What is the difference between an Insolvency Practitioner and a nominee or supervisor of a voluntary arrangement?
The following article outlines the differences between an Insolvency Practitioner and a nominee or supervisor of a Voluntary Arrangement.
It includes several practical suggestions for situations that may occur when company directors find themselves in financial distress.
WHAT IS THE DIFFERENCE BETWEEN AN INSOLVENCY PRACTITIONER AND A NOMINEE OR SUPERVISOR OF A VOLUNTARY ARRANGEMENT?
In a company voluntary arrangement (CVA), an Insolvency Practitioner (IP) will take on the dual roles of nominee and supervisor.
As the nominee, the IP will draw up a proposal to be approved by the company’s creditors. Once it is approved, they will act as the Supervisor, and monitor the CVA throughout its duration, monitoring the company’s performance throughout.
WHAT IS THE ROLE OF A NOMINEE OR SUPERVISOR OF A VOLUNTARY ARRANGEMENT?
The “nominee” is a licenced insolvency practitioner who acts for the company in assisting it to prepare a CVA. Thereafter, the nominee convenes the meetings of creditors and members required to approve the proposal. Duties include the nominee deciding whether the proposal has, in his professional opinion, a good chance of success and will also be acceptable to creditors.
The “nominee” becomes the “supervisor” when the creditors approve the CVA proposal.
WHAT ARE THE DUTIES AND AIMS OF A NOMINEE OR SUPERVISOR OF A VOLUNTARY ARRANGEMENT?
The nominee is responsible for reporting to the creditors their opinion that the proposed voluntary arrangement has a reasonable chance of being approved and implemented. The nominee also has to investigate the information provided, such as the company’s cash flow forecasts, to ensure that they are a realistic representation of the Company’s affairs.
The Supervisor is appointed when the proposal is approved, and they must ensure that the company adheres to the terms it proposed. The Supervisor will liaise with creditors to agree on their claims, and make dividend payments as set out in the CVA proposal. Their role is, as their title suggests, supervisory.
If a company does not or cannot adhere to the proposed terms, the Supervisor will follow the agreed procedures within the proposal to resolve the position. This can be through agreeing to a variation to the terms of the arrangement with creditors, but can also ultimately require the Supervisor to place the company into compulsory liquidation.
HOW IS A NOMINEE OR SUPERVISOR OF A VOLUNTARY ARRANGEMENT PAID?
The IP will agree on their fee structure with the company, and this will be detailed within the CVA proposal for creditor approval. Most commonly the Nominee’s Fee will be a fixed fee and the Supervisor’s fee will be proposed on a “time spent” basis, which the Supervisor will estimate based on his experience.
These fees can be paid from the asset realisation within the CVA. From time to time, the IP may consider that it is appropriate to be paid a Nominee’s fee before preparing the proposal, particularly if the company’s affairs are complex and considerable time will be expended in preparing a CVA proposal.
WHAT IS A COMPANY VOLUNTARY ARRANGEMENT?
This procedure enables a company to reduce its debt levels, improving cash flow by arranging with creditors. The company typically makes only one agreed but affordable monthly payment to the Supervisor, who holds the funds in trust for creditors.
These funds are then distributed on a pro-rata basis amongst the creditors included within the CVA, as set out in the CVA’s terms and conditions. The CVA runs for a pre-agreed term, up to five years.
For a more in-depth explanation of what a Company Voluntary Arrangement (CVA) is and its benefits, please take a look at another of our articles – What is a Company Voluntary Arrangement (CVA)?
WHAT IS A NOMINEE ARRANGEMENT?
A nominee agreement is an arrangement between two parties where one person consents to act for another, similar to holding a power of attorney.
WHO CAN PROPOSE A COMPANY VOLUNTARY ARRANGEMENT?
A CVA is always proposed by the company. In practice, the company will engage an Insolvency Practitioner to draft the document, to ensure that it is compliant with all pertinent legislation.
HOW LONG DOES A COMPANY VOLUNTARY ARRANGEMENT LAST?
There is no prescribed duration for a CVA. Commonly, where payment is made from income contributions, a CVA would run for 5 years.
However, in some scenarios, creditors may be agreeable to a one-off payment, which may significantly reduce the duration of the CVA, which would run only to agree and facilitate this proposed payment.
As each company’s affairs are unique, the timescale will be dependent on its individual circumstances.
WHAT IS THE DIFFERENCE BETWEEN A CVA AND AN ADMINISTRATION?
In a CVA, the incumbent directors will retain control of the company. In administration, the running of the company lies with the Administrator (IP) and the powers of the director(s) cease upon their appointment.
We have a more in-depth article covering this area, which you can find here – Administration VS Company Voluntary Arrangement – What’s the difference?
WHAT IS AN INSOLVENCY PRACTITIONER (IP)?
To act as a liquidator in the United Kingdom, an individual needs to hold an insolvency licence and needs to be an Insolvency Practitioner (IP).
They also need to be authorised by an appropriate regulatory body. Chamberlain & Co is authorised by the Institute of Chartered Accountants in England & Wales (ICAEW).
To obtain a more thorough explanation of the full role of an IP, please visit our article – What is an Insolvency Practitioner?
WHAT ARE THE DUTIES OF AN INSOLVENCY PRACTITIONER (IP)?
The role of the Insolvency Practitioner (IP) was created to deal with companies and individuals who are in default, intending, where possible, to return them to solvency, but where this is not possible, to conclude their affairs fairly and equitably.
An IP assesses the situation of financially distressed individuals and companies and then discharges the relevant processes, as an office holder.
The main aim is to maximise the assets available to recoup money to minimise the effect the bad debt will have on the company or individual creditors.
They also have a responsibility to ensure clients are treated fairly and in an equitable manner. Frequently, an IP is required and expected, to make commercial decisions in difficult circumstances to ensure the best outcome for creditors.
In practice, an IP will seek to assist companies and individuals with financial difficulties and has a legal obligation to provide best advice. They are required to consider all options available such as restructuring, refinancing and not just insolvency procedures.
Currently in England & Wales insolvency legislation is set up as a recovery process with the overarching aim being to return individuals/companies to solvency to preserve jobs, future revenue streams, taxation and similar.
If you are experiencing financial difficulty, by seeking prompt advice from an insolvency practitioner, you can be supported through this difficult process by experts who understand the pressures you are facing and have experience in working swiftly to deliver a strategy to resolve the issues you face.
Chamberlain & co offers a free initial one-hour consultation which is discrete and can be held via telephone, face-to-face meeting, or through a digital medium such as Microsoft Teams. All matters are discussed confidentially, and the team is used to making discrete enquiries on a no-name basis when working with you to produce a strategy to resolve your issues.
As with all insolvency practitioners, Chamberlain & Co are committed to delivering best advice in all scenarios, and the team’s work has been recognised regularly at the Yorkshire Accountancy Awards and Turnaround, Rescue and Insolvency Awards.
You can contact us by calling 0113 242 0808; or by emailing us at advice@chamberlain-co.co.uk or by completing our online contact form here