Insolvency Practitioners

When an individual or a business goes into bankruptcy proceedings, following the provisions of the Insolvency Act of 1986 as amended by the Enterprise Act of 2002, the bankruptcy court appoints an official receiver of the assets of the individual or business. Under the law, official receivers must be civil servants in the Department of Trade and Industry, which has an organic unit called the lnsolvency Service.

Upon appointment, the official receiver interviews the bankrupt or the company and assumes control over financial affairs. Generally, when amount of money or assets under liquidation are relatively minimal, the official receiver handles the bankruptcy; otherwise, when large amounts are involved and the realisation of the assets faces complex issues, the receiver will ask for an insolvency practitioner (often abbreviated to IP) to be appointed as liquidator or trustee in bankruptcy.

An IP usually has a background in accountancy, and there are lawyers active in the IP profession. However, any person can gain direct entry by taking the examinations for an Insolvency Licence. Only authorised insolvency practitioners with a valid licence may be appointed.

The appointment of the insolvency practitioner comes from the creditors at a meeting called by the official receiver or the Secretary of State. Once appointed, the IP's first duty is to inform all creditors of the appointment.

Functions of the Insolvency Practitioner

As trustee or liquidator, the IP has the primary duty realising and distributing the assets. If these are to be disposed, the IP is expected to dispose the assets for the best possible price. The objective is to be able to distribute the largest possible share of the assets, after mandatory payments for fees and costs, to the creditors.

If in the opinion of the IP, the bankrupt or company disposed of property in a manner that was unfair to the creditors, the IP may petition the court for an order to restore the property, in effect to void the disposal of the property. For instance, a property may have been transferred at less than the true value to a relative or an affiliate business shortly before bankruptcy.

The IP may also initiate legal action in court against directors and officers (current or past) in their personal capacity, for and on behalf of the creditors, as in cases of wrongful trading, for instance.

The IP may file a claim for property that a bankrupt may have obtained during the period of bankruptcy. It will be within the IP's right to also ask the bankrupt to pay a portion of the bankrupt's salary or other forms of income to the trustee, or ask the court for such an order. This may cover a maximum period of three years, and may be done if that income exceeds the reasonable requirements for living of the bankrupt and the family.

Powers of the Insolvency Practitioner

As trustee or liquidator, the IP has powers set out in the Insolvency Act 1986. Some of these powers need the permission of the court or creditors' committee, but others may be exercised without permission. Those powers that need permission usually pertain to matters that have material effect on the interest of the creditors, such as decisions to continue the business, legal actions relating to the assets, mortgaging the assets to raise funds for lawful purposes, and so forth. In these cases, if there is no committee, the Secretary of State assumes the role and authority of the committee.

The IP, as trustee or liquidator, has the inherent powers to sell property (but only for immediate payment), sign documents in the name of the bankrupt or company, or act accordingly. The IP may also employ persons and do whatever is necessary for the winding up activities.