For any company struggling with debt or facing insolvency, bankruptcy or administration, the first port of call is a licensed insolvency practitioner, or IP. Despite the title, an IP isn’t there to handle company insolvency liquidations, such as Creditors Voluntary Liquidation (CVL), Company Voluntary Arrangements (CVA) or Compulsory Liquidation. They are also there to help with Individual Voluntary Arrangements, bankruptcy, pre-administration sales and offer valuable advice. So, what exactly is a licensed insolvency practitioner?
Definition of a licensed insolvency practitioner
An IP can be found working in several different environments – an accountancy or legal practice, the insolvency department of an organisation, or they work for a specialist insolvency firm. A licensed professional, they act on behalf of companies and individuals that are experiencing financial issues and debt. They should be the person to approach with debt problems, preferably before it becomes an insolvency case, for advice on potential alternatives to liquidation.
The duties of an IP will vary depending on whether it is for a company or an individual, and on the circumstances, or extent, of the financial problem being experienced. An IP is also qualified to act as liquidator when winding up a company, as an administrator when dealing with pre-pack and trading administration, and company administration, as well as being supervisors, or nominees, in CVAs. They also work with solvent companies that are closing, i.e. through a Members Voluntary Liquidation (MVL), to help with the sale of assets and advise on the necessary documentation.
Who is responsible for appointing a licensed insolvency practitioner?
There are four parties who can appoint an IP:
- The director of a limited company
- Creditors that are owed money by a company
- The Secretary of State
- A court once a winding up order has been issued, usually issued by a creditor that is owed more than £750. At this point, the Official Receiver becomes the appointed licensed insolvency practitioner.
One of the IP’s key roles is to act as liquidator on behalf of a company that has entered a voluntary or compulsory liquidation process. An IP also has an important role in rescue strategies for companies in financial trouble, such as a CVA or administration. They are able to work as a professional intermediary throughout the proceedings, often helping creditors and HMRC feel confident that the financial matters are being resolved.
Insolvency practitioner code of conduct
First and foremost, for any licensed insolvency practitioner, they must abide by a legal code of conduct which provides the IP with ethical and professional guidance. The code of conduct means an IP must “act with reasonable skill and care when carrying out their statutory duties, and balance the interests of the company with those of the creditors they must work to protect.”
A licensed insolvency practitioner is considered a fiduciary for the companies and individuals they act for. A fiduciary is a person to whom property or power is entrusted to benefit another. Under common law, the fiduciary is obligated to act with the highest standard of care and provide the necessary services on a confidential basis. There are obligations for the fiduciary to the beneficiary, such as ensuring there is no conflict of interest between the parties.
The Insolvency Practitioners Association (IPA) and The Institute of Chartered Accountants in England and Wales (ICAEW) regulate insolvency practitioners in the UK, and uphold a code of ethics. The code details an IP’s duties including any fiduciary duties that apply to an IP. These duties come under the fundamental principles of:
- Professional competence and duty of care
- Professional behaviour.
An IP’s roles and duties
All IPs follow the statutory regulations set out in the Insolvency Act 1986 and Insolvency Rules 1986, which details their duties including:
- Providing advice to a company in order to potentially prevent insolvency, and thereby liquidation.
- Negotiating terms with creditors, and/or other parties, on behalf of an individual or a company.
- Arranging for a company’s assets to be realised, at market value, through marketing the sale of assets to potential buyers and negotiating the best return possible for the company and the creditors.
- Carrying out all necessary statutory duties as required by the law.
- Providing regular progress reports on the insolvency process to creditors.
- Investigating the affairs of the company and conduct of its directors, filing a report to the Insolvency Service if required.
An IP can hold
- Administrator – an IP is able to act as the administrator of a company struggling financially, taking control of the company’s day-to-day activities and operations. Whilst an administrator is appointed, creditors are not allowed to take any action. The IP will put forward a proposal to the creditors to try and rescue the company from liquidation, thereby realising a better outcome for all parties. In some circumstances, the IP will recommend a pre-pack administration whereby directors, investors or shareholders of the company have an opportunity to purchase the assets of the business, or the business itself, and trade through a new company, called a ‘newco’.
- Liquidator – acting as liquidator, the IP takes control of the company’s assets, which must be realised at market value, and the resulting funds are distributed to creditors on a predetermined basis according to legal requirements. They will then arrange for the company to be officially dissolved with Companies House.
- Provisional liquidator – with a compulsory liquidation, an IP can act as a provisional liquidator until the official liquidator has been appointed by a court. This ensures that any company assets are protected on behalf of the creditors. This role is often associated with cases of director misconduct or fraud.
- Administrative receiver – a secured floating charge creditor, such as a bank, can appoint an IP to act as an administrative receiver to act on their behalf in ensuring the money owed to them is collected. They do not have any duty to any other creditors. They are only to realise the necessary assets required to pay the secured creditor.
- Supervisor in a voluntary arrangement – when a company enters into a CVA, an IP is appointed to act as a supervisor, ensuring that the agreed monthly payments are distributed to the creditors in accordance with the CVA, and that the terms are met. An IP also acts in a similar way in respect of Individual Voluntary Arrangements (IVAs); the only difference being they are dealing with an individual and not a company.
For any individual or company experiencing financial problems, a licensed insolvency practitioner will offer practical, valuable advice, often suggesting potential solutions to the problem and avoiding liquidation.
Business insolvency is not something that any business wants to deal with. However, the sooner a financial problem is recognised, the sooner it can be dealt with and the more potential the company has to recover. For more information on how our professional insolvency practitioners may be able to help your business, contact us today on 0800 246 5895 or visit our website.