How can an insolvency practitioner help my struggling business?

As a business owner, your industry knowledge, business acumen and passion to deliver a profitable service best place you in the position of the key decision-maker. While your specialisms lie in running a successful company, those of a licensed insolvency practitioner lies in reforming the financial health of struggling businesses. 

It’s natural for the profitability of a business to fluctuate as overheads increase, consumer shopping habits evolve, and new competitors enter the market. If company outgoings overtake income over the long-term, your company could eventually run out of cash – which is where the skills of an insolvency practitioner can be put to work to protect the financial position of creditors and secure a future for your company. 

What is an insolvency practitioner?

A licensed insolvency practitioner, or IP, is an individual with professional qualifications, and industry experience that enables them to advise on corporate and personal insolvency matters. An insolvency practitioner will be licensed by a recognised professional body and have passed mandatory professional insolvency examinations.  

A licensed insolvency practitioner may be voluntarily appointed by a company director to rescue, restructure, or close a company. 

What procedures can an insolvency practitioner advise on?

If your business is in financial difficulty, a licensed insolvency practitioner can advise on a variety of company rescue options, including a Company Voluntary Arrangement (CVA), company administration and pre-pack administration. 

If you’ve received a winding up petition as you’re struggling to pay creditors, a licensed insolvency practitioner can advise on suitable formal insolvency procedures to help avert the prospect of compulsory liquidation.

If there is no hope of recovery for your business, a licensed insolvency practitioner will facilitate the closure of your company efficiently and strive to maximise returns for creditors, such as through a Creditors’ Voluntary Liquidation (CVL). 

A licensed insolvency practitioner can also support the closure of a solvent company and help extract retained profits cost-effectively through the Members’ Voluntary Liquidation (MVL) route. 

Insolvency support for financially distressed businesses 

If you’re unable to pay creditors, suppliers, and staff, an insolvency practitioner can review the way your business operates to spot any missed opportunities. The skills of an insolvency practitioner are honed to identify inefficiencies and cash flow leakage. 

If the immediate future of your business is under threat, you may need to enter a formal insolvency procedure, such as a Company Voluntary Arrangement, during which your company will be protected from creditor action. 

Company Voluntary Arrangement – A CVA is a payment plan negotiated with creditors by an insolvency practitioner and lasts between 3-5 years. It is a legally binding contract that splits payments into affordable instalments. 

If you’re struggling to keep up with your HMRC tax bills, you can split your payments into smaller monthly instalments through what’s known as a Time to Pay Arrangement. An insolvency practitioner can help you with your Time to Pay Arrangement proposal.

Company Administration – If your business is asset-rich, yet cash poor, company administration can halt creditor action as your business undertakes an intensive period of recovery through the likes of restructuring and asset sales. 

Insolvency practitioners work closely with professionals in the financial services industry, including commercial finance specialists. If your business requires a cash injection, or a tailored finance facility, such as invoice or asset finance, they are well placed to meet your funding requirements through a lender panel. 

What to look for when appointing an insolvency practitioner 

When appointing an insolvency practitioner, here’s a checklist that you must follow:

  • Are they qualified and experienced?
  • Are they licensed and therefore, regulated by a recognised professional body?
  • Are they reputable and professional?
  • Is the pricing structure transparent, or are their hidden costs?

Check that they are licensed – the key giveaway is if the professional goes by the term ‘expert’ or ‘specialist, and the term ‘licensed’ is absent. A quick check for insolvency practitioners in your area can be made through the insolvency practitioner directory

The cost of a licensed insolvency practitioner varies based on the individual, the insolvency practice, and the procedure.

A one-off fixed fee may be negotiated for the likes of company liquidation, whereas, an ongoing procedure, such as a Company Voluntary Arrangement may incur a monthly fee on a ‘time-cost basis’. Beware of firms that charge a small upfront fee, as this is often outweighed by an excessive fee post-procedure.  

To keep your business healthy and operating in a financially efficient manner, you should enlist the support of a professional accountant and seek advice from a licensed insolvency practitioner if your business takes a turn for the worse. As businesses embrace digital transformation and the coronavirus pandemic triggers a change in consumer shopping habits, a regular financial health check of your business is crucial.

Keith Tully is a partner and insolvency expert at Real Business Rescue, a trusted firm of licensed insolvency practitioners and company rescue experts with 30 years of experience. Keith advises company directors in financial distress and at risk of company insolvency.  

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