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The duties of an insolvency practitioner

The duties of an insolvency practitioner (IP) are wide and varied to suit the number of roles they can take on when dealing with companies that require help and advice regarding insolvency, business finance and business 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, they will endeavour to try and rescue the business where possible.

The statutory regulations of the Insolvency Act 1986 and Insolvency Rules 1986 will be followed and complied with by all IPs throughout their work.  As well as working to the regulations which are in place, our IPs are licensed and regulated by the ICAEW.

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:

Administrator

In an administration, the IP acting as administrator 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.

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Liquidator

In a liquidation, assets will be realised and funds will be distributed to creditors equally. The liquidator will also have a duty to investigate the conduct of the director(s) for the three years leading up to the insolvency.

In a compulsory liquidation, liquidators take complete control of the company from its director(s) in order to wind up and close down the company.

In a member’s voluntary liquidation (MVL) which is a solvent liquidation, the liquidator will only distribute company funds amongst its members as the company should have already ceased trading, let all staff go and sold off its assets.

Provisional liquidator

A provisional liquidator will usually be appointed in a compulsory liquidation before a liquidator is appointed formally by the court. His duty is to ensure the assets of the company are not removed prior to the business being forcibly wound up, safeguarding creditor interests.

Administrative Receiver

An administrative receiver is appointed on behalf of a secured creditor, such as a bank, to act on behalf of them when collecting the money which is owed to them. 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.

If your business is struggling with its cash flow or you need some advice moving forward, get in contact with us on 0800 901 2475 as soon as possible. Our experienced advisers will take the time to understand your situation and point you towards the best solution for your business.

References and further reading

Header image – Company Liquidation Services

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