I have been informed that an Insolvency Practitioner has been appointed. What does this mean?
An Insolvency Practitioner (also known as an I.P.) may be appointed to take control of the business or person’s affairs. IPs have different titles depending upon the type of appointment.
Administrator/Administration
An Administrator is usually appointed by the directors or by the party funding the business (e.g. bank). The Administrator is appointed as an officer of the court and must act in the best interests of the creditors (including employees) of the business.
An Administrator will normally seek to:
Refinance the business and effectively rescue it;
Sell the business as a going concern; or
Arrange a repayment agreement with its creditors.
Failing these, or if the Administrator thinks that the business could be sold for more on a piecemeal basis, the business would be wound down and closed.
Administrative Receivership/Administrative Receiver
This is a different process to Administration and the appointment is made by the business’ funders (e.g. bank). The directors may have asked the funders to appoint an Administrative Receiver or the funders may have decided it is necessary.
An Administrative Receiver is tasked with recovering the money of the secured creditors of the business (the funders; e.g. banks).
Although Receivers do have a duty of care to employees their prime duty is to the party appointing them. Therefore their actions are aimed primarily at recovering money for the bank.
Liquidation/liquidator
It is important to establish the type of liquidation as there are 3 main types:
Members Voluntary Liquidation (MVL) – this is used where the business can pay what it owes and is used to finalise a compay once it has reached the end of its life. It can also be used to restructure businesses, usually to obtain tax benefits. If an employee is owed money then this should be paid in full.
Creditors Voluntary liquidation (CVL) – this is where the company voluntarily appoints a liquidator as it is unable to pay its creditors.
Compulsory Liquidation – this is where a creditor applies to court for the winding up of the business. In this type of liquidation contracts of employment are automatically terminated following the appointment of a liquidator.
The latter 2 types are typically terminal procedures where the business would be closed down and the assets of the business sold off by a liquidator.
Voluntary Arrangements/Nominees and Supervisors
A Company or Individual Voluntary Arrangement is a legally binding contract between the party concerned and its creditors. Such an agreement usually comprises of an agreement to contribute part of the person’s income or business’s profits over a fixed period of time to pay some or all of the money owed to the creditors of the business. It may also involve the sale of part or all of the business and its assets.
A Nominee assists in the process of obtaining the agreement of creditors to the proposal. If creditors approve the proposal then a Supervisor is appointed to oversee the implementation of the agreement. The Nominee and Supervisor are typically Insolvency Practitioners and are usually the same person.
Bankruptcy/Trustee in bankruptcy
If a person is unable to pay their debts they may petition for their own bankruptcy or a creditor of theirs may apply to court for the individual to be made bankrupt.
The Official Receiver would normally be appointed as the Trustee but if there are assets to sell they may seek the appointment of an Insolvency Practitioner as Trustee.
The Trustee would sell or realise assets that belong to the individual, including their residential property if there is equity in it to pay to the creditors some or all of the money they are owed.
