Insolvency practitioners, also known as IP’s, are individuals authorised to act in relation to an insolvent individual, partnership or limited company.
Licensed insolvency practitioners are often either chartered accountants, or solicitors working within an accountancy or law firm.
In addition to passing specific exams they must be licensed by an authorising body to carry out formal insolvency procedures.
Do I Need an Insolvency Practitioner?
If your company is in financial difficulty, there are two key tests for corporate insolvency.
The balance sheet test for insolvency means listing assets in one column, liabilities in the other. If liabilities is the greater total, you are insolvent and should seek advice.
The cash flow test is even simpler: can you pay your bills when they fall due? If not, you may be insolvent and should equally take advice.
Taking advice from a licensed insolvency practitioner such as ourselves doesn’t commit you to anything. Rather you simply get the opportunity to get a second opinion on your situation, and some impartial advice. IP’s don’t just liquidate companies, it’s worth saying, but are also adept in business recovery and restructuring.
What Does the Role Entail?
Although their role differs slightly depending on the particular type of procedure, an IP’s basic duties are to realise company assets to the best of his/her capabilities for the benefit of creditors.
The role typically involve a number of tasks, including dealing with the insolvent company’s creditors or, in the case of a business rescue procedure such as administration, offering advice as to how the company may avoid liquidation altogether.
Much of their role is investigative, too, as the IP has a legal duty to examine the activities of the company directors to check for the possibility of wrongful or fraudulent activity.
A licensed insolvency practitioner can manage any of the following formal procedures within their appropriate roles:
- Winding up Petitions
- Company Voluntary arrangements
- Creditors’ Voluntary Liquidation
- Individual Voluntary Arrangements
- Members’ Voluntary Liquidation
Insolvency Practitioners’ roles vary widely, depending on the situation of the company they are working with. As well as acting as simply an advisor to limited company directors, their roles include
Liquidator – In the role of the liquidator, the IP facilitates the closing down of insolvent companies and the sale of their assets for the benefit of creditors. Read our full article on what a liquidator does here.
Administrator – IP’s working in the role of administrator will take a detailed look at the company situation with the intention of finding the best outcome for creditors. As an administrator they are looking to turnaround the company via streamlined practices and cost cutting.
Administrative Receiver – As administrative receiver, the IP is working specifically in the interests of of a secured creditor such as a bank with the goal of recouping their debt in full.
Supervisor of a Company Voluntary Arrangement (CVA) – Company Voluntary Arrangements, which are structured payment plans agreed upon by company creditors, require the presence of an IP to formalise the agreement and secure the vote of the creditors. Read our full article here on CVA.
Supervisor of an Individual Voluntary Arrangement – For individuals facing bankruptcy IP’s are able to supervise IVA’s, including reporting annually to the creditors, debtor and the court.
How Many Insolvency Practitioners are There in the UK?
As of 2021, there are approximately 1735 licensed insolvency practitioners in the UK. Not all of these are working in the role, however.
How do Insolvency Practitioners Make Money?
IP’s are paid either as a fixed fee, on an hourly rate, or as a percentage of the money raised to pay creditors what they are owed.
As per SIP 9 (Statement of Insolvency Practice) they have a statutory duty to be fair and transparent in their work., as part of their code of ethics.
The money to pay the IP’s comes from the money which is collected to pay creditors as part of the insolvency process. All of their fees have to be signed off on by creditors, after providing an estimate at the beginning of the procedure.
Who Appoints the IP?
A Licensed IP can be appointed by a company director, company creditors, and even the Secretary of State, in specific cases. How this happens will depend on the specifics of the case.
For example, where the courts have made a winding up order, the Official Receiver will automatically become what is termed ‘the office holder’, meaning the IP in charge of the case.
Who Does an IP Work for?
Although a Licensed IP is often hired by a company director, it’s important to realise that any insolvency practitioner has a responsibility to maximise the return for the company creditors.
In some cases, this means that IP’s often have to investigate the affairs of the very company directors who hired them.
Are Insolvency Practitioners Regulated?
It’s the Secretary of State’s responsibility to oversee the whole insolvency industry in the UK.
Under the Insolvency Act 1986, the principle law governing insolvency services, certain recognised professional bodies are authorised to licence their members as IP’s.
The Insolvency Act 1986 recognises:
- Insolvency Practitioners Association:
- BIS Insolvency Service
- Institute of Chartered Accountants of England and Wales
- Institute of Chartered Accountants in Scotland
- Institute of Chartered Accountants in Ireland
- Association of Chartered Certified Accountants
- Law Society of England and Wales
- Law Society of Scotland
- Law Society of Northern Ireland
What Qualifications do you Need to be a Liquidator?
IPs study hard for many years to obtain the necessary licence to take insolvency appointments. In order to qualify to offer an insolvency service they must pass the JIEB Exams which happen every November.
These challenging examinations are made up of three papers, all of which must be passed to obtain qualification. They cover:
- Personal Insolvency Issues (Individual Voluntary Arrangement)
- Company Administrations
- Company Voluntary Arrangements
Prior to taking the Joint Insolvency Examination Board (JIEB) exams, potential IP’s must first register with one of the professional bodies, such as the ICAEW.
Even after passing, insolvency practitioners in the UK are subject to regular inspection by the relevant professional body usually by a ‘spot check’.
How to Choose an Insolvency Practitioner
Below is a list of traits to try and avoid when selecting an insolvency practitioner for your company:
- Payment of upfront fees without commencing work.
- Poor choice of professional agents, including valuers.
- Lack of responsiveness from the advisor once they have been paid.
- The advisor lacks the knowledge in relation to Redundancy and/or interactions with the Redundancy Payments Office.
- Lack of understanding in advising the directors’ on the full range of options available to the company e.g. Creditors’ Voluntary Liquidation, Company Voluntary Arrangements or Administration.
- Creditors are still phoning as the insolvency advisor has not dealt promptly with the aggressive creditors’ enquiries.
- We are part of an insolvency practice with regulated and Licensed Insolvency Practitioners, so you can be assured of the professional advice at all times.
- We deal with a large number of insolvencies across the UK and our team have many years’ experience.
Insolvency Practitioner vs Liquidator
A company liquidator refers to an appointed licensed insolvency practitioner. It is their role to oversee the liquidation of a company from start to finish.
A liquidator can either be appointed by the shareholders or directors of a company (as in the case of a voluntary liquidation), or by the court (in the case of a compulsory winding up of a company).
A large percentage of directors assume that they need an insolvency practitioner or company liquidator straight away and this may not be the case. Depending on your situation it may be best to address several other aspects of the situation before engaging someone in this role.
Do You Need Immediate, Confidential Help?
Whether you are looking for insolvency practitioners in London, Birmingham, Manchester or elsewhere within the UK, you can speak with one of the team today about your company’s insolvency problems by calling us on 08000 746 757. Alternatively, use our live support feature at the top of the page to get answers fast.