What is an Insolvency Practitioner?February 6, 2020
If your business is in acute financial distress, your first port of call should be a licensed insolvency practitioner.
Insolvency practitioners are licensed and authorised to provide advice and act in relation to an insolvent individual, partnership or company. They also work with businesses to restructure to avoid insolvency altogether.
There is no ‘one size fits all’ way to deal with insolvency, either for individuals or businesses, and it is the task of an insolvency practitioner to advise on the best course of action for each.
This could include assessing an individual’s suitability for things like Individual Voluntary Arrangements (IVAs), Trust Deeds, Sequestration and Bankruptcy. Our main aim, however, is to ensure the continued survival of the business.
But insolvency practitioners also advise and act on a number of formal insolvency procedures for businesses. These include Company Voluntary Arrangements (CVAs), liquidation, administration and receiverships.
In this article we’ll take a closer look at the role of an insolvency practitioner in business and what things you should be looking out for when you decide who to approach.
What does an Insolvency Practitioner do?
As we’ve suggested already, insolvency is a complex issue and the methods of dealing with it are multifarious. However our duty, first and foremost, is to maximise the chances of business recovery.
Unfortunately, when you ask most people what the role of an Insolvency Practitioner is, it’s likely they’ll use examples of high-profile cases where they have stepped in to dismantle a business and re-distribute the money raised from the sale of assets to creditors. It’s liquidation cases and job losses that make the headlines, after all.
While they’re technically not wrong, the role of the insolvency practitioner is actually incredibly varied.
Generally, an insolvency practitioner will advise directors and stakeholders of insolvent or financially distressed companies on the ways to maximise the chances of business recovery, negotiate with creditors, arrange for assets to be valued and disposed of and ensure that company matters are settled in accordance with the Insolvency Act 1986. They may act as supervisors in CVAs, liquidators in liquidation cases, and as administrators in trading or pre-pack administrations.
Despite the name, an insolvency practitioners’ work does not stop with insolvent companies. They can also be tasked with closing solvent companies and ensuring that the greatest amount of cash is extracted from the business in the most cost effective way. This is achieved through a process known as Members’ Voluntary Liquidation (MVL).
While there are some Insolvency Practitioners that may not have the ability or the desire to do anything other than what is expedient, at 180 advisory solutions, we believe that business rescue should be the number one priority - no matter how long it takes, so we provide advice to businesses to ensure that they avoid insolvency altogether.
Who appoints an Insolvency Practitioner?
An insolvency practitioner can be appointed by company directors, the courts, or even a creditor. It is the responsibility of the party that initiates a formal insolvency process to pay the associated fees.
The company may be forced into compulsory liquidation if a creditor decides to initiate insolvency proceedings. However, in most cases, it will be the director themselves who is the first to consult an insolvency practitioner.
It’s worth noting that, no matter who initiates the formal insolvency process, the insolvency practitioner works in the best interests of the creditors. They will provide help and guidance to directors, but their main duty is always to realise the greatest returns for creditors.
What qualifications does an Insolvency Practitioner have?
Many licensed insolvency practitioners will have accountancy qualifications such as ACCA, ACA, or CIMA. However, these are not a prerequisite, and an accountancy qualification does not mean you are qualified to work as an insolvency practitioner.
To qualify as a licensed insolvency practitioner, an individual will need to pass a series of exams set by the JIEB, or Joint Insolvency Examination Board. These exams consist of two papers which assess the candidate’s knowledge of both personal and corporate insolvency law, and how effectively they can apply this to real-world scenarios. JIEB exams are extremely demanding and require a strong working knowledge of insolvency to pass.
Once a candidate has passed the exams, they must then gain sufficient hands-on experience before they are granted a license to take insolvency appointments.
Before consulting with an insolvency company, check that they have a licensed IP themselves. If they don’t, they may be looking to refer you elsewhere and could charge a fee for doing so.
How much does a licensed Insolvency Practitioner cost?
The cost of employing a licensed insolvency practitioner will vary depending on the type of procedure and the amount of time and work involved. The cost will be met by using company assets, such as vehicles, stock, or the debtor book. If assets are either insufficient or non-existent, the directors will be responsible for paying this fee out of personal funds.
In a CVA, you should expect to pay a monthly supervisor’s fee which will last for the duration of the CVA. This fee is part of the agreed monthly contribution which the company makes under the terms of the CVA.
Insolvency Practitioners will generally offer an initial free consultation and thereafter before you decide to engage their services you should obtain a detailed fee quote from them.
Are Insolvency Practitioners regulated?
Insolvency is a highly regulated industry. All insolvency practitioners must adhere to the Statements of Insolvency Practice and a code of ethics.
Licensed insolvency practitioners are overseen by one of a number of recognised professional bodies to ensure they maintain professional integrity. These include: the Institute of Chartered Accountants in Scotland (ICAS), the Institute of Chartered Accountants in England and Wales (ICAEW), Association of Chartered Certified Accountants (ACCA) and the Insolvency Practitioners Association (IPA).
The relevant authorising body will conduct regular inspections, usually over a number of days. During this time, they will assess the handling of a number of randomly selected current and previous cases, providing recommendations for improvements where necessary. If an insolvency practitioner’s work does not meet the required standards, their license to practice may be revoked.
What should I look for in an Insolvency Practitioner
Whether you’re tentatively seeking advice or looking to liquidate your company, it is vital that you only approach a licensed insolvency practitioner. Unfortunately, not all firms who describe themselves as ‘insolvency advisers’ or ‘insolvency experts’ are qualified to offer insolvency advice. Only those who have passed the JIEB exams can call themselves a licensed insolvency practitioner.
You’ll be able to check if an insolvency practitioner is appropriately qualified using the Insolvency Service Website.
When should I contact an insolvency practitioner?
An insolvency practitioner is often appointed when stress is high and directors find their position is no longer tenable.
However, an insolvency practitioner could be of much greater value if you seek advice earlier on. This way, you’ll give your company the best chance of survival. You may have a greater range of options available to you, including coming to an informal Time to Pay (TTP) agreement with your creditors, or a more formal agreement such as a CVA, which are more likely to lead to business rescue. If you leave it too late, a shutdown liquidation may be the only realistic option you have left.
How can I find a licensed Insolvency practitioner?
You may receive a recommendation for an insolvency practitioner from your accountant or solicitor, but you should still be vigilant and ensure the practitioner that you have been referred to is licensed and able to take insolvency appointments.
If you decide to search for an insolvency practitioner online, the government database will allow you to filter by location or check the credentials of an insolvency practitioner that you have found elsewhere.
Seeking professional advice from a licensed insolvency practitioner doesn’t have to be a last resort. The earlier you get in touch, the greater the chance of your company’s survival.
At 180 Advisory Solutions, we prioritise rescuing and restructuring companies so that they can avoid insolvency altogether. We have years of experience in helping SMEs with large company debts or cash flow problems that are dealing with pressure from HMRC and other creditors.
For an initial consultation, or for more information on our services, get in touch now.