23rd November 2021
An insolvency practitioner, or IP, is a licensed professional who is able to act in matters of both company and individual insolvency. An IP can work with directors of distressed limited companies and advise on a range of formal insolvency procedures including Creditors’ Voluntary Liquidation (CVL), Company Voluntary Arrangement (CVA), and Company Administration. They can also provide advice to individuals struggling with personal debt on processes including Individual Voluntary Arrangements (IVAs) and Bankruptcy.
IPs typically work either in the insolvency department of a legal or accountancy practice, or alternatively at a firm specialising in insolvency.
An insolvency practitioner’s exact role and duties vary depending on the nature of the appointment. Insolvency practitioners act as liquidators in shut-down liquidation cases, nominees and supervisors in CVAs, and as administrators for various forms of company administration including trading and pre-pack admins. Essentially, however, an IP will provide advice and guidance to directors and stakeholders of insolvent or otherwise financially distressed companies and once appointed, they will negotiate with creditors, arrange for the valuation and disposal of assets, and ensure outstanding company matters are dealt with in accordance with the Insolvency Act 1986.
IPs can also assist with the closure of solvent companies in order to ensure cash is extracted from the profitable business in the most cost-effective way possible. This is done through a process known as a Members’ Voluntary Liquidation (MVL).
An insolvency practitioner can be appointed by a creditor, the courts, or by the directors of a distressed company. The party who initiates a formal insolvency process is the one responsible for paying the associated fees. If a disgruntled creditor begins insolvency proceedings against a company, the director will be served with a Winding Up Petition (WUP) which will start the process of the company being forced into compulsory liquidation.
In the majority of cases, however, it is the director themselves who consults an insolvency practitioner first, preferring to be in control of the process rather than having it forced upon them. Even if a company director enlists the help of an IP, it must be remembered than they actually work in the best interests of outstanding creditors. While they will provide help, guidance, and assistance to directors of insolvent companies, their main concern will always be to realise the best returns for those the company owes money to.
Costs vary depending on the type of procedure, but expect to pay around £5,000 for a CVL, the most common type of liquidation. This is a one-off fee which will be negotiated before the company is formally placed into liquidation. Costs will typically be met by using company assets, such as vehicles, stock, or the debtor book; however, in instances where assets are either insufficient or non-existent, the directors will be responsible for paying this fee out of personal funds.
Depending on how long the business has been running, and the method by which directors took a salary, they may be entitled to claim redundancy following the liquidation of the company.
CVAs, on the other hand, come with a monthly supervisors fee which lasts the duration of the CVA. This ongoing fee is built into the agreed monthly contribution amount which the company makes as part of the terms of the CVA. As the share taken by the insolvency practitioner reduces the amount left for creditors, it is often the creditors who will agree what the supervisor’s fees will be.
Although some insolvency practitioners start their career in insolvency, many IPs come from a legal or accountancy background. In order to become a licensed insolvency practitioner, an individual must pass a series of gruelling Joint Insolvency Examination Board (JIEB) exams. Currently the exam comprises of two papers, one concerning personal insolvency matters, the other corporate insolvency, both of which must be passed. The exams test an individual’s knowledge of insolvency law and how this is put into practice. Even after passing the exams, hands-on experience of the job must be completed before a license to take insolvency appointments is granted.
Corporate insolvency is a highly regulated industry and every licensed insolvency practitioner is overseen by a regulatory board to ensure professional standards and integrity is upheld. There are several recognised professional bodies which regulate the activities of insolvency practitioners including: Association of Chartered Certified Accountants (ACCA), Insolvency Practitioners Association (IPA), Institute of Chartered Accountants in England and Wales (ICAEW), Institute of Chartered Accountants in Scotland (ICAS).
Insolvency practitioners are subject to regular inspections by their licensing body. Typically taking place over a number of days, during the inspection a selection of randomly chosen current and past cases will be thoroughly assessed and recommendations for improvements given where necessary. Should the IPs work be deemed to fall below the required standards, their license can be revoked.
If you are considering liquidating your company, or are seeking insolvency advice, it is vital you use a licensed insolvency practitioner. There are some unscrupulous firms who offer insolvency advice despite not being appropriately qualified to do so. Be aware that anyone can call themselves an insolvency adviser or insolvency expert; however, only those who have passed the JIEB exams can legitimately call themselves a licensed insolvency practitioner.
Before appointing an insolvency practitioner check their qualifications and awarding body number to ensure you are using a fully licensed and regulated IP who is appropriately qualified to do the job. You can quickly verify you are choosing a licensed insolvency practitioner by entering their details on the Insolvency Service website. Any IP will be more than happy to provide you with the necessary details so that you can validate their qualifications; be wary if you are met with resistance when seeking this information.
As well as letting you confirm the credentials of an insolvency practitioner, the Insolvency Service website also lets you search for and find a licensed IP near to you. Alternatively you may be given a recommendation by your solicitor or accountant if they have an existing working relationship with a local insolvency practitioner. You can also search online to find a reputable insolvency firm. As always, caution should be exercised to ensure you are enlisting the services of a qualified professional even if they have been recommended to you by a trusted source.
With over 70 licensed insolvency practitioners operating across more than 100 offices up and down the country, Real Business Rescue are perfectly placed to provide the advice and guidance you need if your company is facing financial distress. Contact our team today on 0800 644 6080 to arrange a free no-obligation consultation with one of our licensed insolvency practitioners in your local area.