What is the role of the Insolvency Practitioner when closing a company?

Author
Shaun Barton | Company Closure Expert

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What is the role of the Insolvency Practitioner when closing a company?

An insolvency practitioner (IP) is a licensed individual who can take on various roles, including those associated with corporate financial distress. When closing a company down, they adopt the role of liquidator when a company enters formal liquidation proceedings.

Although insolvency practitioners are naturally identified as insolvency experts they also act as liquidator when a solvent company is closing. This is because there’s a statutory procedure that solvent companies can follow to close their business whilst also taking advantage of its tax efficiencies.

When closing a company, therefore, the role of the IP as liquidator is clearly defined. So which procedures are they involved in and how do they fulfil their role?

An IP’s role as liquidator in a Creditors’ Voluntary Liquidation (CVL)

When appointed to conduct a Creditors’ Voluntary Liquidation (CVL) the insolvency practitioner works on behalf of the company’s creditors. A company is placed into insolvent liquidation because it cannot afford to repay its debts to various stakeholders – typically customers, suppliers, HMRC, and employees.

Securing a return for creditors

The appointed insolvency practitioner must ensure that creditors receive as high a return as possible from the liquidation. They do so by processing creditor claims, valuing and selling business assets, and then distributing the proceeds according to the statutory creditor hierarchy to repay company debts as far as possible during the liquidation process.

Winding up the business’s affairs

This involves overseeing financial and administrative requirements, such as closing down the payroll, processing redundancy claims, and submitting a strike-off request to Companies House.

Investigating the reason for insolvency

The IP’s role as investigator in a CVL entails identifying the reasons behind the company’s failure and looking for instances where director misconduct or negligence may have contributed to its downfall.

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Insolvency practitioners and compulsory liquidation

The process of compulsory liquidation, and an IP’s role in it, is similar to Creditors’ Voluntary Liquidation but the appointment is typically made by the courts. Compulsory liquidation occurs when a company creditor successfully petitions to have a business forcibly wound up.

An Official Receiver may be appointed initially, and they might then request that an IP continues with the liquidation and company closure process. An insolvency practitioner’s role isn’t just related to the closure of insolvent companies, however.

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The role of liquidator in a Members’ Voluntary Liquidation

Members’ Voluntary Liquidation is a process that closes down a solvent company, and again, must be conducted by a licensed IP. Their responsibilities in this instance are to the company’s members rather than the creditors, as the creditors will be able to receive all the monies that are owed to them.

The insolvency practitioner arranges and oversees the distribution of assets among members, or when appropriate, their sale and distribution of the proceeds. There’s no need for an investigation in this case as the company being closed down is financially sound.

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The insolvency practitioner as liquidator has an integral role when a company is closed down. This is true whether the business is solvent or insolvent. They can also make a significant difference to the outcome for companies heading towards insolvency, however, and this isn’t commonly known.

Their professional advice and guidance is invaluable to companies at any stage and given the potential repercussions for directors who don’t close down their business in the correct manner, it’s always advisable to seek assistance from a licensed IP.

Company Closure has extensive experience in helping directors to close their company according to the legal requirements of their circumstances. Please get in touch to find out more about how we can help, and to arrange a free, same-day consultation.

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