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The Lowdown on Insolvency Practitioners

When dealing with insolvency, it’s necessary to bring in the services of an insolvency practitioner to oversee the formal aspects of the process. This is a role defined in law, and not something that can be done by just anyone.

Who Can Be an Insolvency Practitioner?

Insolvency practitioners are a regulated profession as defined by the Insolvency Act of 1986. Only a licensed practitioner is allowed to oversee the insolvency procedures for a business in the UK. Many insolvency practitioners come from legal or accountancy backgrounds, but there are options for direct entry to the role as well. Anyone who practices in this area needs to have passed their JIEB (Joint Insolvency Examinations Board) exams.

Once the exams are passed, it’s necessary to become licensed by one of a group of professional bodies, which include the Institute of Chartered Accountants, the Association of Chartered Certified Accountants, the Law Society of Scotland, and the Insolvency Practitioners Association.

What Do Insolvency Practitioners Do?

The range of duties undertaken by an insolvency practitioner in relation to insolvent individuals or companies is wide. However, their principal duties and loyalties lie with the insolvent entity’s creditors.

This may not necessarily be all about closing a company down. Sometimes the insolvency practitioner might be charged with negotiating a survival deal with the creditors in order to rescue the company. At the other end of the spectrum, they may be called upon to run the company prior to closing it down. Alternatively, the practitioner’s role may just be to offer advice to a company experiencing difficulties or act as a full-blown liquidator.

A Duty of Care

It’s in the nature of the job that insolvency practitioners are often dropped into high-stress situations. Their defined responsibilities are largely legal and financial, but there’s a human side to the role as well. They need to balance the interests both of the creditors and the debtors in order to reach the most satisfactory conclusion.

In practice, the primary aim of insolvency practitioners is to obtain the best price for company assets and the maximum recompense for the creditors. They will, where possible, seek to sell off the company as a going concern, as that is usually the way of achieving the highest value from the transaction. But, if this fails, they’ll need to sell off the assets piecemeal.

Once disposal is complete, it’s the insolvency practitioner’s duty to investigate the affairs of the company and its directors in order to establish what went wrong, and apportion blame if necessary.

Who Do I Call?

Your company needn’t be at death’s door to require the services of an insolvency practitioner. Indeed, it’s better for all concerned to get some assistance before insolvency becomes a problem. It’s always better to act prematurely, as delayed action could come back to haunt you after your company’s dissolution.

If things are tight and you’re worried about how long you’ll be able to pay the bills, call Irwin Insolvency and we’ll do whatever we can to help you head off the worst.

How to Identify an Insolvency Scam

Whether you’re a company or an individual, insolvency ultimately leads to an individual voluntary arrangement, company voluntary arrangement, or bankruptcy. Any such end point will protect those in trouble from their creditors, and may result in the creditors losing some of the money they are owed.

Emotional Stress, Bankruptcy, Finance.

For those who have genuinely hit hard times, these are very worthwhile processes that can aid their financial rehabilitation whilst salvaging something for those they owe. Facing insolvency is not pleasant for most of us. For those less scrupulous, the end results may present an opportunity.

Fraudulent Practices

There are several ways in which the insolvency process is open to abuse. The most obvious is when a company attempts to trade while insolvent. Insolvency is a legal state when a company or individual’s liabilities outweigh their assets, and they’re unable to continue paying their bills. Whether or not insolvency has been officially declared, knowingly trading in those circumstances is unlawful. If it’s a company involved, the directors may become personally liable for the debts incurred.

Rise Like a Phoenix

Trading while insolvent is one thing, but there are those who would go to greater lengths to avoid their responsibilities. The mythical Phoenix is a bird that dies in flames, before being reborn out of its own ashes. A phoenix company operates in a similar way.

When a company runs into difficulties, the directors transfer assets and viable business into another company with a similar purpose, in order to continue business as usual. They leave the old company to become insolvent, taking all the debts with it.

The practice of forming a new company out of the ruins of the old is quite legal in the UK, but it can also be used by dishonest directors to avoid paying off creditors, or to sidestep employment legislation.

How to Spot It

Using a Phoenix company as a means of circumventing insolvency is fraud. If assets are removed from the original company shortly before it becomes insolvent, there are fewer resources available to pay off creditors and staff. If you’re owed money by a company that has been declared insolvent, there are things you can do to protect against this kind of action.

Do some research into the directors of the company that owes you money, and look out for any new companies that have been set up in their names. Don’t give up on your claim even if the phoenix company denies liability.

Another sign is if your company has given trade credit to a company that has declared insolvency within a short period afterwards. Be particularly wary if you’re owed money and nobody is responding to any communications you make. This suggests that everyone’s cleared out and moved elsewhere.

If such a situation arises, inform the Financial Conduct Authority or the Insolvency Service promptly.

Not So Sure?

Find out more about all aspects of insolvency by calling Irwin Insolvency. We offer good, impartial advice whether you’re facing difficult financial conditions yourself or dealing with customers who are insolvent.