Insolvency practitioners are those licensed to help insolvent companies (or individuals) facing financial difficulty.
In this article we’ll explore in depth their role and how they can help.
What is an Insolvency Practitioner?
A licensed insolvency practitioner (IP) has a wide range of duties about companies that are struggling financially.
In the first instance, an insolvency practitioner can provide company directors with professional advice in pre-insolvency situations to try and rescue a business and keep it on track. At the other end of the spectrum, where a company is insolvent, an IP could be appointed to take complete control of the company before closing it down.
What is the aim of an Insolvency Practitioner?
The primary responsibility of an IP is to rescue an insolvent company if it is in the best interest of the company’s creditors. Depending on the insolvency procedure, they may be required to negotiate with creditors with a view to rescuing the business. Alternatively, they may take complete control of the company prior to closing it down.
In this case they will:
- Sell company assets to repay creditors;
- Collect money owing to the company from debtors;
- Agree creditors’ claims;
- Distribute the money collected after the costs of insolvency have been paid.
How many Insolvency Practitioners are There in the UK?
As of 2020, there are currently 1735 licensed insolvency practitioners in the UK, not all of whom will be currently working in the role.
How Do I Find an Insolvency Practitioner?
You can use the internet find a licensed practitioner; confer with your accountant, or use the Insolvency Service website here.
How do Insolvency Practitioners Work?
The role of the insolvency practitioner is to act as a professional intermediary in all proceedings. This instils a greater confidence in creditors, including HMRC, and helps to achieve the goal they are working towards. In all roles, the insolvency practitioner is required to abide by a code of conduct that provides professional and ethical guidance. That means they must act with reasonable skill and care when carrying out their statutory duties, and balance the interests of the company with those of the creditors they must work to protect.
Once an insolvency practitioner has determined that a company liquidation is the best course of action, they then administer the procedure and become the liquidator of the company.
What is a Liquidator?
The most important thing to note is that insolvency practitioners and liquidators are not mutually exclusive – they can be one and the same thing. If the company directors decide to liquidate a company, they will have to appoint a licensed insolvency practitioner to undertake the work on their behalf. The directors may decide liquidation is the best course of action after receiving initial advice from an insolvency practitioner.
Once the directors have appointed an insolvency practitioner to liquidate the company, the insolvency practitioner becomes the ‘liquidator’. It then becomes their job to collect and sell the assets of the company, distribute the money to the company’s creditors in a specific order and ensure all creditor groups receive the highest possible dividend.
However, it is not only insolvency practitioners who can act as company liquidators. In a compulsory liquidation, where a company is wound up by the court following a petition by a creditor, an official receiver will be appointed by the court to liquidate the company. In this case, the official receiver can appoint a private insolvency practitioner to act as the liquidator if their skills and resources are required. This is known as a liquidator being appointed on behalf of the Secretary of State. Alternatively, the company’s creditors can vote to appoint their insolvency practitioner to act as the liquidator if they think the IP will better protect their interests.
Who Appoints an Insolvency Practitioner?
An Insolvency Practitioner can be appointed by the following parties:
- Director of a Limited Company
- Secretary of State
- The Courts, following a Winding up Order (in which case the Official Receiver will become the appointed Insolvency Practitioner)
Is a Liquidator an Insolvency Practitioner?
Yes, a liquidator is one role of several which is played by an insolvency practitioner.
In addition, IP’s may be involved in company rescue procedures such as administration or company voluntary arrangement.
How do Insolvency Practitioners Make Money?
IP’s have a duty to be responsible and transparent around their fee structure, and how they charge their time.
Fees are always subject to creditor approval, and are based on either a time cost basis, or a fixed fee.
Read more in our article on insolvency practitioner fees.