What is a Licensed Insolvency Practitioner in the UK?

In the UK, a licensed insolvency practitioner, or IP, is a legal professional qualified to act on behalf of a company, partnership or individual that is insolvent, or for a solvent company or partnership that is closing down.

In most cases, the IP has a background in law, accountancy or as a solicitor. They must be a member of an officially-recognised body to hold a license to practice in the UK in accordance with the Insolvency Act 1986. For example, the Insolvency Practitioners Association (IPA) is the only body of all the recognised bodies that is involved purely in the matter of insolvency.

Their main duty when acting in an insolvency matter is to maximise the return on behalf of the creditors including realising any assets, which can sometimes lead to uncovering assets that are hidden, and collecting any outstanding contributions. Let’s look at the role in more detail.

When should a licensed insolvency practitioner be instructed?

There are some insolvency procedures that must be handled by a licensed insolvency practitioner, or official receiver. These are:

    • Compulsory liquidation
    • Creditors Voluntary Liquidation (CVL)
    • Members Voluntary Liquidation (MVL)
    • Administration Company Voluntary Arrangement (CVA)
    • Individual Voluntary Arrangement (IVA)
    • Bankruptcy Winding up petitions

There are situations where the licensed insolvency practitioner is appointed by the court, such as when a winding up order has been issued.

What can a licensed insolvency practitioner do?

In most circumstances, the directors of an insolvent company will seek the assistance of an IP in an attempt to resolve the problem of debt for a company, partnership or individual. This is known as a business rescue procedure, such as administration, and they will offer advice on how the company may be able to avoid liquidation.

However, if this is not possible, the directors predominantly instruct the IP to act in their insolvency proceedings. As well as maximising returns on behalf of creditors, they are also duty bound to investigate the activities of the directors to ensure there has been no fraudulent or wrongful trading.

At all times, the licensed insolvency practitioner must adhere to the strict regulations and rules set out in insolvency law, i.e. according to the Insolvency Act 1986. Their role may require them to:

    • Stepping in to run any type of business as part of a business rescue procedure, such as administration, or in a liquidation process. At the same time, they must investigate and report on the directors’ conduct within the first 3 months of the process.
    • Analysing how the business fell into serious debt and reporting to creditors
    • Handling any complex legal claims, such as actions by parties that contributed to the insolvency situation
    • Acting as an intermediary between creditors and debtors, negotiating any potential repayment solution in order to avoid insolvency or, indeed, liquidation

The roles of a licensed insolvency practitioner

A licensed insolvency practitioner can also work under the title of liquidator, administrator, an administrative receiver or as a nominee (supervisor) in a voluntary arrangement.

    • Liquidator – the IP facilitates the liquidation, i.e. the closing down, of an insolvency company or partnership. This will involve the sale and distribution to creditors of any assets, deal with any outstanding claims, liaise and report to creditors, and investigate the activities of the directors. At all times, the liquidator is acting on behalf of the creditors, not the directors.
    • Administrator – in their role, they will analyse the company’s situation in order to find the best solution for the creditors. This may involve re-structuring the company, streamline procedures, cut costs or source a buyer for the company.
    • Administrative receiver – similar to the above role, however the IP is working on behalf of a secured creditor, such as a bank, with the aim of getting the creditor’s debt paid in full
    • Nominee (supervisor) – the IP’s role in this case is acting as a supervisor in a company or individual voluntary arrangement. They negotiate between the two parties to agree a structured payment plan. The IP formalises the agreement with the creditors. The agreed payment is paid by the debtor through the IP who then distributes it to the creditor. In many cases, there may be several creditors although the debtor only makes one payment to the IP. It is the IP’s role to ensure that all the relevant creditors are paid the right amount from the debtor’s one-off payment.

Who regulates licensed insolvency practitioners?

It is the responsibility of the UK’s Secretary of State to oversee the insolvency industry. However, there are various professional recognised bodies that are authorised to licence insolvency practitioners:

    • Insolvency Practitioners Association
    • BIS Insolvency Practice
    • Institute of Chartered Accountants in England and Wales
    • Institute of Chartered Accountants in Scotland
    • Institute of Chartered Accountants in Ireland
    • Association of Chartered Certified Accountants
    • Law Society of England and Wales
    • Law Society of Scotland
    • Law Society of Scotland Law Society of Northern Ireland

How do you become a licensed insolvency practitioner?

Most IPs have many years’ experience in the fields of law, accountancy or have worked as a solicitor. Firstly they must register with a recognised professional body. To qualify as an insolvency practitioner, they must pass all three papers in the JIEB exams which take place every November. The exam papers cover:

    • Liquidation
    • Personal insolvency issues
    • Receiverships
    • Company voluntary arrangements
    • Company administrations

As well as passing the exams, they must also meet the criteria for practical experience as laid out by their professional body. In addition, they must demonstrate that they have a professional indemnity insurance policy and a general insolvency bond, which is a form of insolvency insurance.

Licensed insolvency practitioners in the UK are required to undergo regular inspections by their professional body or association. In most cases, they are not notified when these inspections will take place.

Company or individual insolvency is not something that anyone 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 in recovering. For more information on how our professional insolvency practitioners may be able to help your business, contact us today on 0800 246 5895