What is an insolvency practitioner?

What are the duties of an insolvency practitioner? Julie Hunter, Senior Associate solicitor in the commercial litigation department at Stephensons, explains the duties of a liquidator, administrator, nominee and supervisor.

What is an insolvency practitioner?

An insolvency practitioner (IP) is someone who is licensed and authorised to act in relation to an insolvent individual, partnership or company. Most IPs are accountants or insolvency specialists working in firms of accountants.

All IPs act in accordance with the powers and duties afforded to them under the various provisions of the Insolvency Act 1986.

What are the duties of an insolvency practitioner?

The main function of all IPs is to take control of the assets of the insolvent estates and realise them for the benefit of creditors (persons owed money).

Liquidator

A liquidator can be appointed in one of several insolvency procedures, including a creditors' voluntary liquidation (CVL) or a members' voluntary liquidation (MVL). The liquidator's main function is to collect in the company's assets, realise them and distribute the proceeds to the company’s creditors. To achieve this, the liquidator has a wide range of powers.

Once appointed, the liquidator will take over the control and management of the company from its directors and establish what assets the company has, its liabilities and details of all creditors. The liquidator has the power to:

sell assets
deal with leases
disclaim onerous property
pay creditors
take or defend legal proceedings in the name of the company

One important power of the liquidator is that they can take action to preserve and recover company assets which were disposed of within a certain period before the start of the liquidation, to increase the size of the fund available for distribution to the creditors.

This will include investigating transactions made by the company in the time period before the liquidation to ensure that:

assets were properly disposed of
no dividends were paid to shareholders to the detriment of creditors
no creditor was paid in preference to any other
all tax and accounting records are in order

The liquidator has the power to reverse any transactions found to be in breach of companies or insolvency legislation, including the power to take legal action against former directors for the recovery of any loss to the company arising because of misconduct by the directors. The liquidator must also report any criminal conduct of directors to The Insolvency Service Directors Disqualification Unit for further investigation.

Once the liquidator has concluded all the work required in the liquidation, he will file a final report on the company at Companies House and the company will then be dissolved.

Administrator

An administrator may be appointed to a company by:

a majority vote of the company’s directors
the shareholders
a debenture holder, usually a bank
the court

However they are appointed, an administrator is an officer of the court and must act fairly and honourably while in office.

Administration is a procedure which allows for the reorganisation of a company or the realisation of its assets under the protection of a statutory moratorium, which provides a period of breathing space for a company, during which creditors cannot take enforcement action. In most cases, administration is used to reorganise or realise the assets of insolvent companies.

On appointment the administrator takes over the control of the company's business and assets from the company's directors to achieve one of the statutory purposes of administration, which are:

the rescue of the company as a going concern
the achievement of a better result for the company's creditors than would be likely if the company were wound up
the realisation of some or all the company's property to make a distribution to one or more secured or preferential creditors

The rescue of the company is the primary aim of the administrator, and he is obliged to achieve this if it’s possible. Only if it is not reasonably practicable will the administrator pursue the second objective, to take steps to achieve a better return for creditors than if a liquidator was appointed. If both these fail, the third objective must be followed.

The administrator must carry out his functions in the interests of creditors as a whole and must perform those functions as quickly and efficiently as is reasonably practicable.

When appointed the administrator must take custody and control of all the company’s property and may then sell or otherwise dispose of it. If the proceeds of these disposals are not enough to meet the objectives and pay all creditors, the company will move into liquidation.

If the objective is achieved the administrator will report that fact to the court and Registrar of Companies and will be discharged from office.

Nominee and Supervisor

A company voluntary arrangement (CVA) is a compromise, or other arrangement, between a company and its creditors under Part I of the Insolvency Act 1986. A CVA is implemented under the supervision of an IP, known as the ‘nominee’ before the CVA proposals are approved, and as the ‘supervisor’ afterwards:

The nominee will work with the directors of the company to prepare a proposal for the CVA which is then distributed to creditors who are given the opportunity to vote to accept or reject the proposal.
Once the CVA is in place, the supervisor is responsible for collecting the contributions into the CVA, make distributions to the creditors, report annually on the progress, and manage any variations to the arrangement. If the company fails to honour its obligations under the CVA, it is the supervisor’s responsibility to manage the breach, either by securing payment or petitioning for the company to be wound up.

How can I complain about an insolvency practitioner?

Any person connected with the insolvent company, including directors, shareholders, debtors and creditors may make a complaint about the conduct of an IP if they are unhappy with the work done.

If you’re unhappy with your IP’s service, you must first complain to them directly. If you’re not satisfied with their response, a complaint can then be made to The Insolvency Service.