To some, the work of an Insolvency Practitioner is clouded in mystery. In this brief article we’ve attempted to highlight exactly what Insolvency Practitioners do, how they get paid and what they charge. Insolvency services provided by an insolvency practitioner are generally quite varied and will usually cover all aspects of financial restructuring and formal insolvency options, including, Administrations, pre pack Administrations, liquidations both insolvent (creditors’ voluntary liquidation) and solvent liquidations (member’s voluntary liquidations). We describe in more detail the issues that Insolvency Practitioners come across on a daily basis as they go about their work.
Insolvency Practitioners must be licensed
How you become an Insolvency Practitioner
It is important to point to note that to act as an Insolvency Practitioner you must first be licenced by one of the regulatory bodies within the UK. The only way to obtain an insolvency licence is by taking the relevant examinations. Usually you will need to study for approximately three years and then you will become eligible to take the exams. Once you’ve passed all three papers, you will then be eligible to apply for a licence.
The work of an insolvency practitioner
The actual work of an insolvency practitioner is extremely varied and on a daily basis will depend upon the type of cases that they are working on. The one overriding consideration for all Insolvency practitioners on all cases, is that they must demonstrate that they have done all that they can to maximise the realisations from the company’s assets.
The work on a case usually starts with a phone call either from the director of the company seeking some informal advice about the company’s position or from the company’s accountants or solicitors who will be well known to the Insolvency Practitioner. Latterly directors tend more to search the internet to initially find out a little more about the process of insolvency and the options facing companies with financial difficulties.
During this first conversation, the insolvency practitioner will listen to the problems following which it is usual to arrange a meeting with the directors to go through the problems and outline the options available to the company in more detail. It is usual for the directors to be asked to have certain financial information available for that meeting – this will usually include:
- A copy of the latest management accounts
- Aged debtors
- Aged creditors
- Details of amounts owed to HMRC for PAYE/NI/VAT
- Details of any secured lenders
- A summary of WIP/contracts/outstanding orders
It is absolutely vital that if the insolvency practitioner is to give detailed recommendations for dealing with the company’s financial problems, that he fully understands not only those problems, but also the market in which the company operates.
At the first meeting with the directors the insolvency practitioner will be looking to fully understand what the company does, what the current problems are, what has caused those problems to arise and what viable solutions are available.
The starting point for us here at Corporate Financial Solutions (CFS) is always to look to see if the company can be saved. If that’ not possible, then we look to see if the business can be saved – the business and the company are two very distinct and separate entities. The business i.e. the actual trade sits within the legal entity of the company. If its not possible to save the company, it may well be possible to save some or all of the business – this would usually be effected through a pre pack administration.
In some instances, whilst the company may be facing some financial pressure, it may not be so great as to warrant a formal insolvency process – it may simply need either a little extra capital or a bit of a breathing space with its creditors to tide it over until cash flow improves. In such cases, the insolvency practitioner will be able to advise on how best to resolve this. At CFS we have extremely strong relationships with a number of lenders and funders and can advise almost immediately on the possibility of raising additional finance or even refinancing your company.
Where the company merely needs a little time whilst waiting for debtor monies to come in or promised orders to land, then again we are extremely well experienced and qualified to explain this situation to your creditors and suppliers in order to buy you that little bit of time without formally entering some insolvency procedure. The vast majority of your suppliers would rather wait a few weeks more for payment, than see your company go into liquidation.
In the event that your company’s problems are much more serious and really need some protection from creditors threatening legal action or winding up petitions, then the insolvency practitioner will discuss with you the various options available. These will include:
Each of the above insolvency services is discussed in more detail in our Company and Business Debt Section.
The choice of process will be determined by whether or not the company or the business can be saved. If either of those is feasible, then it is likely that the insolvency practitioner will suggest some form of Administration. If not, then it is likely that the company wll be placed into liquidation.
Whatever process is chosen the insolvency practitioner will need to carry out certain basic tasks in order to gain an underacting of exactly what he will be dealing with. A summary of the key points for the insolvency practitioner to address on every assignment is given below – there will undoubtedly be others, but those listed below are the very basic points to address on every assignment:
- The insolvency practitioner will need to understand what the company does, the market it operates in, its history and the reasons for its current financial difficulties.
- He will want to know whether there is a chance of saving the company or the business by some kind of restructuring and whether this would be with the existing management or by a sale to some independent third party.
- He will need to fully understand exactly what the business owns and what the assets are worth – an independent professional valuation of the assets will be commissioned using a valuer well known to the insolvency practitioner.
- He will need to look carefully at the workforce, especially if considering trading on through Administration.
- He will need to consider any secured lenders position carefully and will need to liaise with all secured lenders to ensure that they are not only happy with his involvement, but are also happy with the proposed strategy.
- In the event that the company or the business cannot be saved, then the insolvency practitioner will oversee the process of convening shareholder’s’ meetings and creditors meetings to place the company into liquidation.
As mentioned earlier, the above is only a very brief summary of some of the key issues that the insolvency practitioner has to address early on in respect of most assignments. There is a ton of work behind these key points!
What do insolvency Practitioners charge?
This is a very difficult question to answer as no two cases are ever alike. Insolvency practitioners will normally look to charge their fees on a time cost basis although their fees will have to be approved by the creditors. As from October 2015 all insolvency practitioners have to provide an estimate of the costs that they expect to incur on each case. They are then restricted to the maximum of that estimate, unless they go back to the creditors and explain why their costs have exceeded their original estimate.
At CFS, we have a very flexible approach to fees – the mere fact that your company has some financial difficulties suggests that there may well be only limited funds available for professional insolvency advice. Our fees are highly competitive. We are a completely independent practice and all of our partners therefore understand fully the pressures of running a business. We have no head office to report to thereby leaving us free to charge only what you are happy with. The reality is that in the vast majority of cases, our fees are paid out of the assets that we realise and therefore we will require approval by the company’s creditors. We would be delighted to provide a detailed quotation for any assignment. We never ask for any fees in advance of doing work and we never charge for the initial meeting with the directors. In fact, we never charge any fees until we’ve agreed with you what those fees are likely to be (again, also subject to approval by your creditors) and until we’ve been formally engaged. If you are asked to pay up front fees, then our advice would be to walk away and seek alternate advice.
We will happily provide a schedule of our current charge out rates on request.