If your business has been deemed insolvent via either the cash flow test or the balance sheet test, you’ll likely be wondering what the next step is for your business. You might well have heard about insolvency practitioners and their role in the next steps, but aren’t entirely sure what the need for them is, and what they do once they’re in your employ. Well, to help clear things up we’ve put together this very brief and wholly incomplete guide to some of the requirements and duties of an insolvency practitioner within the United Kingdom. Please note that this guide is for the use of UK businesses only.
Firstly, it has to be stated that within UK law that if you are undergoing formal insolvency procedures you must appoint an insolvency practitioner. These practitioners must be licensed and authorised for work and are monitored by regulators to ensure they uphold the law and respect the rules put in place for insolvent businesses. Most IPs have a background in accountancy or are also practicing accountants, and so have an excellent grasp of bookkeeping. Having somebody who is not a licensed act as an insolvency practitioner act as one is against the law and legal proceedings will be taken against you.
When you do hire an insolvency practitioner, they have several duties that they must uphold. Chief amongst these is to attempt to rescue your business. Before anything else, an IP will study your books and negotiate with your creditors to see if there’s any way that your business can be saved from insolvency. This may include selling off many of the businesses assets in order to repay debts, but if it’s possible an insolvency practitioner will always attempt to rescue your business.
Should they be unable to do that, an IP will aim to sell the assets of your company, collect any money that may be due to your company (with the power of the law behind them), discuss and agree creditors’ claims and distribute the remaining money collected after paying all the costs. Though the insolvency practitioner is under your employ, their main interest will be in looking after the interests of the creditors and ensuring that they are paid in full.
These are the primary duties of an IP, but they will also consult with you heavily and perform a myriad other services whilst working for your business. Remember, no IP is there to do harm to or cause damage to your business, so giving anything other than total access to your records is never recommended.