What is an Insolvency Practitioner in the UK?

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An insolvency practitioner (IP) is a professional licensed to advise on and carry out insolvency procedures in the UK.

Their license, skills and knowledge allow insolvency practitioners to instigate and oversee liquidation, administration, voluntary arrangements and any other insolvency matters. Insolvency practitioners work with both companies and individuals facing financial distress, while also offering business growth advice and financial planning to directors looking to avoid insolvency.

In this article, we explore the duties and responsibilities of an insolvency practitioner in the UK, and explain when you might need to hire one.

What is an Insolvency Practitioner?

Insolvency practitioners are licensed to carry out insolvency proceedings in accordance with the 1986 Insolvency Act of the United Kingdom and under the regulations of the UK’s Insolvency Service.

Insolvency practitioners have detailed knowledge and understanding of insolvency processes, such as liquidation and voluntary arrangements. They offer businesses and individuals advice on how to avoid insolvency and remain solvent, or how best to wind down business if insolvency is inevitable.

Insolvency practitioners are also experts in corporate recovery and business turnaround, offering directors and business owners independent and impartial advice that helps businesses to not only avoid insolvency but also to grow and develop for the future.

To have the skills and experience necessary for the job, insolvency practitioners commonly have a background and education in accountancy or law. They can work on their own or, more commonly, are employed to work within an insolvency practice.

In addition to their legal knowledge and understanding of insolvency proceedings and when they need to be enacted, insolvency practitioners often have wide-ranging experience of different sectors in the UK economy, and the political and economic events that can affect them financially.

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Insolvency practitioners are required by law to be licensed. To gain this license, they must pass a rigorous examination set by the Joint Insolvency Examination Board (or JIEB).

What Insolvency Proceedings Can an Insolvency Practitioner Enact?

The main role of an insolvency practitioner is to oversee insolvency proceedings. Insolvency occurs when a business or individual can no longer pay their debts. In the worst-case scenario, insolvency leads to liquidation, when a company or business is wound down and their assets are sold to pay off their debts to creditors.

However, good insolvency practitioners always aim to save the business before liquidating it, and they’ll work with both the struggling business and its creditors to come to financial agreements. To do this, insolvency practitioners have a range of tools and proceedings available to them.

The following proceedings can only be enacted by a licensed insolvency practitioner:

  • Administration and administrative receiverships
  • Bankruptcy (only individuals, not businesses can be declared bankrupt in the UK
  • Company voluntary arrangements (CVA)
  • Compulsory liquidation
  • Creditors’ voluntary liquidation  (CVL)
  • Individual voluntary arrangements (IVA)
  • Members’ voluntary liquidation (MVL)

These proceedings aim to provide the best outcome for the creditors and the business. Ultimately though, the main interest of the insolvency practitioner is ensuring that the creditors receive the money that’s owed to them.

In more practical terms, these proceedings and arrangements result in an insolvency practitioner carrying out the following duties in order to fulfil their responsibilities to their clients:

  • Advising companies and individuals on how to best avoid insolvency or bankruptcy.
  • Advising companies and individuals on how to improve their financial situation or expand their business.
  • Arranging insolvency proceedings and advising on the best measures to take when insolvency occurs.
  • Providing an impartial channel of communication between creditors and their debtors throughout insolvency proceedings. 
  • Negotiating new contracts and debt repayment plans between creditors and businesses.
  • Collecting payments from businesses and individuals, and distributing them to creditors. 
  • Negotiating the best prices and sales terms when selling company assets or winding the company down entirely.
  • Monitoring the progress of insolvency proceedings and providing continued advice through the process to both sides.
  • Creating detailed reports to be filed with the Insolvency Service.
  • Keeping up to date on and complying with regulations set by the Insolvency Act and the Insolvency Service.
  • Investigating company directors to ensure they’ve acted in the best interests of the company.

When Do I Need to Hire an Insolvency Practitioner?

Business owners and individuals need to contact an insolvency practitioner as soon as they realise they’re in financial trouble. If your business can’t pay its debts or is being chased by creditors, you should contact a licensed insolvency practitioner immediately.

In many cases, businesses can be saved if rapid turnaround plans are successfully implemented, but the more time an insolvency practitioner has to work with, the more positive the outcome is likely to be. Business owners or directors often wait until their accounts enter the red, but this delay can result in missed opportunities for insolvency to be avoided entirely.

Businesses can also contact insolvency practitioners in order to receive impartial advice on restructuring the company or planning for long-term solvency, rather than as a last resort to avoid liquidation.

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If your business is facing any of the following problems, you should contact an insolvency practitioner for advice:

  • The business can’t pay its suppliers or make repayments to creditors.
  • Outgoing costs are higher than incoming money.
  • Creditors are chasing the money owed to them.
  • Profits are down and projections show a continued decline in future.
  • Sales figures or turnover are lower than usual.
  • The business is moving into new markets or looking for new opportunities for growth.

How Much Does an Insolvency Practitioner Cost?

The cost of hiring an insolvency practitioner depends on a number of different factors, including the number of hours worked, the length of the project or proceedings, and the number of team members that need to be involved. No company or scenario is ever the same, so costs will vary accordingly. Businesses also need to factor in the cost of legal proceedings and administrative charges for filing insolvency proceedings.

For struggling businesses or creditors looking to reclaim their money, the cost of hiring an experienced insolvency practitioner is always worth the expense, as insolvency practitioners can help to turn businesses around and get payments returned to creditors.

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