A client with a failing business may reach out to you about how to manage their debts and in some cases, insolvency.
You may need to seek the advice of an insolvency practitioner (IP) to advise your client. Insolvency practitioners firm F A Simms & Partners answer frequently asked questions about the process.
What is an insolvency practitioner?
The basic role of an IP is to help a limited company, sole trader or individual when they are unable to pay their debts.
They can either work directly with the company or individual who is struggling, or they can assist with a third party such as an accountant, bookkeeper or solicitor.An IP will help manage the situation with either a business rescue solution or a liquidation process (using a company’s assets to pay off its debts).
An IP’s main job throughout an insolvency liquidation process is to sell any available assets and distribute the funds to creditors in order as set out in the Insolvency Act 1986. They are also there to be the main point of contact with creditors and to deal with any employment redundancy claims.
During a business rescue process such as a Company Voluntary Liquidation (CVA) the IP will be known as a supervisor and their main job will be to oversee the process and ensure the company is adhering to what was set out in the agreed proposals.
Why use an insolvency practitioner?
If contacted early enough, an IP may be able to aid in business rescue and turnaround strategies before the client needs to consider closing the business.
Only a licensed IP can legally carry out formal insolvency procedures. A licensed insolvency practitioner will be regulated and supervised by the Insolvency Practitioners Association (IPA). You can go on the IPA website and search for insolvency practitioners who are licensed within a particular area.
When should you contact an insolvency practitioner?
We would always encourage accountants who feel that their client is struggling with insolvency to contact an IP when the first warning signs start to show in the company’s cash flow.
By seeking advice early it can help both the accountant and the client to understand the situation further. An IP can also provide a range of solutions, whether that is full closure via a liquidation process or a business rescue package to save the business and trade forward.
Just because advice is sought, does not mean it is the end of the road for that business. Gaining clarity of the exact problem and understanding the solutions early can be the difference between being able to rescue the company and having to fully dissolve it via liquidation.
What will happen when I contact an insolvency practitioner at F A Simms?
When we have previously received a call from an AAT accountant, the issue they brought to us was a client who had received a Statutory Demand in the post from one of their larger creditors.
During the conversation we wanted to understand how much time was left to pay the Statutory Demand and if there were sufficient funds available for their client to do so. The client in question did not have sufficient funds to pay the Statutory Demand and the company was in fact behind on a number of payments, with trade slowing.
Company Voluntary Arrangement
The two options available for this scenario after listening to a brief description of the company’s situation would be a Company Voluntary Arrangement (CVA) and a Creditors’ Voluntary Liquidation (CVL).
A CVA would be considered if the company had sufficient profit going forward and was able to pay back a pence in the pounds offering to their company creditors. A pence in the pound offer will mean the company will pay back a percentage of the money owed. Unfortunately in this scenario the company was struggling to pay a number of creditors, which was having a negative effective on their trading. As there would not be sufficient money coming into the company to keep up with the proposed monthly payments, a CVA would not be suitable.
Creditors’ Voluntary Liquidation
Our IP explained to the accountant that if their client is struggling as much as they have described then there is still the option of a Creditors’ Voluntary Liquidation, and that this can be entered into despite the Statutory Demand having been issued. The IP explained how the process would be much more flexible than if the Statutory Demand progressed to the court process of Compulsory Liquidation.
Follow up support
A face-to-face meeting was arranged between the accountant, their client and our IP in order to discuss their situation in more detail and set out all of the options available. There was no charge for this meeting and our IP travelled to a location convenient for the client.
The IP received a call the next day explaining that the client wished to proceed with a Creditors’ Voluntary Liquidation. Once this decision had been made an initial information sheet was sent to the client for completion and one of our case managers prepared all relevant and statutory paperwork. Notices were sent to company creditors advising them of a meeting that had been called with a view to placing the company into liquidation.
If you would like to know more or feel you may need advice regarding a client, then use the AAT helpline number to speak to one of our insolvency practitioners directly for free, confidential advice. The helpline number is: 01455 555 615 or email firstname.lastname@example.org.
Richard Simms is an Insolvency Practitioner at FA Simms.