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What is an insolvency practitioner?


What is an insolvency practitioner?

An insolvency practitioner is a licensed business professional offering insolvency services to businesses looking to rescue or close their limited company. This can be achieved in a number of ways including company administration, liquidation, or placing the company into a CVA. Insolvency practitioners can also help individuals looking to resolve personal debt problems.

What is an insolvency practitioner?

An insolvency practitioner is a licensed professional who is able to act in matters of both company and personal insolvency. An insolvency practitioner 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.

Insolvency practitioners typically work either in the insolvency department of a legal or accountancy practice, or alternatively at a firm specialising in insolvency.

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What does an insolvency practitioner do?

An insolvency practitioner’s exact role and duties vary depending on the nature of the appointment. Insolvency practitioners act as:

  • Liquidators in shut-down liquidations
  • Nominees and supervisors in Company Voluntary Arrangements and Individual Voluntary Arrangements
  • Administrators for various forms of company administration including trading and pre-pack administrations
  • Trustees in the bankruptcy of individuals and sole traders

In all cases, however, an insolvency practitioner will provide insolvency advice and guidance to directors and stakeholders of insolvent and financially distressed companies as well as individuals. Once appointed, they will negotiate with creditors, arrange for the valuation and disposal of assets for the benefit of creditors, and ensure outstanding company matters are dealt with in accordance with the Insolvency Act 1986.

Despite their name, insolvency practitioners can also assist with the closure of solvent companies in order to ensure cash is extracted from the business in the most cost-effective way possible before it is closed down. This is done through a process known as a Members’ Voluntary Liquidation (MVL).

Who appoints an insolvency practitioner?

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 enlists the help of an insolvency practitioner. This is to make sure they are in control of the process rather than having it forced upon them.

Even if a company director appoints an insolvency practitioner themselves, it must be remembered than the insolvency practitioner 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.

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How much does an insolvency practitioner cost?

Most insolvency practitioners will offer a free initial consultation which will often include advice as to which insolvency process may be the most suitable in the company's current financial and operational position. If you decide to continue, there are costs involved in appointing an insolvency practitioner which will vary depending on the type of procedure.

As a ballpark figure, you can 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 director redundancy following the liquidation of the company. In some cases this could help cover the cost of the liquidation.

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.

What qualifications does an insolvency practitioner have?

Although some insolvency practitioners start their career in insolvency, many insolvency practitioners 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 testing on personal insolvency matters, the other corporate insolvency. 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.

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Are insolvency practitioners regulated?

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 an insolvency practitioner's work be deemed to fall below the required standards, their license can be revoked.

What should I be looking for when choosing an insolvency practitioner?

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.

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How do I find an insolvency practitioner?

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 insolvency practitioner 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.

How Real Business Rescue's insolvency practitioners can help

With over 70 licensed insolvency practitioners operating across offices across the nation, 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.

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Still unsure whether liquidation is right for your company? Don't worry, the experts at Real Business Rescue are here to help. Our licensed insolvency practitioners will take the time to understand the problems your company is facing before recommending the best course of action going forward based on your own unique circumstances.

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