There are many elements to consider when your business is entering a liquidation procedure, and it can become quite overwhelming, but we’re here to help. Insolvency practitioners are a crucial part of the liquidation process, and in this blog, we’re answering the question, what is an insolvency practitioner?
If you’re coming across insolvency practitioners, then it’s likely that your business is heading for liquidation. There are many reasons why a business may need to be liquidated. What’s important is if you place a business into liquidation, you understand absolutely everything before you choose who your insolvency practitioner is going to be.
A company becomes insolvent when it can no longer afford to pay its debts on time, or its liabilities are worth more than its assets.
What should I do if my business is insolvent?
If you become worried that your company is insolvent, you need to take certain steps. The first thing you should do is seek professional advice. As a director, you have a duty to seek advice early and not make your creditor’s position any worse. The problem is there are lots and lots of insolvency practitioners on the internet, and they all look the same, where we are different is our focus is always on you, the director and ensuring that if there are any personal consequences for you by placing the business into liquidation, you understand them upfront.
When you enter liquidation, seeking advice early will be seen positively. Seeking advice early will likely lead to a creditor’s voluntary liquidation rather than compulsory liquidation. A compulsory liquidation is when a director is forced into liquidation by a creditor using a winding-up petition. This type of liquidation often leads to more severe consequences for a director and can include disqualification and, in some cases, personal liability.
What is an insolvency practitioner?
An insolvency practitioner (IP) or a liquidator, as they can be also called is an individual who is licensed to close a limited company. Insolvency practitioners can be used for both solvent and insolvent companies. Insolvent liquidations include creditors’ voluntary liquidation and compulsory liquidation. When it comes to a solvent company, a member’s voluntary liquidation will usually be used if there are enough funds in the business account after everyone is paid.
There are many elements to think about when you are selecting your insolvency practitioner – we’ll let you know more about these in the blog.
Insolvency practitioners must follow the regulations within the Insolvency Act. They must also pass exams from the Joint Insolvency Examination Board and gain relevant experience.
Insolvency practitioner vs liquidator
You might be searching for the differences between an insolvency practitioner vs liquidator, and the truth is that they are actually the same person. You might hear an insolvency practitioner being referred to as a liquidator and vice versa or a licensed IP.
What does an insolvency practitioner do?
An insolvency practitioner is responsible for closing the company as requested. However, insolvency practitioners can also be responsible for helping businesses stay afloat and rescuing them.
In the first instance, the insolvency practitioner will chat with you about your circumstances. This will allow them to understand your situation and offer you the most suitable options. Depending on your circumstances, you may have multiple options or maybe just one.
Before you begin the liquidation process, you will need to get the insolvency practitioner’s proposal in writing. Within the proposal, you should also ensure that the liquidator’s costs have been included and that if you have any overdrawn directors loan account, it has been discussed in great detail, the most important thing about an overdrawn directors loan account is how much you will pay back once you are in insolvency, please don’t leave this to chance.
Before you appoint an insolvency practitioner, you need to make sure that they have assessed all elements of your situation. Here are some of the elements that you need to make sure have been checked.
Overdrawn directors’ loan accounts
An overdrawn directors’ loan occurs when a director takes too much money out of the company. When this occurs and a company enters liquidation, the company director is personally responsible for paying back the money owed. In most cases, a negotiated settlement is reached between the director and the insolvency practitioner and the director is often given time to repay the settlement. Many directors we speak to don’t understand how an overdrawn directors’ loan account can cause them problems personally once they appoint the insolvency practitioner.
The insolvency practitioner is duty bound to try and recover the money for creditors, if this point is left until after the insolvency practitioner has been appointed, the consequences can be quite severe, and the director is left facing a hefty personal bill to pay. The good news is that with the right advice early, a settlement can be agreed on your overdrawn directors loan and you will be able to pay it over a period of time.
Preference payments
Your licensed insolvency practitioner should have looked through your company’s accounts and identified any potential preference payments. These occur when you pay one creditor over another, even though they are not the priority payment. Preference payments will not be viewed positively if they are uncovered by the Insolvency Service.
Wrongful trading
Any signs of wrongful trading should be outlined to you. These could land you in trouble with the Insolvency Service if they are uncovered, so it’s best that you are aware of them before the process begins.
Bounce back loans
If you have taken out a bounce-back loan, your liquidator will need to check that you have used it correctly. Any signs of bounce-back loan fraud will need to be looked into more thoroughly. Bounce-back loan fraud can include applying for too much money or not using it for the economic benefit of the company.
The liquidation process
Once you are happy with the insolvency practitioner, you will appoint them. At this point, your company is entered into liquidation and the insolvency practitioner will begin closing it down. The licensed IP will be responsible for communicating with your creditors and organising elements of the liquidation. Part of the insolvency practitioner’s role includes finding ways to pay creditors using elements such as company assets. It’s worth noting that all the creditors may not receive payment, even after the formal insolvency process begins.
During the formal insolvency process, you must provide the licensed IP with all of the information they request. This will help to speed up the process and ensure that you get the best out of your situation, and it shows that you are complying with the insolvency practitioner.
How to find an insolvency practitioner
It’s very important that you only choose from reputable licensed insolvency practitioners. You can find insolvency practitioners on the Government website. You should read reviews and look into their experiences as insolvency practitioners. Lots of insolvency practitioners will be promoting their services online. This is a big decision for you to make, take your time, ask lots of questions and get to the point where you feel confident and comfortable with the insolvency practitioner before you sign with them.
Ensure that you have checked the reviews out regardless of whether the liquidator is recommended to you or not. It is worth noting that we are one of the highest-rated insolvency firms specialising in corporate insolvency, make sure you check our reviews out!
Do I always get to choose my own insolvency practitioner?
There are some instances where you will not be able to choose your own insolvency practitioner, such as in a compulsory liquidation. This is because the company is wound up involuntarily. You will be forced into liquidation and, therefore, will not be given the opportunity to make decisions regarding your insolvency practitioner or any timescales.
When it comes to a creditor’s voluntary liquidation, you will be able to choose the liquidator that you want to appoint. You should ensure that you go with the option that has a great reputation and tells you what you need to hear, not what you want to hear.
You’re much better off getting all the information out before the liquidation process begins. Tell your insolvency practitioner upfront if you know of something that may come up during the liquidation process. This way, you have been honest, and they can begin looking into ways of dealing with the issue before the formal insolvency process starts.
How much is an insolvency practitioner?
When you hear about liquidation costs, they actually refer to the insolvency practitioner’s costs. While many insolvency practitioners offer the same services, their prices can vary.
It’s very important to note that if a price seems too good to be true in liquidation, then it probably is. We would recommend not choosing the cheapest liquidator, as we’ve come across many directors who have done this and have ended up paying thousands more later down the line.
There is no set insolvency practitioner cost, as it varies based on your personal circumstances. For a small liquidation with minimal creditors, you can expect to pay between £4000 and £6000 plus VAT. Bigger liquidations with more creditors will cost more than this. You must remember that the cost to liquidate is never normally the only cost, lots of directors make the mistake of thinking once you have paid your liquidation costs, that’s it, but in lots of cases, the insolvency practitioner may come back to you once they have been appointed for additional fees. A good insolvency practitioner will outline all fees upfront and in writing before they ask you to make a decision.
When do I need to speak to an insolvency practitioner?
You should begin the process when your business becomes insolvent or when you suspect it will soon. The sooner you seek professional advice, the better. Many company directors find that they have many more opportunities when they seek advice early rather than leaving it until it’s too late and winding up petitions are being discussed.
If you seek advice early, you may find that you can work on business recovery, or a company voluntary arrangement (CVA) can be used. Company voluntary arrangements include making monthly payments to creditors. Our best advice is to not leave it until it’s too late.
What to think about when choosing an insolvency practitioner
Here are a few of the elements that you need to consider when choosing an insolvency practitioner.
- Make sure that all elements of your situation have been thoroughly checked before appointment
- Ensure that you get all costs in writing
- Only choose from licensed insolvency practitioners from the Insolvency Practitioners Association
- Don’t wait until it’s too late and you’re in too much financial distress
We hope this blog has been helpful regarding insolvency practitioners and what they do. Please feel free to contact our friendly team at Director First if you have any questions. We will be more than happy to assist you.
We know how tricky it is when your company is in financial distress, but the best course of action is to seek advice and enter one of the many formal insolvency procedures.
I'm Chris Worden, Managing Director at Director First. 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.