What is an insolvency lawyer?

Is there a difference between insolvency lawyers and insolvency practitioners?

An insolvency lawyer provides guidance to businesses at risk of becoming insolvent, but also to insolvency practitioners conducting statutory insolvency procedures. They also help individuals facing bankruptcy.

An insolvency lawyer might be required to deal with both ‘sides’ of an insolvency process – the issues experienced by the failing business, but also providing advice for company creditors.

Insolvency is a complex issue that, in some instances, involves cross-border transactions, mass redundancies, director misconduct, or fraudulent business activity, but what exactly is insolvency and how does it affect a business?

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What is insolvency and how does it impact a business?

When a company experiences financial decline, there is a danger that it could enter insolvency. On a day-to-day basis, this means that it is unable to pay its bills as they fall due, but from a wider perspective it can also mean that its total liabilities exceeds the value of its assets.

Entering insolvency changes how a business can operate, and triggers specific requirements under UK insolvency law. Initially, the business must cease trade and appoint a licensed insolvency practitioner (IP) for guidance on the next steps. Potentially the IP could take control of the business if it cannot be rescued.

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What does an insolvency lawyer do?

In the case of corporate insolvency, an insolvency lawyer provides advice where necessary, and may take part in formal negotiations with creditors if the company’s debt is to be restructured.

They are typically involved at various stages throughout an insolvency procedure, which might be company administration, for instance, a Company Voluntary Arrangement (CVA), or voluntary liquidation.

An insolvency lawyer’s specific role in an insolvency process largely depends on the type of business – its industry and size, for example, and whether or not it owns assets of significant value.

Commercial awareness, business acumen, and strong communication skills are needed for insolvency lawyers to navigate what can often be a complex situation. So, in more detail, what procedures and measures might an insolvency lawyer be connected with?

Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement is a formal restructuring of a company’s debts, and involves professional negotiations with creditors that may be conducted by an insolvency lawyer. The aim is to obtain agreement for a proposal that reduces the struggling business’ debt repayments. This promotes financial recovery as it frees up working capital, and any debts remaining at the end of the agreement may be written off where appropriate.

Company rescue – additional funding

Flexible financing solutions that are tailored to individual companies or sectors can provide an alternative to traditional bank loans. Applying for a business bank loan can be onerous, and the features of the loan are typically more rigid than alternative finance options provide. An insolvency lawyer can advise on suitable funding options for businesses to help them recover, and typically has professional connections with different types of alternative funders.

Company liquidation

The company liquidation process, Creditors’ Voluntary Liquidation (CVL), results in the business closing down following the sale of company assets. Proceeds from the sale are distributed among creditors in a statutory order, and the company name is then removed from the Companies House register.

For more information on insolvency, please get in touch with our partner-led team at Real Business Rescue. We are business turnaround specialists and can offer you a free, same-day consultation to quickly present your best options if your business is experiencing financial distress. We also operate an extensive network of offices throughout the UK, so you are never far away from professional help.