What is an Insolvency Practitioner?
An Insolvency Practitioner, (often referred to as an IP) is somebody who is licensed to act in relation to an insolvent company, partnership or individual person. They are able to advise on and undertake appointments in all formal insolvency procedures. Usually an IP has an accounting background with formal qualifications in this area and has chosen to specialise within the insolvency field.
Who can practice as an insolvency practitioner?
To practice in the UK, an Insolvency practitioner must hold a licence to practice and must also:
Have passed the JIEB exams; a set of three examination papers set by the Joint Insolvency Examination Board (JIEB).
Have, gained experience in insolvency work.
Have satisfied an authorising body (known as their regulator) that they are fit and proper to act.
An IP must follow the law (insolvency act 1986) and their work is monitored by regulators to ensure that they do.
What does an Insolvency Practitioner do?
An insolvency practitioner is called in to resolve difficult situations for individuals, sole trader businesses, partnerships, limited liability partnerships and limited companies.
An insolvency practitioner acting for a Business:
In the case of a business, their initial task would be to determine whether the company is solvent or insolvent. If possible, their main task would be to try to rescue a business. If rescue is not an option, they would determine the most appropriate formal insolvency procedure to conclude wind up.
An insolvency practitioner acting for an Individual:
In the case of an individual with unserviceable debt, their task would be to advise on the formal options available.
The wind up process:
During wind up the IP would aim to:
Collect money due to the person or company.
Sell the assets of the person or company who owes money.
Validate and agree the creditors’ claims and then pay the creditors by distributing the money collected after paying costs.
An insolvency practitioner’s responsibility:
An IP’s main obligation is to a company’s creditors, but there will be many competing interests in the background. The IP must as all times follow detailed laws on insolvency. The law sets out the powers and duties of the IP. The IP’s responsibilities include reporting on the conduct of the directors of a failed company to the Insolvency Service. This report is confidential.
Distribution of funds:
The main principle in any insolvency procedure is that the funds available should be distributed fairly between the creditors. Creditors in the same category receive an equal percentage of what they’re owed. The IP must comply with the law and cannot decide who to pay first. Some creditors are classified as ‘secured’ or ‘preferential’ creditors and are paid before ordinary ‘Unsecured’ creditors. Secured creditors are creditors who hold a fixed charge or security (such as a mortgage) on an asset. They therefore have the right to sell that asset to recover their debt. The right of the creditor to do this is not affected by insolvency. The secured creditor is the first to get paid when the asset is sold. ‘Preferential’ creditors are employees with wage arrears, outstanding holiday pay or pension arrears. Any other creditors will be unsecured.
HMRC preference as a creditor in liquidation:
HMRC are not currently a preferred creditor but they were until 2002. In the 2018 budget Chancellor Philip Hammond announced that from 6th April 2020 HMRC would once again be a preferred creditor. This reform will only apply to taxes collected and held by businesses on behalf of other taxpayers. For example: VAT, PAYE Income Tax, employee national insurance contributions (NICs), and construction industry scheme deductions. The rules will remain unchanged for taxes owed by businesses themselves, such as corporation tax and employer NICs’.
Cost of insolvency work:
Costs (including the IP’s fees and expenses) will reduce the money available to creditors. The IP’s work is an essential cost. The basis of the IP’s fees has to be agreed by the creditors.
About RCM Advisory Ltd and our Insolvency Practitioner
RCM Advisory was established to give clear professional advice on all insolvency procedures. We also advise on voluntary liquidation and business rescue options. Our company director Richard Cacho has over 30 years' experience in the insolvency and recovery industry. As well as being a licensed IP, he is also a qualified chartered accountant.
Richard is a licensed chartered accountant and an insolvency practitioner in the UK. His is regulated by The Institute of Chartered Accountants in England & Wales. (ICAEW). ICAEW is the largest regulator of insolvency practitioners in the UK. They continually monitor their licence holders to ensure that they continue to be fit to carry out insolvency work.
RCM Advisory can undertake appointments in all formal insolvency procedures. These include administration, compulsory liquidation, receivership, company voluntary arrangement, bankruptcy and individual voluntary arrangements. We also offer Business recovery and turnaround services.
If you need help, please call our confidential advice line or request a meeting below
0800 288 4088