A licensed insolvency practitioner, or IP, is a legal professional that is qualified and registered to act on behalf of a company, partnership or individual that is insolvent, or for a solvent company or partnership that wants to cease trading and close down.
They act on behalf of a company or an individual in an insolvency matter 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.
When do you need insolvency practitioner services?
If you or your company is struggling with debt, to the point that monies coming in no longer cover monies going out and creditors are demanding payment, you need to seek the help of insolvency practitioner services. Some insolvency procedures must be handled by a licensed insolvency practitioner, or official receiver, only. They are:
- Compulsory liquidation.
- Creditors Voluntary Liquidation (CVL).
- Members Voluntary Liquidation (MVL).
- Company Voluntary Arrangement (CVA).
- Individual Voluntary Arrangement (IVA).
- Winding up petitions.
Who instructs an insolvency practitioner?
The following can instruct an insolvency practitioner:
- A limited company director;
- Creditors that are owed money;
- The Secretary of State; and
- A court when a winding up order has been issued, usually by a creditor that is owed more than £750. At this point, the Official Receiver becomes the appointed licensed insolvency practitioner.
One of the key elements of insolvency practitioner services is that they act on behalf of a company that has entered a voluntary or compulsory liquidation process. They also work with companies to develop rescue strategies if they are struggling with debt, such as a CVA or administration. They work as professional intermediaries throughout the proceedings, often reassuring creditors that financial matters are being resolved.
Insolvency practitioner services – what are they?
If a company is struggling financially and is considered insolvent, the directors should seek insolvency practitioner services to help resolve the problem. This is known as a business rescue procedure, such as administration, and the insolvency practitioner will assess the situation before offering advice on how the company may be able to avoid liquidation.
However, if it is not possible to avoid liquidation, the insolvency practitioner is instructed to act on behalf of the company in respect of their insolvency proceedings. Part of an insolvency practitioner’s role is to maximise returns on behalf of creditors – get as much as they can from the sale of assets – and 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 the Insolvency Act 1986. This requires them to:
- Step into the role of the directors to run the company as part of a business rescue procedure, such as administration, or take over in a liquidation process. They must also investigate and report on the directors’ conduct within the first 3 months of the liquidation process.
- Analyse how and why the company became insolvent and report to the creditors.
- Handle any complex legal claims, such as the actions of parties that contributed to the insolvency situation.
- Act as an intermediary between creditors and debtors, negotiating any potential repayment solution in order to avoid insolvency or liquidation.
An insolvency practitioner will undertake several different roles:
- Administrator – the insolvency practitioner will take control of the day-to-day activities and operations. Creditors are not allowed to take any action at this point. The insolvency practitioner will present a proposal to the creditors with options for rescuing the company from liquidation, which would be a better outcome for all concerned. Sometimes, the insolvency practitioner will recommend a pre-pack administration whereby the company’s directors and shareholders can purchase assets, or the company itself, to trade as a new company. This is called a ‘newco’.
- Liquidator – the insolvency practitioner acts as the liquidator and takes control of the company’s assets, which are sold at market value and the monies raised are distributed to the creditors on a predetermined basis according to the Insolvency Act 1986.
- Provisional liquidator – with a compulsory liquidation, an insolvency practitioner is able to act as a provisional liquidator until an official receiver has been appointed by the court. This makes sure that any company assets are protected on behalf of the creditors.
- Administrative receiver – a secured floating charge creditor, such as a bank, is entitled to instruct an insolvency practitioner to act as an administrative receiver on their behalf to recover money owed to them. They do not have any duty to any other creditors; they are only to realise specific assets in order to pay the secured floating charge creditor.
- Supervisor in a voluntary arrangement – when a company enters into a CVA, an insolvency practitioner acts as the supervisor. They make sure the agreed monthly payments are distributed to the creditors in accordance with the CVA’s terms. They also act in this way for Individual Voluntary Arrangements (IVAs); the only difference being they are dealing with an individual and not a company.
It is the responsibility of the Secretary of State in the UK to oversee the insolvency industry. However, there are various recognised professional organisations that are authorised to licence insolvency practitioners and their services. They are:
- 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 Northern Ireland.
For any individual or company that is in excessive debt, i.e. are insolvent, or experiencing financial problems, insolvency practitioner services will offer practical advice, often suggesting potential solutions to the problem and avoiding liquidation.
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. If you are struggling with debt, contact Simple Liquidation for assistance. For more information on how our professional insolvency practitioners may be able to help your business, contact us today.