What is an insolvency practitioner?

If your limited company is struggling right now and may have to close down, you will come into contact with an insolvency practitioner. But what is an insolvency practitioner? In this article, we’ll explain exactly what they do and how they can help.

An insolvency practitioner is a person in the UK who is licensed to help businesses and individuals with debt problems. They may be called liquidators or IPs, short for insolvency practitioners.

How many insolvency practitioners are there in the UK?

There are not many insolvency practitioners in the UK. Considering there are 5.5 million businesses and 67 million people, there are only around 1,500 licensed insolvency practitioners, and not all of these are currently practising. Each insolvency practitioner must adhere to the rules set out in the Insolvency Act by the Insolvency Service.

What are the liquidation options?

There are three types of liquidation available depending on your company’s circumstances. For solvent companies, who can afford to pay debts on time, the method is called a member’s voluntary liquidation, or MVL.

There are two options for insolvent companies that cannot pay their debts when they fall due. Insolvent company liquidations can include a creditors voluntary liquidation (CVL) or a compulsory liquidation. Knowing what’s best when your company is in financial distress can be challenging, but we’re here to provide advice for all insolvency proceedings.

These liquidation methods have advantages and disadvantages, and whether or not you can use them depends on several factors. We can look at your situation and advise you on the most appropriate method. Licensed insolvency practitioners must complete all liquidations. Here are some signs that you need a new insolvency practitioner.

What does an insolvency practitioner do?

If a business is insolvent and must be liquidated or rescued in a company administration or CVA (Company Voluntary Arrangement), then a licensed insolvency practitioner/licensed IP must be appointed to oversee the proceedings.

Once appointed, an insolvency practitioner is duty-bound to represent the interests of the company’s creditors. They have a strict code of conduct that must be adhered to, and they have regular compliance checks to ensure these standards are being upheld.

When choosing an insolvency practitioner, ensure an authorised regulatory body regulates them. There are several recognised professional bodies, including the following:

  • Insolvency Practitioners Association (IPA)
  • Association of Chartered Certified Accountants (ACCA)
  • Institute of Chartered Accountants in England and Wales (ICAEW)
  • Institute of Chartered Accountants in Scotland (ICAS)

What is the role of the insolvency practitioner?

The role of an insolvency practitioner is to look at all the options of an insolvent company to make sure the most appropriate solution is used. A licensed insolvency practitioner will be required to fulfil different jobs depending on the type of liquidation used. Some of the jobs included in an insolvency practitioner’s role include the following.

  • Find ways to pay creditors for the distressed company
  • Sell any company assets
  • Support limited companies in financial distress by assisting with liquidation methods
  • Handling disputes
  • Dealing with creditor pressure

The insolvency practitioner’s role involves assessing your financial affairs and attempting to find money to pay back creditors that your company owes money to.

what is an insolvency practitioner

1. What is the role of insolvency practitioners in a Members’ Voluntary Liquidation (MVL)?

Before deciding to enter into the MVL procedure, you should speak with a tax specialist to ensure that this is the best course of action for your business from a tax perspective.

Once you have done this and you are confident that you want to proceed, please contact us, and we will guide you through the process and let you know what is involved.

We will then prepare all the relevant documents, including the statutory declaration of solvency, which will need to be completed before an MVL can take place.

Following the dissolution of the company and after your duties as a director have been removed by the insolvency practitioner, then payments will be made to you and the shareholder once they have been received.

2. What is the role of a liquidator in a Creditors’ Voluntary Liquidation (CVL)?

In a CVL, the liquidator will handle all aspects of the liquidation process, including the following:

  • Completing and filing all the relevant documentation
  • Considering claims from creditors and processing them
  • Organising the creditors’ meeting
  • Investigating the conduct of the company director for the period before the liquidation
  • Realising the company assets and then turning them into cash to be distributed to the creditors (once the liquidator’s costs and fees have been paid)
  • If applicable, help the company’s employees to claim any payments to which they may be entitled, including redundancy, unpaid wages, holiday pay and payment in lieu of notice

You can find out more about Creditors’ Voluntary Liquidation here. As with other liquidation processes, you will need to choose from insolvency practitioners regulated by a specific board.

insolvency practitioner role

3. What is the role of a licensed insolvency practitioner in compulsory liquidation?

In a compulsory liquidation, the insolvency practitioner will handle the entire process. These formal insolvency procedures include using a winding-up petition and an official receiver. Licensed insolvency practitioners will take care of the following:

  • Consider all claims from creditors
  • Sell/realise assets
  • Pay dividends to the company’s unsecured creditors (provided there are sufficient funds available once the assets have been sold and all costs and fees have been settled). Find out more about the order of payments in liquidation.
  • Investigate the company directors for the period before facing insolvency and financial distress
  • Assist with any claims from employees (the same as in the CVL above)
  • The liquidator will also be able to bring and defend legal proceedings concerning the company.

It’s important to note that once your company enters compulsory liquidation, your powers as a director will stop immediately, meaning that you will no longer be in control of the business or any of the company’s assets or property relating to it. However, you must still comply with your responsibilities as a director, including acting in the best interests of the company’s creditors.

In addition to the above, each insolvency practitioner is required to report their findings back to the insolvency service after the liquidation. These findings will include information on your actions as a director for three years leading up to the company’s failure.

By taking professional advice early, you are acting within your director’s duties in insolvency. This means there may be other options that are available to the company. It can also mean that you benefit from less director scrutiny during the liquidation process as you have acted quickly and in the best interest of your creditors.

insolvency practitioner tips

Tips for appointing an insolvency practitioner

It’s important that you gather all of the facts before officially appointing an insolvency practitioner. This means ensuring that they have checked all aspects of your business before they start the insolvency procedure. This includes checking for things like an overdrawn director’s loan account and a bounce-back loan.

While you need to make sure that everything has been checked, you also need to ensure that you act quickly. If you take insolvency advice and then do nothing for six months, you’re not acting within your director’s responsibilities. This will reflect poorly on you during the insolvency process. As soon as you notice your company becoming insolvent, seek business debt advice.

The insolvency practitioner cost will vary due to offering different levels of service. It’s best to consider these options carefully before entering a formal insolvency process. You should be wary of cheap liquidation costs as they can often cost more in the future. Try and find a middle ground with insolvency specialists and ensure it covers everything you need.

As we mentioned, you must find an insolvency practitioner licensed by one of four bodies: IPA, ACCA, ICAEW or ICAS. These are recognised professional bodies for insolvency practitioners. You must ensure that they have an insolvency licence before they begin looking into your company’s affairs.

Lastly, make sure that you get all liquidation costs in writing. This can help cover you later if you are asked for more money by insolvency practitioners.

Insolvency Practitioner FAQs

How does one become an insolvency practitioner?

To become an insolvency practitioner, you will need to seek some experience. After this, you need to complete the exams created by the Joint Insolvency Examination Board. Once you pass these three exams, you can obtain your licence. The correct licence will depend on the area in which you are practising. The Joint Insolvency Examination Board (JIEB) is widely recognised.

How can an insolvency practitioner help my business?

An insolvency practitioner can help you to understand your options. In some cases, they may suggest that business recovery is the best option, but for others, closure may be the most beneficial. Their role is to take care of the whole liquidation process after they have been appointed.

How much does it cost to engage an insolvency practitioner?

The cost of the insolvency practitioner varies depending on experience, your circumstances and location.

A small liquidation with minimal creditors is likely to cost around £4000 plus VAT. Those with higher debts and more creditors are likely to spend more on liquidation for limited companies.

You should avoid the cheapest liquidation offers, as they are usually too good to be true. Ensure that your liquidator has assessed every aspect of your company and financials before you appoint them. Any debts you owe, such as your director’s loan, will be included in the liquidation price.

We hope this article has been helpful and has answered the question of what is an insolvency practitioner. We offer confidential, director-focused advice for business recovery, liquidation and all company closure solutions.

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I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.

I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors. 

I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice. Check it out here:

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