In all types of insolvency processes you will notice that an insolvency practitioner (IP) will be heavily involved. They may be referred to as an:
- Office holder
- Supervisor of a company voluntary arrangement
- Trustee in bankruptcy
For more information on any of these processes, see:
- Corporate insolvency: Administration
- Compulsory liquidation: an overview
- Corporate insolvency: Creditor’s Voluntary Liquidation (CVL) explained
- Corporate insolvency: Company Voluntary Arrangements (CVAs) explained
- Corporate insolvency: Receiverships explained
The role they play and what name they are called will depend on the insolvency process, but in all cases, this role will be undertaken by a licenced IP as in the UK only a licenced IP can carry out these specific duties. However, there are some minor exceptions to this, for example the Official Receiver does not need to be a licenced IP, and neither do certain receivers or managers that might be involved in an insolvency situation.
- What is a licenced insolvency practitioner?
- Who or what oversees the conduct of an insolvency practitioner?
- What is the role of an insolvency practitioner in an insolvency of a company?
- Nominee/supervisor of an individual voluntary arrangement (IVA), company voluntary arrangement (CVA), and scheme of arrangement
- Law of Property Act 1924 (LPA) Receiver
- Administrative receiver
- Statute-appointed receiver
- Trustee in bankruptcy
- Joint office-holder appointments
What is a licenced insolvency practitioner?
IPs are licensed to take appointments in all types of formal insolvency procedures. They are heavily regulated by their own Regulated Professional Body (RPB) and often come from the accountancy field first, but insolvency lawyers may also apply for this licence. An IP must pass recognised professional qualifications to become an IP and they must then meet certain requirements for practical experience to be able to take professional appointments. For this reason, they are highly qualified in both the legal and accountancy side of insolvency, as well as having practical experience with companies on a day-to-day basis.
Who or what oversees the conduct of an insolvency practitioner?
As mentioned above, all IPs must be authorised and regulated by one of a few RPBs. These RPBs all follow the same principles which are set out in frequently updated Statements of Insolvency Practice (SIPs). Those principles are drafted following consultation between representatives from all the RPBs.
In addition, all IPs must comply with the Insolvency Practitioner Code of Ethics, which provide professional and ethical guidance promoting the values of integrity, objectivity, competence, care, confidentiality, and professional behaviour.
What is the role of an insolvency practitioner in an insolvency of a company?
This may vary depending on the type of insolvency process they are involved in. Whatever the type of insolvency process, and whoever they are appointed by to bring them into that role, they are always independent and will always act in the best interests of all creditors as a whole, not just the person or the entity that appointed them (with the exception of receivers – see below). They are first and foremost considered ‘an officer of the court’ and their duty is to act for the benefit of creditors once a company is facing insolvency.
Below we explain some of the main IP roles you may have come across in more detail:
A liquidator is an IP appointed when a company goes into liquidation.
In simple terms a liquidator will collect the assets of the company, then repay as many liabilities as possible with the recoveries they make. Following liquidation, they will often dissolve the company.
Liquidators are given very wide powers to undertake their role under various insolvency legislation provisions. Their powers are requiered to able them to sell assets, settle claims and generally deal with anything needed in the liquidation. They can compel a wide range of people or entities to provide information they require to carry out their role as required. As well as having wide powers, they also have wide duties covering how they must act. They must always provide a report on the directors’ conduct to the Insolvency Service in every liquidation, who may investigate case of misconduct which could lead to disqualification as a director. They may also take a claim against a director that they consider to have breached their duties as directors if appropriate.
A liquidator acts as an agent on behalf of the company, so they do not stand in the shoes of the company, and the company’s assets do not vest in them (although they can apply to the court for a particular asset to vest in them if needed). They will decide on creditors’ claims before any money is distributed to creditors, which is distributed under a specific statutory priority order.
An administrator is an IP appointed when a company goes into administration and can be appointed in or out of court depending on who is appointing them. Once appointed however, the administrator acts for all creditors, not just whoever appointed them.
The administrator must achieve one of the three statutory purposes of the administration, which is (in this order):
- to rescue the company as a going concern, or
- to achieve a better result for the company’s creditors as a whole than would be likely if the company were wound up, or
- to realise property in order to make a distribution to one or more secured or preferential creditors.
Like a liquidator, administrators are given very wide powers to undertake their role, are under various insolvency legislation provisions, and have far reaching duties. These powers are required to be able them to sell assets, settle claims and generally deal with anything needed in the administration. They will decide on creditors’ claims before any money is distributed to creditors, which is distributed under a specific statutory priority order. They may also take a claim against a director that they consider may have breached their duties as directors if appropriate.
The administrator acts as an agent for the company and does not take on personal liability for contracts they enter into while acting as administrator. They are subject to specific Statement of Insolvency Practice rules when dealing with a prepack administration sale, these include ensuring fair valuations are provided and assets are marketed correctly, as well as complying with specific provisions regarding connected party sales.
Nominee/supervisor of an individual voluntary arrangement (IVA), company voluntary arrangement (CVA), and scheme of arrangement
The IP is a nominee that is in place until the proposal for an IVA or CVA is either approved or rejected. Once approved, the IP then usually becomes the supervisor, and is responsible for ensuring that the arrangement is completed under the agreed terms.
While they will be appointed by the company, the IP must act for the benefit of all creditors, treating them as agreed under the terms of the CVA or IVA. Once the CVA or IVA is successfully completed, the company will carry on trading as before, without the need for any supervision. If they fail however, the supervisor is likely to have instructions under the terms of the CVA or IVA to put the company into liquidation after a certain point.
With a scheme of arrangement, the scheme document will specify how the scheme will be administered and by whom. This will usually be by a third party, often referred to as a scheme supervisor or scheme administrator and this supervisor is generally either an IP or an expert in the scheme company’s industry sector.
The role, powers and obligations given to the scheme supervisor should be clearly set out in the scheme documentation. This will generally include the power to administer the scheme in whatever way is necessary, including the powers to sell assets, and agree creditors’ claims. They usually act as agent of the company. The scheme document will often provide for an indemnity from the company in favour of the supervisor against liability incurred by them in the carrying out of functions and exercise of powers as scheme supervisor.
Law of Property Act 1924 (LPA) Receiver
This is one of the exceptions, as it is not necessary to be an IP to be appointed as an LPA receiver, although they often are IPs. They are likely to be appointed by a lender owed money under a defaulting loan agreement for the purpose of taking charge of a mortgaged property, usually with a view to selling the property, or collecting rental income for the lender. Unlike roles such as liquidator or administrator, a receiver only acts for their appointor, with the one role of recovering their appointor’s security.
A receiver has powers which allow them to deal with the secured property. These are set out both in legislation, but also more specific powers are often set out in the mortgage or other deed that allows for their appointment. Once the property is recovered, their role ceases.
The ability to appoint an administrative receiver has been curbed since 2003, but they can be still validly appointed by a Deed that predates this. They are often appointed by the holder of a floating charge over certain company’s assets that are covered by a debenture (such as a bank account or stock). Their powers come from the instrument under which they are appointed as well as by insolvency legislation. Their role is to protect the assets under the floating charge and recover the lender’s debt as far as possible. Their role then ends once this objective is achieved.
There are several types of statute-appointed receivers under legislation. They are usually appointed over certain assets, for a specific reason or a limited period of time. For example, a Proceeds of Crime Act Receiver may be appointed by the court to ensure that certain proceeds of crime are not dissipated and can be recovered for the benefit of others.
Their powers are set out in the court order appointing them, and are sufficient to take possession of certain property, and otherwise manage and deal with that property as necessary.
Trustee in bankruptcy
A trustee in bankruptcy (trustee) must be an IP, and their role is very similar to that of a liquidator of a company, but they act over an individual’s estate rather than a company.
In simple terms, they will identify, recover, sell and then distribute assets in the bankruptcy estate once they have agreed creditors’ claims.
The bankrupt’s property vests in the trustee automatically once they are appointed. This enables them to sell or transfer property, for example, without needing to go to court to ask for the property to vest in them, and without needing the cooperation of the bankrupt.
The trustee has wide ranging powers and a great deal of discretion when carrying out their role and complying with their duties. They can compel a wide range of people or entities to provide information they require to carry out their role as required.
Joint office-holder appointments
All insolvency processes allow for the joint appointment of joint office-holders (IPs), if required. This will depend on the circumstances and the type of insolvency process. In a large and complex administration for example, it is likely that there will be more than one administrator appointed, and indeed as many can be appointed as are necessary.
In these circumstances, the role of each IP can either be held jointly, or they may agree in advance who is to undertake what tasks and roles.