvency Service is not currently proposing specific AI-related reforms but is seeking to understand how the technology is used and whether existing rules create barriers.

The consultation also considers whether insolvency practitioners should disclosure when AI has been used in carrying out statutory functions and whether additional safeguards may be required as the technology develops.

Digital assets and cryptocurrency

The review also examines whether the insolvency framework remains suitable for dealing with digital assets. While the government’s preliminary view is that existing rules are sufficiently flexible, the Insolvency Service recognises that digital assets have grown significantly and may create practical challenges for office holders.

These challenges include:

• Identifying digital assets
• Securing cryptocurrency holdings
• Valuing assets
• Recovering funds for creditors

Feedback from practitioners will help determine whether future reforms are required.

Funding insolvency litigation

While improvements to insolvency are important, practitioners continue to face challenges when pursuing claims on behalf of creditors. Many potential claims may be commercially viable but difficult to fund using estate assets alone.

A range of funding solutions can help office holders pursue recoveries while managing financial risk.

After-the-event (ATE) legal insurance – After-the-event (ATE) insurance protects against adverse costs exposure and security for costs applications. Instead of the insolvency estate carrying the risk of paying a successful defendant’s legal costs, that risk is transferred to an insurer.

Depending on the policy, there may be no upfront premium or only a modest initial payment, with the insurer receiving a success-based premium if the claim succeeds.

ATE insurance is particularly useful where office holders need to preserve funds while pursuing legitimate claims.

Third party litigation funding – Third party litigation funding allows insolvency practitioners to pursue claims without committing funds. A funder finances legal costs in return for an agreed share of any damages recovered.

Funding is often combined with ATE insurance to provide protection against both own-side and adverse costs risks.

Newer funding models can also make lower-value claims commercially viable where they may previously have been written off as uneconomic.

Assignment of litigation – Some insolvency claims may be assigned to third parties. This can provide an immediate return to the estate, together with a share of future recoveries, while transferring litigation risk.

Assignment can be particularly suitable for lower-value disputes, while larger or more complex claims may benefit from the office holder retaining control through external funding.

Independent advice can help practitioners assess available options and document their decision-making process for creditors and regulators.

How Annecto Legal can assist

For insolvency practitioners, selecting the right funding solution is often just as important as identifying the legal merits of a claim. At Annecto Legal, we work with a broad network of insurers, litigation funders and claim purchasers to help practitioners fulfil their statutory duties while protecting insolvency estates from unnecessary financial risk.

Our team provides independent written reports comparing available insolvency litigation funding options, enabling practitioners to demonstrate that appropriate consideration has been given to funding and risk management.

Whether you are investigating an insolvency claim, pursuing asset recovery proceedings or defending insolvency litigation, Annecto Legal can help you identify the most suitable funding solution and maximise the prospects of a successful outcome.