What is an Insolvency Practitioner (IP) and what do they do?

You should contact an Insolvency Practitioner at the earliest signs of financial stress in your business. For example, you might have persistent cash flow issues or have creditors (parties you owe money to) chasing you for debts that you’re struggling to pay. You can also contact business debt advice charities at this early stage, but while they can offer advice, they cannot put your business into a formal insolvency procedure. Only a licensed Insolvency Practitioner can do that.

If your financial struggles are more advanced and you’re worried your business is insolvent, contacting an Insolvency Practitioner is a legal requirement. A business is insolvent when it cannot pay its debts when they are due. At this stage, you must cease trading and seek advice from an IP. If you fail to do so, you could create further losses for your creditors and face accusations of director misconduct.

The directors of struggling companies usually contact an IP voluntarily for help rescuing or closing their businesses. In Scotland, the court can also appoint an Insolvency Practitioner to act as the liquidator in a Compulsory Liquidation.  

Offering advice and support

The IP’s primary objective is to rescue the company and secure its long-term future. Initially, they will offer advice about the various options available to the director. For example, they 

might be able to help them find alternative finance streams or reach an informal repayment agreement with creditors like suppliers, banks and HMRC.

Administering insolvency procedures

If informal measures are not enough to rescue the company, IPs can recommend, set up and manage formal insolvency procedures such as a Company Voluntary Arrangement (CVA) and Administration. If the business is no longer viable, they can also close it down via a Creditors’ Voluntary Liquidation (CVL). 

Closing solvent businesses 

As well as helping struggling businesses, Insolvency Practitioners can also liquidate solvent companies. If a company owner wants to retire or move on to something new, the IP can close the business via an official procedure called a Members’ Voluntary Liquidation (MVL).

Debt solutions for individuals

Insolvency Practitioners also offer advice and administer insolvency procedures for sole traders and individuals with financial challenges. Options in Scotland include Trust Deeds and Debt Arrangement Schemes (DAS).

An Insolvency Practitioner must be licensed and have passed the Joint Insolvency Examination Board (JIEB) exams. Insolvency Practitioners in Scotland are licensed by the Insolvency Service, Insolvency Practitioners Association (IPA) or the Solicitors Regulation Authority (SRA). 

If your company is struggling, you must know who you’re dealing with. Some companies offer advice but don’t have an in-house team of licensed Insolvency Practitioners, so cannot administer the procedures. Instead, they will refer you to a firm of IPs and charge a fee for doing so. Even some firms offering insolvency services aren’t always qualified to deliver them. That’s why you should make sure you’re talking to a licensed Insolvency Practitioner to begin with.

Yes. Only licensed Insolvency Practitioners can act as liquidators in Scotland. As the director of a struggling business, you appoint an IP to liquidate the company on your behalf. They will bring its affairs to an end and value and sell its assets to repay the company’s creditors. Any debts the company cannot repay will be written off. 

While a liquidator must be a licensed Insolvency Practitioner, being a liquidator is only part of an IP’s role. They also act as the administrator in a Company Administration and the nominee and supervisor in a Company Voluntary Arrangement (CVA). They can also negotiate on your behalf to reach informal arrangements with HMRC and other creditors.

That depends on the insolvency procedure. In a solvent or insolvent liquidation, the IP sells the company’s assets and uses some of the proceeds to cover their fee. They then pay the rest to the shareholders (solvent) or creditors (Insolvent). In a CVA, a fee is built into the monthly payment that you make to your creditors to cover the IP’s ongoing work. 

It’s sometimes the case, particularly in insolvent liquidations, that the company doesn’t have sufficient assets to cover the liquidator’s fee. In that case, the company directors may have to use their own funds to pay the liquidator. However, like the company’s employees, the directors may be eligible for redundancy pay when they liquidate an insolvent company, and that can help them cover the liquidator’s fee.

Your accountant, solicitor or some other trusted business partner may recommend an IP, but you should still do your own research to ensure they are fully licensed and able to administer insolvency procedures. The government also has a database of Insolvency Practitioners that you can search by area.

You can also find licensed and regulated IPs online. At Scotland Liquidators, our team of Insolvency Practitioners offer professional advice and guidance and administer a full range of insolvency procedures. Get in touch to arrange your free, same-day consultation.