Discover the benefits of reaching out to licensed insolvency practitioners as a creditor who is owed money.
When a company is failing, it is usually the directors who approach a licensed insolvency practitioner for advice and guidance on what they should do next. However, licensed insolvency practitioners can also be appointed by a creditor or the courts.
The party who initiates the insolvency process is the one responsible for paying the fees, and if it is a creditor who begins insolvency proceedings against a company, the director will be served with a winding-up petition.
As a creditor owed money, your primary goal is to recover as much of your debt as possible – and engaging with a licensed insolvency practitioner could significantly improve your chances of getting a favourable outcome.
While the insolvency process is often associated with business owners seeking support, it’s crucial for creditors to understand how licensed insolvency practitioners can advocate for their best interests and help maximise financial recoveries.
Why you should contact an insolvency practitioner as a creditor
While a lot of creditors take the insolvency procedures of their clients at face value, many don’t understand the potential benefits of contacting an insolvency practitioner if your client is facing insolvency.
In fact, the majority of creditors tend to give up and simply write off insolvent clients as bad debts – however, all it takes is a discussion with a local insolvency practitioner to get back at least some of the money you are owed.
Basically, if and when directors take a great interest in insolvency cases, there is a very real chance that they will get more out as an end product. It’s as simple as that!
Your right to appointing an insolvency practitioner
Appointing the right licensed insolvency practitioner from the start will have major implications on any case. It could be as simple as choosing a more flexible firm to maximise distributions as fees, or just choosing a firm that you know will take the time and effort into looking into a business accordingly.
All creditors are entitled to have a say in who gets appointed in a case. It’s a simple process of filling out your voting form and contacting your chosen insolvency practitioner. So, if you have an insolvency practitioner you would prefer to use, it’s important to have your say.
5 benefits of contacting licensed insolvency practitioners as a creditor
1. They will investigate the company’s finances
Once appointed, an experienced insolvency practitioner will have a deep understanding of what to look for to help you get back any monies that you are owed. They will most likely begin by looking through records for any discrepancies.
This includes identifying any inappropriate transactions, such as fraudulent trading or wrongful trading where directors continued to incur liabilities when they knew the company was insolvent. Any signs of company directors continuing to trade whilst knowingly insolvent can be a major factor in increasing the potential distribution to creditors.
Essentially, if a director has knowingly been trading whilst insolvent, there is a chance to increase distributions through involving their own personal finances. This is because if a director can be found to have continued ordering stock, or continued to use stock, whilst knowingly insolvent and could not afford to pay, they can be found personally liable.
Another thing they will look out for are transactions at undervalue or preference payments that unfairly favour certain creditors or individuals close to the company. By scrutinising the company's accounts, the insolvency practitioner can recover misappropriated funds for the benefit of all creditors.
2. They will take prompt action to protect assets
Once appointed, an insolvency practitioner will take immediate control of the company’s assets to prevent further dissipation. This ensures that valuable assets are not sold off cheaply or lost due to disorganisation.
In some cases, the IP can trace and recover assets that were transferred improperly, which could increase the returns to creditors. For example, if a related company owes the insolvent business a substantial debt or holds assets of value, an insolvency practitioner can initiate proceedings to reclaim these funds.
3. Representation in creditors’ meetings
Insolvency practitioners also play a crucial role in coordinating and managing creditors' meetings. These meetings provide an opportunity for creditors to review the company's statement of affairs, and vote on resolutions, such as the approval of the liquidation or voluntary arrangement proposals.
This level of involvement ensures that creditors have oversight and can influence the process to achieve the best financial outcome.
4. They will explore all the solutions available
Licensed insolvency practitioners can also explore whether the company can be rescued or restructured rather than liquidated.
If the business has a viable core, options such as a company voluntary arrangement or pre-pack administration may allow for a sale or continuation of operations, generating higher returns than a fire sale of assets.
What’s more, in scenarios where the business is sold as a "going concern" rather than wound up, creditors often recover more of their money.
5. They will ensure a fair distribution of proceeds
An insolvency practitioner will also ensure that any recovered funds are distributed fairly and according to legal priorities. Having a neutral professional in charge minimises the risk of disputes or unfair treatment.
This includes securing repayments for secured creditors, covering preferential debts (such as employee wages), and allocating what remains to unsecured creditors in line with the Insolvency Act 1986.
How licensed insolvency practitioners McAlister & Co can help
If you are a director with an insolvent client and are owed money, the general rule of thumb is that the more you put in, the more you will get out.
If you need help or advice regarding next steps when dealing with a client who is facing insolvency, then do not hesitate to get in touch with McAlister & Co today.
As one of the leading licensed insolvency practitioners in the UK, there is nothing we don’t know about business insolvency. So, for help and confidential advice, be sure to reach out to our team.
