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When do I need an insolvency practitioner?

Many people mistakenly assume that an insolvency practitioner’s (IP) role is designed to come into practice when a company has become insolvent, and while this is true to an extent, it isn’t the rule. The question ‘do I need an insolvency practitioner?’ should cross your mind as soon as you foresee any signs of financial difficulty.

Signs of deterioration

As a director, you must be aware of your company’s financial position at all times and watch out for signs of deterioration. Common warning signs of a struggling (or soon-to-be struggling) business include, but are not limited to:

  • Lack of finance to support your company’s growth strategy.
  • Cashflow problems.
  • Falling profits.
  • Accrued debts with HMRC.
  • Inability to pay liabilities when they fall due.

Act fast

Detecting issues early can open up a range of avenues available to you. These might not be available to you further down the line. Nipping a potentially disastrous situation in the bud can mean you have access to a range of procedures, such as commercial financing, payment arrangements, or restructuring solutions. We outline options based on an assessment of your business and preferences.

What does an insolvency practitioner do?

Insolvency practitioners or IPs, are licensed to carry out tasks relating to insolvent companies and individuals. They can also deal with personal bankruptcy, perform administration and liquidation duties for businesses, and supervise through the process.

IPs must have a licence to practice and must comply with the regulations laid down in the Insolvency Act 1986.

While IPs deal with sole-traders and partnerships, much of their work involves dealing with limited companies.

Once you appoint an IP, their role will be dependent on the circumstances of the company in question. IPs can negotiate with, and report to creditors, carry out statutory duties and offer advice.

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Is your company solvent or insolvent?

If you’re experiencing financial difficulties and you think your company may be insolvent, speak to us as soon as possible. By speaking to one of our advisors, we can help you determine whether your company is at risk of, or is actually insolvent.

If your company becomes insolvent

When a company becomes insolvent, it cannot afford to pay its debts, and won’t be able to in the foreseeable future. Creditors may force the company into liquidation; assets may be seized and sold off, and the company closed. Company directors are obliged to make the necessary preparations and act appropriately. If you’re worried your company will fall into insolvency, we’d advise you to act straight away. Get in touch with us, and we can provide you with free advice and work with you to decide what to do next to address your financial issues.

My business isn’t insolvent. Do I still need an insolvency practitioner?

Although IPs specialise in companies already in insolvency, if your company is experiencing financial issues or is anticipating any, it would be advisable to contact an IP to take appropriate action as quickly as possible.

Even if your company is not insolvent, getting advice from an IP won’t discredit your company, harm your credit rating or influence any creditors. If you’re experiencing financial difficulties, contact us now for free, confidential advice.

Is an insolvency practitioner the same as a liquidator?

An IP can act as a company’s liquidator, but can also take on other appointments including a company’s administrator or act as a supervisor in a voluntary arrangement.

While IPs can be assigned to liquidate a company if necessary, their role is more expansive than just carrying out liquidation and bringing a company to a close. Before liquidation, an IP can advise company directors on potential solutions to salvage the business. If it is decided that liquidation is the only option, they can act as the liquidator.

Does insolvency mean the end of my company?

Insolvency doesn’t always lead to liquidation. Depending on the severity and circumstances of the financial problems, it may be possible for a company to continue trading after a period of insolvency. Generally, the earlier you choose to act, the better the chances of your company surviving, and more options will be available to resolve the matter.

An IP may be able to agree on a company rescue plan. These could include negotiating a Company Voluntary Agreement (CVA) or, if necessary, put the company into administration.

I’ve received a winding-up petition. What can an insolvency practitioner do?

If your company is issued with a winding-up petition (WUP), contact us immediately. We can review the available options and advise you.

If you don’t act immediately, a WUP can result in compulsory liquidation of a company, and business assets being sold off to recover the debt.

Depending on the company’s circumstances, an IP can possibly offer solutions such as a CVA, Creditors Voluntary Liquidation (CVL), administration, or pre-pack administration.

What to be careful of

When undergoing insolvency procedures, it can be easy for the uninitiated to fall for advice from unlicensed firms.

Always ensure that any advice is given by a licensed insolvency practitioner.

Avoid wrongful trading

Wrongful trading exists when you, as director, allow a company to continue trading while insolvent, thus worsening your creditor’s position. Your company would be taking on more debts and credit that it likely won’t be able to pay back. It can result in you as the director, being held personally liable for company debt. It can even lead to prosecution in some cases.

Acting as soon as you’re aware that the company is in difficulty means you aren’t risking these possible wrongful trading accusations.

Beware of ‘introducers’ and middlemen

There are middlemen out there who act as ‘introducers’, putting you in touch with an insolvency practitioner and charging you for their trouble. Do your research and ensure you’re directly in touch with an authorised insolvency practice. It will save you money, time and hassle. Only licensed IPs, such as ourselves, are authorised to conduct legal insolvency proceedings.

Free consultation & advice

All our initial advice and assessment is completely free and without obligation. It is better to check up on your business’s health rather than turning a blind eye until issues escalate.

By this point, your available options may be greatly reduced. Contact us with any worries you have, for free, regulated, professional advice.

In summary

Be vigilant as a director to spot problems, and act swiftly to prevent issues from spiralling. If you let it deteriorate, your ability to turn the company around becomes restricted, and you risk personal liability. The earlier you act, the more we can potentially do to help.

IPs will attempt to keep the company operating and stop it from becoming insolvent.

While insolvency doesn’t always mean the end of your company, if you’re experiencing financial problems, or you’re worried it’s heading for insolvency, you should contact us as soon as possible. Be aware that the insolvency industry is heavily regulated. Not doing your research and going through an ‘introducer’ can cost you much more in the long run.

How we can help

We have a team of licensed insolvency practitioners, and we operate across the UK. We can assess your business and identify any issues, construct a plan for survival and guide you through to recovery or restructure. All while bearing the brunt of stressful creditor pressure.

As licensed insolvency practitioners, you can trust that our advice is authorised and always in the best interests of your company and its creditors. Our empathetic team of consultants are on hand to provide you with free initial advice, completely without obligation.

If you have any questions or are unsure whether you need an insolvency practitioner, call us and have a free chat with one of our advisors.

Authored by Lisa Hogg

Lisa Hogg

Director & Licensed Insolvency Practitioner

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