If your English company is facing financial difficulties, you might be considering the help of an insolvency practitioner. But what exactly does an insolvency practitioner do, and how can they benefit your business during tough times? Let’s break it down in a friendly and concise manner.
An insolvency practitioner (IP) is someone licensed to assist companies and individuals when they are in financial distress or facing insolvency. They can also help directors of solvent companies who want to liquidate their business and distribute profits. In most cases, company directors voluntarily approach an IP for assistance. However, in cases of compulsory liquidation, the courts appoint an Official Receiver who may later request an IP to take over the liquidation process.
Now, you might wonder if an insolvency practitioner is the same as a liquidator. The answer is no. A liquidator is one of the roles that an IP can assume depending on the situation. In limited company matters, the three main roles an IP undertakes are:
- Liquidator: In both solvent and insolvent liquidations, the IP’s role as a liquidator is to sell company assets and distribute the proceeds to creditors. In insolvent liquidations like Creditors’ Voluntary Liquidations (CVLs), creditors typically include suppliers, banks, and lenders. In a Members’ Voluntary Liquidation (MVL), which involves a solvent company, directors and shareholders are often entitled to the proceeds.
- Administrator: An IP can be appointed as an administrator in both administration and pre-pack administration cases. They work to achieve a better outcome for creditors by arranging a sale of the company or facilitating an orderly shutdown.
- Nominee and Supervisor: In Company Voluntary Arrangements (CVAs), an IP takes on the dual roles of nominee and supervisor. As a nominee, they develop a viable proposal for the CVA, informing creditors about the expected payouts. Once the CVA is approved, the IP becomes the supervisor, overseeing the agreement and monitoring the company’s performance.
You might be curious about the qualifications of an insolvency practitioner. While many IPs have accountancy qualifications, it’s not a requirement to work as an IP. To become a licensed insolvency practitioner, an individual must pass the Joint Insolvency Examination Board (JIEB) exams, which test their knowledge of personal and corporate insolvency law. These exams are challenging, and only those with a deep understanding of insolvency can pass them. Before working with an IP, make sure to verify their credentials and ensure they are licensed.
Insolvency practitioners are regulated under the Insolvency Act 1986 in the UK. They undergo regular inspections by professional bodies like the IPA, ICAEW, and ICAS, all of which enforce strict standards and professional conduct.
The cost of hiring an insolvency practitioner depends on the complexity of the case and the amount of work involved. For a straightforward CVL, you can expect to pay upwards of £5,000. CVAs and administration cases tend to be more time-intensive and incur higher costs. The fees for CVAs are usually deducted from the agreed payment to creditors. In some cases, company assets are used to cover the cost, but if insufficient funds are available, directors may need to contribute personally.
Knowing when to contact an insolvency practitioner is crucial. While many companies seek their help when distress levels become unmanageable, it’s more beneficial to involve an IP at an earlier stage. By contacting an IP during the initial stages of distress, you increase your company’s chances of survival. They can explore a wider range of options, such as negotiating informally with creditors or proposing a formal CVA. If you wait too long, a complete shutdown through a CVL may become the only viable option.
To find a licensed insolvency practitioner, you can ask for recommendations from professionals like accountants or solicitors. However, ensure the referred IP is licensed. You can also search for IPs online or use the government’s database to find or verify their credentials. It’s essential to work with a reputable firm.
In summary, an insolvency practitioner is a licensed professional who assists companies and individuals in financial distress. They take on various roles depending on the situation, such as liquidator, administrator, or nominee and supervisor. IPs undergo rigorous qualifications and are regulated under the Insolvency Act 1986. The cost of their services varies, and it’s crucial to involve them early for the best chance of saving your company. When choosing an IP, verify their credentials and ensure they are licensed.