What Powers Do Insolvency Practitioners Have?

Anyone who has a business facing financial difficulties will likely be aware of the fact that they need an insolvency practitioner. In many cases, they will be both a legal requirement and an invaluable source of advice and insight.

It’s natural to be at least somewhat concerned about what kinds of powers insolvency practitioners have before you bring them into the process. With that in mind, let’s explore some of their powers, from applying to courts to engaging with third parties.

Powers of investigation

First of all, it’s important to note that insolvency practitioners (IPs) aren’t just there to help you out – they’re also required to investigate any potential regulatory breaches. As a result, they have the power to investigate a wide range of different areas in a given business, from financial records to potential acts of fraud. If they suspect that anything is seriously wrong, then they may choose to notify other investigatory authorities.

Decision-making powers

IPs from providers such as Chamberlain & Co have the power to make important decisions regarding the insolvent entity’s assets and operations. They can decide whether to continue or cease trading, negotiate with creditors, sell assets, and restructure the business. These decisions are made in accordance with the relevant insolvency laws and regulations and with the aim of maximizing the recovery for creditors.

Liquidation and distribution

If your business is facing extreme financial difficulties, then your insolvency practitioner will have the power to choose whether it’s necessary to liquidate your assets. Should they decide that it is necessary, they’ll ensure that they’re sold off in a responsible manner, and will then distribute the proceeds to creditors and shareholders according to legal priority.

Creditor liaison

If a business is facing insolvency, then it’s possible that the relationship with certain creditors might have broken down. Your insolvency practitioner will have the power to communicate with creditors, negotiating payment terms on your behalf. They are required to work towards an arrangement that is as fair as possible for all parties involved, according to both contracts and more generally applicable legal principles. 

Cases where those powers are limited

Finally, it’s important to mention that there are certain cases where there will be limits to the powers listed above. In both a Company Voluntary Arrangement (CVL) and an Individual Voluntary Arrangement (IVA), the company or individual in question will remain in control of most day-to-day responsibilities, with the insolvency practitioner acting more broadly in the capacity of a supervisor instead of taking over control of the situation themselves. 

In certain situations, it can be beneficial to hold on to a certain level of control, making it important that you’re aware of what potential solutions are available to you. 

Hopefully, the information above has you feeling a little more informed and prepared to take your business through its current financial difficulties. Once you’ve engaged an insolvency practitioner, many of your responsibilities will be passed over to them. While this can be stressful, it merely highlights the importance of choosing a qualified and experienced individual who you can fully trust. After that, what happens next is largely out of your hands.