What is an insolvency practitioner and what do they do?
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In the case of business insolvency, an insolvency practitioner (IP) works on behalf of a business when they fall into financial distress. They will often come into an insolvent, or near-insolvent, situation in the role of an advisor and may first try to provide the director(s) on the best way to turn the business’s fortunes around through restructuring, for example. If this cannot be achieved, they will take on other roles in order to help achieve the very best outcome for the business’s owners, employees and creditors.
This all depends on a number of factors. IPs can be appointed by the courts, after assets have been liquidated by an official receiver, when a business falls into compulsory liquidation. IPs also fulfil the role of liquidator in cases such as these.
A Liquidator is a role that an IP takes on when a business needs to have its assets realised and assigned to creditors appropriately. The creditors range from anyone from the director or the shareholders, to banks, investors, staff and suppliers.
If a business is not yet at this stage, but is in severe financial distress, a company director can appoint an IP directly to help them handle the distressed business. They may act as an administrator in the case of a business falling into distress and may also handle a pre-pack administration to try to raise the most funds from the business for the creditors.
Company directors will look to an IP to help advise them if their business has become so problematic that insolvency or liquidation is on the cards. IPs will assess the options and recommend the best way forward for all involved. In fact, the earlier a director seeks the support of an IP, the more options there will be for recovery.
IPs can help directors negotiate with creditors, whether they be banks or investors, to help arrange solutions such as company voluntary arrangements or members voluntary liquidations. In these circumstances an IP’s job is to oversee the agreement and to make sure that all parties keep to its terms. They will also ensure that the payments made by the business on a monthly basis, for example, are distributed correctly to the creditors, as per the agreement.
There are also other informal options that can help smaller businesses to survive difficult financial times, such as time to pay arrangements, for example.
IPs need to be able to work with everyone from company directors, to vulnerable staff who may be facing redundancy, as well as creditors who will need careful management. They need to be able to perform everything from negotiation of debt repayment terms between director and creditors, such as banks and investors, and offer turnaround knowledge and expertise when in the role of administrator to a business that still has the potential to succeed.
The Association of Business Recovery Professionals states: “The profession is a key part of the UK’s insolvency and restructuring framework, which is ranked as one of the best in the world by the World Bank.” It added that among its members, IPs claim to spend an average of 40 per cent of their time simply trying their best to help businesses avoid insolvency through advising them how to restructure.
Although many IPs hold accountancy qualifications, it is not a requirements to work as an IP. However, there are some essential qualifications required, such as passing the JIEB (Joint Insolvency Examination Board) exams. This is necessary to be a licensed insolvency practitioner. However, businesses can offer advice on these matters without employing licensed insolvency practitioners, so be aware of this if you are looking for a business to help you.
IPs are subject to regular inspection by whichever governing body they belong to. They are all regulated under the 1996 Insolvency Act.
Paying for an insolvency practitioner isn’t always easy if a business is suffering from dire financial distress. However, assets are often sold in order to pay for the services. In the situation where assets are not available, directors sometimes even use their personal cash to pay for the services of the IP. Fees usually run into thousands, or ten of thousands, but if an IP manages to save a business or find a buyer who can turn it around, safeguarding jobs, it can be money well spent.
As part of their role, an insolvency practitioner will often try to realise as much value as possible from a distressed company’s assets by finding buyers for all or various parts of a business in what is called a pre-pack sale or an assets-only deal.
Sometimes businesses will be sold as a going concern to existing directors, and other times they will be sold to buyers who are able to demonstrate their expertise in running such businesses and turning struggling enterprises around.
IPs are tasked with raising as much money as possible from a business in order to pay creditors, but they are also tasked with doing what is best for the business and juggling these two responsibilities isn’t always easy. Finding the right buyer is key, but there will be little by way of due diligence available and a sale will usually go through much more quickly than a standard business sale.
If you are the right buyer, an IP will be a great asset to you when you start the process of buying a business from administration, so maintaining relationships is an important part of a successful deal.