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What are the duties of an insolvency practitioner?

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What are the duties of an insolvency practitioner?

Reviewed: 4th August 2016

A licensed insolvency practitioner (IP) carries out a wide range of duties in relation to insolvent individuals and companies. Depending on the insolvency procedure they may be required to negotiate with creditors with a view to rescuing the business, or at the other extreme, take over complete control of the company prior to closing it down.

An insolvency practitioner follows the statutory regulations laid down in the Insolvency Act 1986, and the Insolvency Rules 1986, and must comply with Statements of Insolvency Practice.

In essence, an IP’s main obligation is to a company’s creditors, but there are inevitably competing interests in the background.

What roles could an IP hold?

In terms of insolvent companies, an insolvency practitioner could be appointed as:

As an office-holder in a formal insolvency procedure, depending on which procedure is being followed, an IP must liaise and negotiate with creditors, and realise assets. Alternatively, they may simply be required to give professional advice in the hope of preventing insolvency.

General duties of an IP

A licensed insolvency practitioner has a duty to act with reasonable skill and care in carrying out their statutory duties as office-holder. In practice, this could mean achieving the best possible price for assets by ensuring exposure to a wide range of potential buyers, or providing regular progress reports to creditors.

Balancing the interests of debtor companies and their creditors can be particularly challenging, but it is an IP’s duty to ensure that all groups of creditors receive the highest possible dividend using sound commercial judgement.

Investigating the affairs of each company in insolvency is a major aspect of the IP’s work. They must submit a report to the Secretary of State in cases where director conduct has been unfit, or there is cause to suspect wrongful/unlawful trading.   

Specific IP duties as:

 

Provisional liquidator

A provisional liquidator is appointed to preserve the assets of a business prior to it being forcibly wound-up. Their appointment is a safeguard for creditors, and ensures that assets are not removed from the debtor company, although a provisional liquidator does not take part in the realisation of assets.

Liquidator

As liquidator, an IP has a duty to realise company assets, and distribute the funds equitably between creditors. In compulsory liquidation they will take full control of the company from directors, with a view to winding-up the company’s affairs, as well as investigating the conduct of directors in the time leading up to insolvency.

In the case of a Members’ Voluntary Liquidation (solvent liquidation), the IP has a duty to ensure that company funds are correctly distributed among members. Additionally, an IP may arrange meetings of creditors and/or members who vote on whether to accept the proposal for liquidation.

Administrator

One of the duties of an IP appointed as administrator, is to prepare a proposal with one of the following outcomes in mind:

  • Company rescue
  • If this is not possible, to achieve a better outcome for creditors than if the company was liquidated
  • If the previous two options are not achievable, the IP must attempt to realise the company’s property with a view to paying secured or preferential creditors

A pre pack administration offers existing directors the opportunity to purchase the company’s underlying assets, and begin a new business. If this option is appropriate, the IP has a duty to prove the process will achieve the best results for creditors over other procedures, and to demonstrate integrity in all their actions.

Administrative receiver

As an administrative receiver, an insolvency practitioner acts on behalf of a secured creditor such as a bank, and in this role does not have a duty to creditors in general. For debentures created after 15th September 2003, they must realise the asset(s) in question, which is generally property, with the aim of paying the secured creditor in full.

Supervisor of a voluntary arrangement

In this situation, the insolvency practitioner’s duties are to ensure that the terms of a Company Voluntary Arrangement are met, and distribute monthly payments between creditors as agreed.

Real Business Rescue offers independent, confidential advice to company directors. We are part of Begbies Traynor, and specialise in company rescue and turnaround. Call one of the team for a same-day consultation Real Business Rescue provide director advice online, over the phone, or in-person at one of our 55 UK offices or a place of your convenience.


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