Does an insolvency practitioner work for me or my creditors?

by rsimms on August 22, 2013

The simple answer to this question is both!

An Insolvency Practitioner (IP) has a professional duty of care to the person or company that appointed him, but also has a fiduciary duty to maximise creditors’ interests.

As Richard Simms, Managing Director of FA Simms & Partners, explains: 
“Protecting creditors’ interests and paying off debts is a top priority and legal obligation for company directors and IPs, regardless of the insolvency procedure pursued.”

Legal obligations

As a company director, you have a legal and moral duty to ensure that your business is trading solvently (i.e. that it is able to pay its debts) and that risks to creditors are minimised. Appointing an insolvency practitioner to act as company liquidator will enable you to meet those obligations.

After taking over control of the company’s affairs from the directors, an IP is bound – by law – to take every possible step to pay back as much creditor debt as is feasible.

Payment pecking order

All of the company’s assets must be gathered in and liquidated (i.e. turned into cash), before being distributed to creditors according to the statutory priority of payment hierarchy.

1. Secured creditors (e.g. banks) with a ‘fixed charge’ over assets

2. Insolvency fees and charges

3. Preferential creditors (e.g. employees and pension schemes)

4. Secured creditors with a ‘floating charge’ (usually the bank)

5. Unsecured creditors, including trade suppliers and HMRC

6. Shareholders

Customised approach

No two insolvency cases are the same.

Instead of just responding to questions with off-the-shelf industry advice, we challenge ourselves to create unique, innovative solutions tailored to your specific requirements.

If business turnaround is not a viable option, you can rest assured that the company will be closed down legally and effectively – allowing you to move on with your life with peace of mind knowing that It has all been handled correctly.

We’d be interested to know if you found this blog post helpful.

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