WHAT IS INSOLVENCY AND RESTRUCTURING?
Insolvency practitioners work with financially struggling businesses and individuals, both inside and outside of statutory insolvency procedures. These processes help financially distressed and insolvent companies and individuals to repay what they owe – and to turn their fortunes around where possible.
Insolvency practitioners are officers of the court and have a wide range of duties. Insolvency practitioners are responsible for the administration of their cases and work to get the best possible outcome for creditors. This work must be balanced with their legal and ethical obligations to employees, directors and other stakeholders. The work undertaken by insolvency practitioners requires the ability to balance their various duties and handle pressure from concerned creditors, anxious or unhelpful directors, and distressed employees. It is important to remember that insolvency practitioners are responsible for an insolvent company or individual’s creditors - not the insolvent person or company.
A business or an individual is considered insolvent when their liabilities outweigh their assets, or they are unable to pay their debts when they fall due. There are a number of different insolvency procedures to deal with different insolvency situations. For companies, these include: liquidation (compulsory or voluntary), administration, or a Company Voluntary Arrangement (CVA); for individuals, these include bankruptcy, an Individual Voluntary Arrangement (IVA), or a Debt Relief Order.
When a company is experiencing financial difficulties, it can enter into a corporate restructuring process to address its issues in an attempt to prevent it from becoming insolvent. Restructuring can involve selling some of the company’s non-essential assets, reorganising its debt (often by coming to an agreement with its key creditors), reorganising its operations, or a combination of all of the above.
WHAT DO INSOLVENCY PRACTITIONERS DO?
During liquidation, an insolvency practitioner will be appointed to assume control of the company’s affairs in order to wind the company’s operations up. They are authorised to sell the company’s assets in order to generate funds to be distributed back to the company’s creditors. When appointed as administrators, insolvency practitioners will seek, where possible, to rescue the business as a going concern which may involve a sale of the business. In a CVA, they work alongside directors to agree the terms of the company’s rescue and restructure. Some cases, particularly those involving large companies, can require significant resourcing: multiple sites and assets across the country may need to be secured and managed by the insolvency practitioner and their team. Insolvency practitioners may find themselves running a company almost overnight.
Insolvency practitioners can also advise indebted individuals, and administer personal insolvency procedures by acting as a ‘trustee’ in bankruptcy, or as a ’nominee’ or ’supervisor’ in an IVA. In a bankruptcy, the the insolvency practitioner will take control of an insolvent individual’s assets, and may sell them to raise money to repay the bankrupt person’s creditors. When acting as a ‘nominee’ in an IVA, insolvency practitioners help with the drafting of a proposed payment plan that must be approved by creditors. The insolvency practitioner will then become a ‘supervisor’ who will oversee the individual’s compliance with their IVA.
Working with employees
When a company becomes insolvent, there is a risk that some employees may be made redundant. This can be a distressing experience for those involved: some employees may be faced with redundancy for the first time, or they may be owed considerable arrears of wages. Insolvency practitioners will assist employees through the initial stages of redundancy, providing advice and helping them submit claims for wage arrears and redundancy payments to the Redundancy Payments Service.
This work can also involve consulting with employees and their representatives in instances of collective redundancies.
Working with creditors
Insolvency practitioners work on behalf of creditors, not an insolvent company’s directors nor an insolvent individual. While insolvency practitioners have many duties, the protection of creditors and their rights is one of their main responsibilities. Insolvency practitioners have a duty to treat creditors, who are repaid in an order set out in the Insolvency Act 1986, fairly and equally throughout the insolvency process. Insolvency practitioners are responsible for notifying creditors of any insolvency procedure, as well as keeping creditors informed about and engaged with what’s happening. When there is money to be distributed to creditors, insolvency practitioners and their teams work with creditors to ensure that they have submitted the correct documents, so they can receive their repayment.
Tackling fraud and other wrongdoing
An essential aspect of an insolvency practitioner’s statutory duties, when appointed as an Office Holder of an insolvent company, is to investigate the director or directors’ conduct. Insolvency practitioners will probe the behaviour of the director or directors to determine if their actions contributed to the company’s failure or adversely affected the creditors. The insolvency practitioner’s toolkit for investigating wrongdoing and fraud is extensive. Among other powers, insolvency practitioners can search company files and bank records, and can summon witnesses to trace assets of the company. Insolvency practitioners will also investigate the conduct of the insolvent individual in a bankruptcy case