If your company is in financial difficulties, you may be contemplating hiring an insolvency practitioner to assist you in navigating your present predicament through a formal insolvency process. Unless you have already worked with an insolvency practitioner, you may be uncertain of what they perform and what their responsibilities are if you hire one to aid your firm during financial distress.
As a business owner, you should understand an insolvency practitioner’s tasks and responsibilities, as well as the value they may bring to your company, especially in the initial phases of financial crisis.
The role of an Insolvency Practitioner
An insolvency practitioner (IP) is someone who is licenced to work on behalf of businesses and individuals when they are insolvent or in extreme financial distress, as authorised by the insolvency practitioners association. An IP can also assist directors of solvent corporations who have decided to dissolve their company through a Members’ Voluntary Liquidation (MVL) so as to recover retained earnings, thus potentially avoiding a formal insolvency process.
In most circumstances, a business director will approach an IP freely and request their assistance in dealing with their failing firm. In cases of forced liquidation, the legal system will appoint an Official Receiver to serve as the interim liquidator. They can subsequently seek that an insolvency practitioner be appointed to handle the liquidation process.
Insolvency Practitioner vs A Liquidator
A liquidator is one of several responsibilities that an insolvency practitioner may take on depending on the case in question, such as when they act as a liquidator in a formal insolvency process. In terms of limited corporations, the three basic responsibilities an IP will conduct are as follows:
Liquidator
In both solvent and insolvent company liquidations, the insolvency practitioner’s responsibility is to realise corporate assets and ensure that they are properly allocated to creditors. In insolvent liquidations, such as Creditors’ Voluntary Liquidations (CVLs), creditors often include vendors, financial institutions, and other lenders; in an MVL, which is the liquidation of a solvent firm, directors and shareholders are frequently in queue to collect the proceeds.
Administrator
In both administration and pre-pack administration situations, an insolvency practitioner is designated as the company’s administrator, guiding the company through a formal insolvency. They will endeavour to achieve an improved result for creditors, whether by negotiating for the sale of the firm or supporting an orderly closure of the enterprise.
Nominee and Supervisor
Company Voluntary Arrangements (CVAs) an insolvency practitioner serves as both a nominee and a supervisor. They will initially serve as a ‘nominee’, responsible for developing a compelling proposal for the CVA, which is a formal insolvency process. A Statement of Affairs (SOA) will be prepared, and creditors will be told how much they may expect to receive if the CVA is implemented. Once the creditors have approved the CVA, the insolvency practitioner will become the agreement’s’supervisor’ and will monitor proceedings throughout its length. The business’s continuous performance will be reviewed to ensure that it stays on track to complete the CVA and leave with a strong chance of having a prosperous future despite undergoing a formal insolvency process.
Do Insolvency Practitioners have to be qualified?
Accountancy degrees such as ACCA, ACA, or CIMA are common among insolvency practitioners due to the professional route they pursue to get into the field, and they often become members of the insolvency practitioners association. However, this is not required, and having an accounting certification does not imply that you may practice as an insolvency practitioner.
A licenced insolvency practitioner must pass the JIEB (Joint Insolvency Examination Board) examinations. The examinations consist of two papers, both of which must be passed before the qualification may be given. The tests measure the candidate’s understanding of personal and corporate insolvency law, as well as their ability to apply it to real-world problems. The JIEB tests are notoriously difficult, and only individuals with a thorough grasp of insolvency will be able to pass.
Before hiring an insolvency practitioner, be sure to examine their credentials. Some firms provide insolvency assistance, but because they do not have a licenced intellectual property, they will recommend you somewhere and charge you a fee. Check to see if the company has its own licenced insolvency practitioners on staff who are also part of the insolvency practitioners association.
How are Insolvency Practitioners regulated?
The Insolvency Act 1986 regulates insolvency in the United Kingdom, and IPs are subject to regular inspections by their regulatory body, ensuring they comply with standards set by the insolvency practitioners association. There are various registered professional bodies, including the IPA, ICAEW, and ICAS, but they all adhere to the same high performance criteria and degrees of professional behaviour.
What are the costs involved when appointing an Insolvency Practitioner?
The costs of hiring an insolvency practitioner will differ based on the specific situation and the amount of work and time required. However, for a conventional CVL, prepare to pay around £5,000, with an average MVL being significantly less.
CVAs and administration proceedings are frequently more time-consuming, and with fees accruing over time, the expenses are normally higher than those of a complete liquidation. CVAs include a continuing monthly supervisor’s fee, which is integrated into the payment your firm has agreed to make to creditors as part of the arrangement. Because this fee will be removed from the amount available to creditors, they select how much share the insolvency practitioner will take in managing the proceedings, which is authorised under formal insolvency regulations.
Company assets are often utilised to support the cost of the selected insolvency procedure, albeit in certain circumstances, notably with CVLs, there are not enough cash to do this. Directors may then be asked to spend personal money or find alternative ways to raise the funds.
When does it become necessary to appoint an Insolvency Practitioner?
For many businesses, engaging an insolvency practitioner occurs when distress levels become overwhelming and directors realise they can simply cannot continue with their existing predicament. A licenced insolvency practitioner will be able to intervene at this point, evaluate the choices, and propose the best course of action.
However, the sooner you seek the guidance of an insolvency practitioner, the more important it will be to your business. Contacting an insolvency practitioner at the early stages of financial distress will provide your firm the best chance of survival. You will have access to a broader choice of rescue and recovery alternatives, including informally negotiating with creditors via a Time to Pay (TPP) or officially through a CVA. When it’s too late, a total shutdown in the form of a CVL is typically the only viable choice.
Can an Insolvency Practitioner be removed or replaced?
Creditors can dismiss or replace an insolvency practitioner throughout the decision-making process. Creditors will be asked to vote on the prospective insolvency practitioner before they are legally appointed. If creditors decide to dismiss the insolvency practitioner, they must choose their preferred liquidator or administrator to take over the function.
If you are dissatisfied with the service, behaviour, or professionalism of an insolvency practitioner after appointing them to manage the liquidation or administration of your firm, you should first express your concerns to them directly. If you are still dissatisfied, you can file a formal complaint with their governing body, but you must do so within three years after the occurrence or issue, following the guidelines set by the insolvency practitioners association.
Choosing an Insolvency Practitioner
Many directors will be suggested an insolvency practitioner by their accountant, solicitor, or another reputable expert. While expert referrals are obviously beneficial, you should be alert and confirm that the IP you have been recommended to is licenced and able to take insolvency appointments. Alternatively, you can find an insolvency practitioner online. Choose one that you are comfortable with, and be sure to double-check their legitimacy before signing up.
While you may prefer to work with a local insolvency practitioner, this is not always essential, especially if they are authorised and highly recommended by the insolvency practitioners association. This is because most insolvency processes do not need you to meet with your insolvency practitioner in person; instead, contact will take the shape of phone conversations, emails, and electronic document transfers.
The government maintains a fully searchable database that allows you to discover a local insolvency practitioner by area or postcode, or you may use this service to check the credentials of an insolvency practitioner with whom you are currently in touch. If you are unable to establish that they have a licence to take insolvency appointments, you should cease proceedings until you are confident that you are working with a reliable business.
