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What is an Insolvency Practitioner

12th December, 2023
Categories:

Written ByEric Walls MIPA FABRP

Director of Insolvency and Turnaround

Eric is a licensed insolvency practitioner regulated and licensed by the Insolvency Practitioners Association. His ethos is always "give the right advice, choose the right options, rescue first if possible." He has many years’ experience in accounting and insolvency having worked at Touche Ross (Deloitte) and has been involved in turnaround and insolvency since the late 80's.
Keith and Eric first met in a pub in Darlington in 2000(!) and have worked closely ever since, with Eric as a partner in Marlor Walls and now a director of KSA Group.
Eric has acted as nominee and supervisor of over 350 CVAs in that time and knows the pressures and difficulties of that approach on all parties involved in making the effort for a successful rescue of the business.
From smaller “family owned” companies, to businesses with a turnover exceeding £20 million, a CVA can prove an invaluable rescue package, securing not only a better return for creditors than might otherwise be generated, but also allowing the business to survive and to continue to work with its trusted suppliers.

Eric Walls MIPA FABRP
board meetings

Content

  • Should I appoint an Insolvency Practitioner?
  • What are the roles of an insolvency practitioner?
  • What are the qualifications needed to be an insolvency practitioner?
  • How can I find an insolvency practitioner?

An Insolvency Practitioner (IP) is a professional who is authorised, and licensed, to act in the interests of an insolvent company, partnership or individual.  In respect of a company, they aim to either rescue it or wind it down in a fair manner to maximise the interest of all the creditors according to the law.  They carry out their work in accordance with the Insolvency Act 1986 and the rules of their regulatory authority such as the Insolvency Practitioners Association (IPA),  the ACCA, ICAEW, or the ICAS.

Should I appoint an Insolvency Practitioner?

Directors are most likely to get in touch with an insolvency practitioner if they are worried about the financial situation of their company.  They may face serious legal threats from suppliers, banks, HMRC, and may even face petitions to wind their company up. It might be that bailiffs have visited the registered office.

An insolvency practitioner may also be appointed by the court, where a petition to wind the company up has come from a creditor.  In addition, a secured creditor, such as the bank or factoring company, can appoint an insolvency practitioner as an administrator i.e. put the company into administration resulting in you losing all control.

So, it is generally advisable to seek the services of an insolvency practitioner as soon as you are aware that your company is insolvent.  If you are not quite sure if this is the case, then read our Insolvency tests page.

 

What are the roles of an insolvency practitioner?

Liquidator

Once a liquidator is officially appointed, they oversee the closing down the business and investigating the circumstances that led to the company’s insolvency.

Their main purpose is to convert any remaining assets into cash and pay as many creditors as possible with those funds, hoping to pay dividends too. However, some creditors may not see a return due to liabilities that outweigh the financial worth of the remaining assets. Liquidators ensure creditors are all treated in accordance with their legal rights.

A liquidators role involves a variety of tasks: arranging meetings, completing paperwork and investigating the directors’ conduct.

Administrator

When a company goes into administration, the insolvency practitioner effectively runs the company for the benefit of the creditors.  They will try and sell the business assets. If there are no takers, then they will wind down the company.  Administration’s primary aim is rescue and it needs to have a better result than liquidation for the creditors as it is a complex and more costly process.

Nominee and Supervisor of a company voluntary arrangement.

A company voluntary arrangement (CVA) is an insolvency process that allows a company to pay off a proportion of its debts over an extended period of 3-5 years.  The arrangement must be agreed by the creditors.  The role of the IP as a nominee is to ensure that the proposed CVA is “fit, fair and feasible.  As such they need to be satisfied that the company has a reasonable prospect of rescue and can afford the payments to the creditors.  As supervisor, the insolvency practitioner is responsible for collecting the payments from the company to pay back the creditors, known as a dividend.  If the company cannot pay, then the supervisor will wind up the company as liquidator.

What are the qualifications needed to be an insolvency practitioner?

An insolvency practitioner will have passed the Joint Insolvency Examination Board (JIEB) exams which are known to be very tough.  Due to the financial nature of insolvency most practitioners will have extensive experience as an accountant and may well be qualified either by the ACCA, ACA and CIMA.  One particular reason why insolvency practitioners need to be well qualified is that it should be remembered that an IP acts in their personal capacity when dealing with insolvent companies.  They are not protected by the company they work for.  When taking appointments they have to take out an insurance policy to protect creditors from losing out if they are negligent or criminal.

How can I find an insolvency practitioner?

Most insolvency practitioners work at a firm such as us KSA Group.  Be wary that many people offering advice to insolvent companies are not actually licensed to take on appointments but will just take some fees and then you will end up having to appoint one anyway or you firm will be wound up by the court.  To check if someone is actually licensed then you can search the

https://insolvency-practitioners.org.uk/ipa-search-members/

https://www.icas.com/find-a-ca

https://www.gov.uk/find-an-insolvency-practitioner

law books

CVA Case Law Created By A KSA Client – Thomas Vs Ken Thomas Ltd

in What is a CVA (Company Voluntary Arrangement)?

Thomas Vs Ken Thomas Ltd and the Court of Appeal upheld our clients position.  The case can be summarised as below: The Court of Appeal’s decision in Thomas v Ken Thomas Limited highlights a significant aspect of the landlord-tenant relationship concerning the appropriation of payments made by a tenant in arrears and where a CVA is proposed. Here’s a summary: Key Issue:The case dealt with whether a landlord can appropriate (allocate) a tenant’s payment towards rent for a period other than the one specified by the tenant. The court examined the implications of accepting payments from a tenant who has specified the payment to cover rent for a particular – in this case one month in advance - period. Facts:Ken Thomas Limited, was a medium sized loss making haulage contractor requiring a turnaround. It approached KSA to oversee a CVA led restructure. It leased over 1million square feet of logistics premises  from Mr. Thomas but fell into rent arrears and became insolvent. It proposed to enter into a Company Voluntary Arrangement (CVA).  During the CVA construction/ preparatory period, our KSA operations director, Iain Campbell agreed with the landlord that the tenant would pay future rent on the first day of each month for that month, whilst arrears were frozen. This was agreed in writing with the company and the landlord. The company offered to pay the monthly rent for December and subsequently for January, specifying the allocation of these payments. Mr. Thomas, however, unilaterally applied these payments to previous arrears and claimed the company was in breach of the lease and sought forfeiture action in the Norwich County Court, which was granted. Decision:The Appeal Court ruled in favour of Ken Thomas Limited, finding that Mr. Thomas had waived his right to forfeit the lease by accepting payments specified for December and January rent, thereby binding himself to the tenant’s appropriation of the rent funds. The court emphasised that a landlord must refuse or return the payment if they disagree with the appropriation specified by the tenant, to avoid waiving their right to forfeit the lease for non-payment.Legal Principle:The case underscores the principle of appropriation in the landlord-tenant context, stating that a tenant can decide how their payments are to be allocated if specified. Absent such specification, the landlord could choose the allocation. Implications:This judgment highlights the importance for landlords to understand the implications of accepting payments from tenants in arrears. It illustrates the need for landlords to be clear about their commercial objectives and the potential consequences of accepting payment against the backdrop of a breach of covenant. The case also led to the common practice of including ‘no waiver’ clauses in leases to protect landlords from inadvertently waiving their rights to remedies for breaches by accepting rent payments. Looking at this case some 15 years later we remember how difficult it was but the company had its CVA accepted by creditors with KSA leading the restructuring project. Our more recent cases are highlighting that many landlords premises are “overrented” post Covid and may need to either be exited using the CVA or have the rent varied by a well written CVA.  We are currently working with haulage and logistics companies recruitment companies, software/tech companies, manufacturing companies and retailers to assist them to reduce fixed costs like rent. If you are a tenant of a commercial premises and your business  needs to restructure, or is considering exiting the lease to support cashflow then you need expert advice. It could be a CVA is the appropriate tool to use. KSA Group helped create the above case law  so you can be sure we know a thing or two about CVAs and properties.

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CVA Case Law Created By A KSA Client – Thomas Vs Ken Thomas Ltd

Company Insolvency in Scotland

in Directors Duties in Insolvency and their Implications Research and Statistics

Is there a genuine company rescue culture in Scotland? There is only one company driving the rescue culture in Scotland, and you have found it!Our firm KSA Group, who run this website, are responsible for a significant proportion of CVA led rescue work in Scotland.If you run an insolvent or struggling Scottish company the chance of rescue is low. Amazingly, less than 1% of insolvent companies are rescued by a company voluntary arrangement or CVA each year!  This is compared to England and Wales, where proportionally, the CVA is used 4 times as often.So always ask your advisors these questions - What about a CVA - would that work? What is the comparison between CVA and liquidation? What is the comparison between CVA and administration?

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Company Insolvency in Scotland
Lies,Truth,Wooden,Signpost

Liquidation Myths and Untruths

in Company Liquidation

Below are the most common reasons why people are discouraged from taking necessary action to liquidate their company.  In some cases actually trying to avoid liquidation by selling the company.  Reputational damage If you do not pay your creditors you will suffer reputational damage whether you have sold it to another company or liquidated it formally.  You may not be able to get business insurance and your current insurance may not be renewed if you have another company. This is completely untrue.  We liquidate companies all the time and the directors do not have this problem.  They might have issues getting cover if they do it more than once.  Some very riskaverse insurers might turn you down but there are literally thousands out there.  There may be a tiny increase in the premium and you may have to answer a few more questions for the insurers piece of mind.  You won't be eligible for any business finance or loans from banks or other lenders Again this is simply not true.  All banks and lenders recognize there is some risk in running a business and a failure of a start up or a liquidation is not going to be a problem.  It will be if there appears to be a pattern of multiple liquidations though.  Even then it will not have any affect on your personal credit rating.  Company credit scores are totally separate.  You will be disqualified as a director if the company goes into liquidation This is completely wrong. Only if you have been fraudulent or deliberately misled creditors knowing the business is going to fail will you face disqualification or be personally liable for the debts (note that if you have personally guaranteed loans then yes you will be liable ). This worry tends to make directors “freeze up” and take no action out of sheer panic.  You can’t be a director again if the company fails Completely wrong again (see above).  You may not be able to obtain another VAT registration. If you do, HMRC may require you to pay a significant deposit. If you owe the HMRC a substantial amount of VAT then they will wind the company up with a petition, so it will be liquidated anyway. The former directors during the time the money was owed will be on their radar.  It is better to do a voluntary liquidation in these circumstances.  Yes you may need to provide a deposit in a new company but probably only if you owed them substantial sums.  Large companies and local authorities wont grant tenders to directors of liquidated companies What is actually being said here is that large companies won't give tenders to insolvent companies!  Well of course they wouldn't.  A previous liquidation by a director will not preclude them.  There is no mention of any such exclusions in the The Public Contracts Regulations 2015.  The NHS will not employ anyone who has liquidated a company Err no.The one area where liquidating a company can have some personal issues is if you are going to work in very sensitive finance areas and perhaps national security.  This is mainly because they worry that a creditor could apply pressure on you or you could be more easily bribed if you have lost a lot of money in the past.  However, avoiding voluntary liquidation may well result in a compulsory court liquidation process that is likely to lead to even worse outcomes. 

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Liquidation Myths and Untruths
creditor definition in dictionary

Secured And Unsecured Creditors – What Is The Difference?

in Company Liquidation Creditor Actions Directors Duties in Insolvency and their Implications

I am confused about secured and unsecured creditors.  What is the difference? As a director of a company that is doing well and making money you may have no real understanding about the important differences between certain types of creditors.  The only time it really comes up is if you apply for a loan for the business and the lender talks about security and the loan being secured etc. Secured Creditors A secured creditor is a creditor that has security over an asset or assets of the company. So, if the company can't pay then they have the right to the proceeds of the sale or proceeds of the asset.  This is enabled by a legal document called a charge or debenture.  There are two kinds of charge;  A Fixed Charge and a Floating Charge.  The difference is quite hard to explain in a few words so we have a dedicated page on the differences.  Have a read here on fixed and floating charges.  A fixed charge is essentially a charge on a very specific asset whereas a floating charge is across a range of assets or asset that can change.A charge is a bit like a mortgage on your house.  If you fail to keep up your payments then the bank can effectively force the sale of the asset and reimburse themselves.  In a company situation if the secured lender is owed money then they can "force" the company into the hands of administrators who will pay them having sold the assets.  This description is simplistic and is more akin to the old system of receivership but it illustrates the principal. Unsecured Creditors These are essentially creditors that have no security over the assets.  This can be a trade supplier, HMRC, a utility company.  Banks will often lend without security but they will charge a higher rate of interest to offset the risk they can't get their money back.Be aware though that some creditors are called secured as they have a personal guarantee from the director and they may use terminology like "secured against the directors personal assets"  In insolvency law they are not secured and so come after the secured creditors that have a "charge" over the company's assets when money is paid over in the event of a terminal insolvency event like liquidation. What about defacto secured creditors? These are creditors that do not have any security over the company's assets but they have control over the company in that they can shut it down.  An example might be the creditor that runs their proprietory software, or their means of payment (this happens when Amazon have lent the company money to develop their online shop)  such creditors are more properly referred to as "ransom creditors". Ransom creditors are more important if the company is insolvent but could be rescued and so need to continue to trade.  So they need to be kept happy!In a liquidation scenario they would be behind a secured creditor that had a charge over the stock for example.For a more detailed explanation of the priority of creditors in an insolvency situation then please look at our page on creditor priority.  There is even a handy infographic on there too. 

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Secured And Unsecured Creditors – What Is The Difference?