Unfortunately, the number of people suffering from financial difficulties in the UK is growing every month. On top of the usual ebbs and flows of the market, the British economy has been hit by a number of unexpected factors. With living costs higher than ever, a lot of businesses and individuals will have no option but to declare themselves insolvent.
Insolvency occurs when a business’ liabilities outweigh its assets. A company can also declare itself insolvent if it’s unable to pay its due debts. There are a number of ways in which a company can deal with insolvency, from liquidation and CVAs (Company Voluntary Arrangements) to administration. An insolvency practitioner is the person in charge of overseeing these processes.
What is an insolvency practitioner and when do businesses need them?
In a few words, an insolvency practitioner (or IP) works on behalf of companies and individuals facing insolvency or acute financial difficulties. Their main aim is to provide financial guidance to struggling businesses and lead them to the best possible outcome. Insolvency practitioners can be appointed by a struggling company’s director, by the company’s creditors and even by the courts.
Insolvency practitioners are part of a regulated industry overseen by government-approved Recognised Professional Bodies (RPBs). Under the provisions of the Insolvency Act 1986, only licensed insolvency practitioners can hold office legally in insolvency proceedings. They are monitored by external regulators to ensure that they follow the law. Additionally, all licenced insolvency practitioners must pass their Joint Insolvency Examination Board (JIEB) exams.
Insolvency practitioners work under a strict code that ensures that they’re serving the public interest. This means that their main concern is to make sure that companies pay their outstanding sums back to their creditors. In plain English, they help struggling businesses or individuals to repay the money they owe.
IPs provide an essential service to businesses looking to rescue, restructure or close their assets. Any business facing formal insolvency processes, such as liquidation, should hire a licenced insolvency practitioner. This will save them from being embroiled in legal trouble down the line.
What does an insolvency practitioner do?
You can think of insolvency practitioners as professional problem-solvers for companies in financial trouble. As licensed officers of the court, insolvency practitioners take care of a wide array of different duties. They provide an essential service to the global economy, overseeing the progressive closure of insolvent companies and giving creditors their money back. They also provide expert advice on all formation insolvency procedures.
An insolvency practitioner’s tasks depend on what they are appointed to do. Firstly, an insolvency practitioner will talk to a company’s directors through the different options at their disposal. At this point, the main objective is to gauge the viability of a company’s future. If the company could potentially continue trading, an insolvency practitioner will use his financial expertise to restructure the organisation’s assets.
Companies are often held back by accumulated debt. When this happens, they need to restructure through a Company Voluntary Arrangement (CVA). This process is overseen by an insolvency practitioner, who works alongside the organisation’s owners and directors to rescue and restructure a company. The main task of the IP is to draw up a CVA proposal that is agreed to by both the company’s directors and their creditors. Put simply, an insolvency practitioner helping a company through a CVA helps it to restructure its debts and reduce its monthly payments in order to ensure its financial viability.
Administration is another process that insolvency practitioners usually oversee. As with a CVA, the main aim here is to turn things around and rescue a business. During an administration process, companies are put under the management of an IP, who will try to sell the company to an external party. In cases where the administration process is not successful, the court appoints an insolvency practitioner to wind operations down. This was the case for UK travel giant Thomas Cook in 2019 and Debenhams in 2020.
When a company cannot be saved from collapse, insolvency practitioners step in to act as liquidators. Here’s how it works…
Is an insolvency practitioner the same as a liquidator?
Not necessarily. While it is true that insolvency practitioners often act as liquidators, they also carry out certain tasks beyond liquidating a business. For example, an IP might be appointed to rescue a business – not to wind down operations. Liquidation takes place once it has been established that a company cannot be rescued. In that case, the IP takes over as the liquidator and manages the entire process. This entails realising assets for maximum profit and paying creditors back.
During a liquidation process, the IP will take control of the company’s operations to wind the business down. This means that insolvency practitioners often find themselves running a company overnight. First, the IP needs to identify all the assets belonging to a company. In many cases, this also includes tracing and recovering hidden or missing assets.
Once all the assets have been identified, the IP has these independently valued. The goal here is to sell them for the best possible price. The money generated through this sale will go towards repaying outstanding creditors. A licensed insolvency practitioner will liaise with the creditors throughout the process in order to arrive at a satisfactory re-payment plan.
If the creditors agree with the IP’s re-payment plan, all assets will be duly liquidated. Once the outstanding sums have been paid back to the creditors, the company will formally dissolve. This involves having its name removed from the Companies House register. The company effectively stops existing as a legal entity – meaning that any sums owed by it are written off.
Licensed insolvency practitioners at your service
If you or any of your clients at a difficult financial situation, don’t hesitate to contact Clarke Bell. As licensed insolvency practitioners, we offer free business insolvency advice consultations to discuss your circumstances and explain your options. Our team can then work alongside you to work out what the best solution for your business is.
Want to know more? Just give us a call at 0161 907 4044 or email [email protected]