The duties of an insolvency practitioner (IP) are wide and varied to suit the number of roles they can take on when dealing with individuals and businesses that require help. They offer advice regarding all aspects of insolvency including business finance and turnaround procedures.
IPs mainly work with insolvent individuals and companies and those who are struggling with their cash flow. The main obligation of an IP is to the creditors of the company or individual, regardless of any competing interests which may arise. As a result, in the case of a business they will endeavour to try and rescue it wherever possible.
The statutory regulations of the Insolvency Act 1986 and Insolvency Rules 1986 will be followed and complied with by all licensed IPs throughout their work.
An IP’s duties include:
- Providing professional advice to try to prevent insolvency
- Negotiating with the creditors, and other parties, of a company or individual
- Realising the assets of a company for the best possible return to creditors after marketing to a wide range of potential buyers
- Carrying out all statutory duties as required by law
- Providing regular reports to creditors on the progress of insolvency procedures.
- Investigating company affairs and director conduct, where necessary, and file a report to the Insolvency Service.
An IP can hold different roles dependent on the company’s circumstances and what process would produce the best outcome for the creditors of that company.
The different roles an IP can hold are:
In an administration, the IP acting as administrator will take control of the day-to-day operation of the business. During a period when the company is protected from creditor action, the liquidator will prepare a proposal to put to creditors which should rescue the company and produce a better outcome for the creditors than liquidation.
However, in certain circumstances, it may be a better outcome for creditors and other parties to arrange a pre-pack administration. This is where the directors and/or investors have the opportunity to purchase the business/assets and continue to trade through a new company.
The administrator must be satisfied that a pre-pack is the best option for creditors than any other procedure.
During the process of a liquidation, the liquidator takes control of the business assets. These will be realised and funds will be distributed to creditors on a pro-rata basis depending on how much they are owed, and then the company will be closed. The liquidator will also have a duty to investigate the conduct of the director(s) for the three years leading up to the insolvency.
A members voluntary liquidation (MVL) sees a solvent company being liquidated. The liquidator will go through a very similar procedure as an insolvent liquidation, realising company assets and distributing the funds amongst creditors and letting go of all assets. They will then distribute the remaining funds amongst shareholders after taking their fees. However, the process of realising assets can be carried out by directors themselves, with the duties of an IP limited to just closing the company. In the case of an MVL there is no investigation of the conduct of the directors.
A provisional liquidator will occasionally be appointed in a compulsory liquidation before a liquidator is appointed formally by the court. These are situations where there is concern that assets may be dissipated. Cases often involve instances of fraud or director misconduct. His duty is to ensure the assets of the company are not removed prior to the business being forcibly wound up and safeguarding creditor interests.
An administrative receiver is appointed on behalf of a creditor, secured by a floating charge holder such as a bank, to act on behalf of them when collecting the money which is owed to them. These are fairly rare as administrative receivers can only be appointed by debenture holders where the charge was created prior to the 15th September 2003.
The administrative receiver will realise the assets in question to pay the secured creditor. They will not have a duty to any other creditors of the business regardless of their financial position with them.
Supervisor in a voluntary arrangement
When a company enters into a company voluntary arrangement (CVA), an IP will be appointed as supervisor to ensure the terms are met and the monthly payments are distributed to creditors as agreed.
Individual Voluntary Arrangement (IVA)
Much like a CVA, an IP will carry out the same set of duties when carrying out an IVA. They will be appointed supervisor and will agree terms with the creditors involved. The main difference between the duties involved, is simply dealing with an individual as opposed to a company. They will ensure that all monthly payments are distributed amongst creditors.
An insolvency practitioner can perform a number of different functions across a variety of different jobs. IPs can act as both liquidators and administrators, covering all the different roles that are required of them. They have a huge amount of experience in dealing with individuals and businesses facing difficult financial situations.
How we can help
If you think you may need the services of an insolvency practitioner personally or believe your company may need financial help, it’s important to act quickly. We operate nationwide, offering face-to-face consultations helping businesses turnaround and recover.