What is an Personal Insolvency Practitioner? The ultimate guide (2024)
What is an Insolvency Practitioner?
An Insolvency Practitioner or personal insolvency practitioner is an officer of the court who is licensed by an authorised regulatory body to undertake formal insolvency appointments within the United Kingdom.
In order to obtain an insolvency licence an individual must pass Joint Insolvency Examination Board (“JIEB”) exams to demonstrate that they have the required technical knowledge to carry out the role, and subsequently be granted a licence by a regulatory body, having met their criteria, which is usually based upon holding your JIEB qualification, having sufficient practical experience working the in the field, and the recommendation of established peers within the industry.
Insolvency Practitioners are currently licensed by the Insolvency Service (usually only government employees known as Official Receivers), the Institute of Charted Accountants in England & Wales (“ICAEW”), the Insolvency Practitioners Association (“IPA”) and the Solicitors Regulation Authority (“SRA”). The Association of Chartered Certified Accountants (“ACCA”) previously provided licences, but now works in tandem with the IPA.
What is the purpose of an Personal Insolvency Practitioner?
In a civilised society where credit is granted their will inevitably be debt, and in turn, bad debt. The Insolvency Practitioner’s role is to serve as the civilised mechanism for resolving bad debts.
They work to minimise the impact of insolvency on creditors and other stakeholders, whilst ensuring all Company assets, including misappropriated funds, are recovered where possible and in turn distributed to creditors in accordance with the prevailing legislation in effect at the time of their appointment.
This can take the form of a managed wind down of a company’s or individual’s affairs, or a restructuring exercise, whereby the company’s or individual’s position is restored to enable ongoing trade, thus preserving jobs, supplier’s clients, taxation revenue and other economical long term benefits.
What does an insolvency practitioner do?
Personal insolvency practitioner have two main roles – acting as advisors and in the management of insolvent estates.
As advisors, Insolvency Practitioners advise their clients, be they directors of distressed companies, private institutions such as banks, unpaid creditors, or individuals, on the options available to them within the scope of the insolvency legislation at the time.
As managers of insolvent estates, the Insolvency Practitioner has two primary objectives. The first is to identify all assets held by the insolvent entity – both actual, contingent, known and unknown, with a view to returning these funds to creditors in order of priority.
The second, is to identify misconduct by the insolvent company / individual and report this misconducting to the Insolvency Service or any other relevant regulatory authorities to consider if it is in the public interest to take action against the directors of the insolvent companies, or the individuals, in light of their conduct.
In all dealings an Insolvency Practitioner will adopt a pragmatic and commercial approach to his dealings to ensure that the most cost effective resolutions are achieved for all stakeholders.
How much does an insolvency practitioner cost?
An Insolvency Practitioner can be remunerated in a number of ways, the most common being fixed fee or a time cost basis.
Advisory work will usually have a defined scope and agreed fee, with further fees being incurred where work is requested beyond the scope of the engagement.
Fees for insolvent estate are most commonly requested on a time cost basis, with an estimate provided by the Insolvency Practitioner for approval by the appropriate body of creditors.
Each case and engagement is unique and therefore the level of fees will need to be tailored to the case in question. For example, a liquidation of an owner managed company with one employee without assets would inevitably be a cheaper exercise than the administration of a company trading 50 stores with 200 staff, as more overall work is required. An Insolvency Practitioner will usually seek to understand the facts and the scope of the engagement, at which stage they will be able to give an indication as to fees they would anticipate.
Is an insolvency practitioner the same as a liquidator?
Yes. Only an Insolvency practitioner (or an Official Receiver licenced by the Insolvency Service) can act as a liquidator in the UK.
What is a Liquidator?
A liquidator is the name used to refer to an Insolvency Practitioner who has been appointed over a company in liquidation. On consenting to act and obtaining the appointment as liquidator the Insolvency Practitioner has the power to deal with the business and affairs of the company.
The liquidator’s powers include the ability to disclaim onerous or toxic assets, to conduct investigations into the dealings of the company and its officers, and to pursue litigation aimed at restitution for the company.
What should I be looking for when choosing an insolvency practitioner?
The most important thing to look for is to establish that you are liaising with a licensed insolvency practitioner, or a suitably experienced member of their team.
There are entities which purport to be “debt advisors”, who are not part of a regulated insolvency practice. As insolvency is an important and contentious area of law, licensed insolvency practitioners are highly regulated, and those who operate outside of this regulation are not qualified to provide the advice you require. As such, the advice from unregulated entities can be defective or incomplete, which can result in significant liabilities and risk to both you and your company.
Thereafter, as with any professional advisors, ultimately it comes down to the quality of service you are provided by the insolvency practitioner. Their first meeting with you should be free and should look to establish how they can assist you / your company and set out what information they need to see to progress their work. Fee levels should be clearly set out and documented in an engagement letter.
What qualifications does an insolvency practitioner have?
A licensed insolvency practitioner will always hold their Joint Insolvency Examination Board (“JIEB”) qualification. In order to practice as an insolvency practitioner you must have passed your JIEB examinations, which covers both personal and corporate insolvency legislation, as well as other legislation that is regularly relied upon, such as the Companies Act 2006.
Whilst this is the only qualification required to practice as an insolvency practitioner, many insolvency practitioners have an accountancy background and therefore may be ACA or ACCA qualified chartered accountants. Usually, experienced staff of the insolvency practitioner will hold their Certificate of Proficiency in Insolvency (“CPI”) which serves to underscore their competence in discharging day to day case work.
Some solicitors who specialise in insolvency work may obtain their JIEB qualifications and in turn their insolvency licence to underscore their knowledge and experience in the field, although usually they do not take appointments and continue to act as legal advisors to companies, individuals, and insolvency practitioners prior to and upon appointment.
Who Appoints an Insolvency Practitioner?
Insolvency practitioners can be appointed in a number of different ways depending on the insolvency process, but mostly commonly they are appointed by:
- Individuals
- Company Directors
- The Company
- Shareholders and
- Creditors
Usually, one of the above will have sought advice from the insolvency practitioner regarding a company or individual and will have concluded that appointing insolvency practitioner is in the creditors or their own best interests. Ultimately, the insolvency practitioner, when appointed, acts for the benefit of all creditors.
What powers do insolvency practitioners have?
Insolvency practitioners have a variety of powers that depend on the nature of the engagement they are dealing with. Commonly insolvency practitioners will have the following powers:
- The ability to apply to Court for directions as to what to do in a given scenario
- The ability to apply to Court to compel third parties to provide information regarding the insolvent’s affairs and dealings
- The ability to sell / abandon or otherwise deal with the insolvent’s assets
- The ability to investigate the affairs of the insolvent
- The ability to commence proceedings either in their own or the insolvent’s name to seek a recovery for creditors
- The ability to agree the claims of creditors and subsequently make dividend payments
- The ability to do all such things as they may reasonably need to do in order to deal with the affairs of insolvent
- The ability to enter into compromise agreements on the insolvent’s behalf for the benefit of creditors and
- The ability to instruct solicitors, agents and other third parties to act on behalf of the insolvent.
Notably, these powers are restricted in both a Company Voluntary Arrangement and Individual Voluntary Arrangement, as in both types of proceedings the insolvent remains in control of their day-to-day affairs and the insolvency practitioner, acting as Supervisor, monitors their activities as opposed to taking direct control of their affairs.
What are the duties of an insolvency practitioner?
In all types of appointment, the insolvency practitioner’s primary role is to realise assets for the benefit of creditors, with a view to being able to pay a return by way of a dividend to the creditors from the proceeds of assets.
In administration, liquidation, or bankruptcy proceedings the liquidator or trustee of the bankruptcy estate will also investigate the affairs of the company and its officers, or of the individual. This role serves two purposes, firstly to identify if there are any actions available to the insolvency practitioner to recover funds for the benefit of creditors, and secondly to establish if any actions have been taken by the insolvent which must be reported to the insolvency Service, who will consider if company Director Disqualification proceedings or Bankruptcy Restrictions should be put in place against the insolvent, such as where fraud has been committed.
Additionally, the insolvency practitioner will deal with day-to-day management of the insolvent’s estate, protecting and securing assets, liaising with creditors, corresponding with third parties as appropriate, making statutory submissions and reporting as required by the insolvency process. This work will also include maintaining a bank account in the insolvent’s name and recording all realisations and expenses incurred, as well as periodic reviews of the matter to ensure timely progression of insolvency proceedings.
Are insolvency practitioners regulated?
Insolvency practitioners are licensed by either the ICAEW, ACCA, IPA, SRA or the Insolvency Service. Each regulatory body has a code of conduct – such as ethical procedures – which must be followed by insolvency practitioners to maintain their licence to take appointments.
The regulatory bodies inspect insolvency practices periodically and attend at their premises and review their systems, case files, compliance documentation (such as GDPR procedures) to establish if the insolvency practitioners are following best practice. The inspectors will identify if there are any errors or deficiencies in the insolvency practitioners’ files and practices. Where there are minor deficiencies that can be resolved by way of a change in systems, further training or similar, the regulator will request that the insolvency practitioner to make the necessary adjustments and monitor progress. For example, they may ask insolvency practitioner to introduce additional reviews, if they do not consider sufficient reviews of cases are being undertaken.
Each year the insolvency practitioner will submit a self-certification and make disclosures to their regulator, and normally would report on any issues highlighted during an inspection. In more severe scenarios where there is perceived misconduct, or poor quality of work, controls and systems, the regulator may temporarily suspend the insolvency practitioner’s ability to take appointments, until these issues are resolved. Ultimately, in the most extreme circumstances, insolvency practitioners may lose their licence, either temporarily, or permanently.
In addition, the regulatory bodies and Insolvency Service operate a complaints procedure, which can be utilised if complainants are not satisfied with the responses provided by the insolvency practitioners’ own complaints procedure. Sanctions can be applied to the insolvency practitioner where these complaints are upheld.
When should I contact an insolvency practitioner?
To use a medical analogy, financial distress is very similar to cancer in that if early intervention is sought, the prospects of a successful recovery are much higher, as the options available to companies and individuals decrease as their financial affairs worsen.
A reputable insolvency practitioner is obliged to provide best advice and would not advise a client to pursue an insolvency procedure if alternative rescue and restructuring steps could be taken to avoid insolvency.
It is therefore best to contact an insolvency practitioner when you first identify that you or your company has, or may be facing, financial distress.
Certainly, if you are starting to receive Statutory Demands, Count Court Judgements, and indeed Winding Up / Bankruptcy Petitions, you should immediately seek advice from an insolvency practitioner.
How do I find a licensed insolvency practitioner?
Insolvency practitioners like any commercial entity will usually have a web presence and you will likely find a number of practices through search engines such as Google. Your accountant may well have a relationship with an insolvency firm whom they have dealt with regularly and can therefore attest to the quality of their work. Indeed, other professionals, such as solicitors, may be able to make recommendations.
You can confirm that the insolvency practitioner you have spoken to is licenced as a register is maintained on the gov.uk website.
How many Insolvency Practitioners are there in the UK?
Whilst the exact number fluctuates as the relevant qualifications are obtained and professionals leave the industry, there are around 1,600 licensed insolvency practitioners in the UK. They are supported by teams of experienced staff who are not licenced holders, but are trained and equipped to deal with tasks on the behalf of the insolvency practitioners, in part to lower the costs of insolvency proceedings by work being delegated to appropriate staff. The insolvency practitioner always has overall responsibility for the work undertaken by their team.
How do Insolvency Practitioners Make Money?
Where an insolvency practitioner is not being formally appointed to act in an insolvency process, they will likely have been engaged to do a specific type of work or provide specific advice relevant to their experience.
The scope and cost for this work will have been agreed between the client and the insolvency practitioner in an engagement document, and the client will pay the agreed fees to the insolvency practitioner under the terms they have agreed.
Where an insolvency practitioner is appointed in insolvency proceedings, they will usually provide an estimate of their fees to the client and, if this is satisfactory to the client, and the engagement is made, these fees will be reported to the insolvent’s creditors who will agree or restrict the fees as appropriate. Thereafter, fees can be drawn from asset realisations with the sanction of creditors.
If there are insufficient assets to cover the costs of the insolvency process, the insolvency practitioner may seek to agree a fixed fee indemnity with either a third party on behalf of the insolvent, or if the client is a company, with its directors, to cover their costs. These fees would again be agreed and paid in line with the fee indemnity entered into.
What does an IP’s job involve?
Insolvency Practitioners are ultimately responsible for managing the affairs of the insolvent entities over which they are appointed. They must ensure all statutory requirements are met, such as Court and Companies House filings, reporting to creditors, agreeing creditors claims where applicable and so forth.
Beyond ensuring this work is undertaken in a timely fashion, they also must work to realise the assets of the insolvent entities, both physical and intangible, such as book debts, for the benefit of insolvent’s creditors.
They also, in some proceedings, investigate the affairs of insolvent and report to the Insolvency Service as to the conduct of the insolvent, so the Insolvency Service can consider if restrictions or disqualification proceedings should be pursued.
In practice, appointment taking insolvency practitioners are usually highly experienced individuals, who have worked their way up through the ranks within insolvency firms, to the position of office holder. Their staff will usually deal with discharging the majority of the work on their appointments and the insolvency practitioner’s day to day role is to monitor and ensure work is done to the required standards and timescales required and to provide support, training and advice to their staff on matters arising on their cases, as well as reviewing and approving statutory documentation and taking decisions on strategic actions on their cases. They will also provide instructions to staff where they have determined steps which need to be taken to progress aspects of their cases.
Away from case work, most insolvency practitioners engage in business development and maintaining strong relationship with key stakeholders, such as banks, who will often have a significant interest in case work.
Beyond this, insolvency practitioners also regularly undertake training to ensure they maintain the high standards of technical knowledge required to undertake their role.
How can I complain about an IP?
In the first instance, you should raise a complaint with the insolvency practitioner directly. They will provide you on request with details of their complaints procedure and should deal with your complaint in accordance with this procedure.
If you are still unsatisfied with the outcome of your complaint, you may lodge a complaint with the Insolvency Service through the gov.uk website. Please note your claim may not be considered if you have not first raised a complaint with the insolvency practitioner directly.
Is an insolvency practitioner a lawyer?
Some solicitors are insolvency practitioners and have obtained an insolvency licence. However, the majority of insolvency practitioners are not solicitors and usually come from either an accounting or insolvency background.
Are insolvency practitioners accountants?
Many insolvency practitioners are accountants, as accountancy is one of the main entry routes to insolvency. However, there are also staff whose careers have been spent entirely in the insolvency field, who become insolvency practitioners without first becoming accountants.
For further information and impartial advice, feel free to give us a call on 0113 242 0808 or e-mail advice@chamberlain-co.co.uk