Many directors facing insolvency ask the question, ‘do I need a licensed insolvency practitioner?’
This article will explain that question in detail, as well as the particularities of this important role.
What is a Licensed Insolvency Practitioner?
An insolvency practitioner is defined as someone with the necessary qualifications and license to assist individuals and company’s facing insolvency.
In actual fact, an insolvency practitioners’ duties are complex and varied than this. They may help businesses with company rescue procedures, such as voluntary arrangements and administration. They may also help solvent companies liquidate assets prior to a members voluntary liquidation.
Commonly accountants, insolvency practitioners must have passed the Joint Insolvency Examination Board (JIEB) exams, as well as gained relevant experience before receiving a license.
How Long Does it Take to Become an Insolvency Practitioner?
The average age of those who take the JIEB exams is 33 which tells you that becoming an IP is extremely challenging.
Most candidates are already chartered accountants, likely with some related insolvency experience under their belts, so the path to full qualification is long and takes over 10 years, in most cases.
What does an IP’s job involve?
Insolvency Practitioners are generally called in to assist companies directors to either rescue or close down their companies. Insolvency comes with a legal requirement to use an insolvency practitioner whose tasks will include:
- Selling any corporate assets
- Liaising with creditors
- Distributing monies realised fairly
- Investigating the actions of directors
- Formally striking the company off the register at Companies House
In the case of solvent liquidations, the IP has the same task of selling assets prior to winding the company up.
The third part of IP’s work involves company rescue mechanisms such as company voluntary arrangement and administration. In both of these his/her responsibility is still to creditors, but keeping the company operational is deemed a better long term means of getting the debts paid in full.
Recognised Professional Bodies
The Insolvency trade bodies in the UK are:
- Association of Chartered Certified Accountants
- Insolvency Practitioners Association
- ICAEW
- Law Society of Scotland
- Solicitors Regulation Authority
Since insolvency is a regulated profession, all insolvency practitioners must be licensed by one of these in order to practice in the UK.
What Procedures Require a Licensed Insolvency Practitioner?
Administration
Administration is the process of trying to rescue an insolvency company via restructuring in order to return it to profitability. Read our full article on going into administration.
Bankruptcy
Bankruptcy refers to individual insolvency. Individuals who have been made bankrupt cannot act as a company director, usually for a period of 12 months. Read our full article on what is bankruptcy.
Liquidation
Liquidation is the processing of selling company assets prior to closing it down. In cases of insolvency, this liquidation may be a compulsory process following a ‘winding up petition’. Read our full article on compulsory liquidation.
Receivership
Where a company has signed a document known as a ‘secured floating charge’, they give a tremendous power to that company (usually a bank) in the case of a default. The bank can force the debtor into receivership, whereby an insolvency practitioner (receiver) has extensive powers to raise the money owed, even if it means selling assets or forcing a company into liquidation.
Read our full article here on receivership.
Compulsory Voluntary Arrangements
CVA’s are structured payment plans with creditors. They must be organised by an insolvency practitioner and agreed upon by a majority vote of creditors.
Read our full article on CVA’s.
Members’ voluntary liquidations
A members voluntary liquidation or MVL is the correct way to shut down a solvent limited company without debt. It is often used when a director is retiring, for example, and wishes to simply close the company down in tax efficient manner.
Read our full article on members voluntary liquidations.