If your business is facing financial difficulties, it may be time to seek the help of a licenced insolvency practitioner. But what exactly does an insolvency practitioner do, and how can they help your business?
In this article, we’ll explore the role of an insolvency practitioner and how they can assist with insolvency and liquidation and alternative options such as Voluntary Administration and business restructuring.
What is an Insolvency Practitioner?
An insolvency practitioner (IP) is a licensed professional who specialises in helping individuals or businesses navigate financial difficulties. They are insolvency law experts and authorised to act on behalf of insolvent individuals and companies.
To become licensed, an IP must meet minimum standards set out by law. These standards include working in the insolvency industry for a minimum of 5 years and undertaking a set amount of insolvency work in a senior position. In New Zealand, IPs are regulated by a professional body, the Restructuring, Insolvency and Turnaround Association of New Zealand (RITANZ).
Insolvency Practitioners vs. Liquidators
In order to be a liquidator of a company, a liquidator must be a licensed insolvency practitioner. There can often be some confusion here, but the term can be used interchangeably. The use of the phrase ‘Liquidator’ is due to the type of insolvent circumstance the IP is currently involved with, which is a liquidation.
Insolvency practitioners can act as liquidators, but they can also help with other insolvency procedures such as Voluntary Administration (VA), company restructuring and turnaround.
What does an Insolvency Practitioner do?
The primary role of an insolvency practitioner is to help insolvent businesses find the best solution for their financial situation. This can involve a variety of tasks, including:
• Assessing the financial situation of the company
• Advising on the best course of action
• Managing the insolvency process
• Communicating with creditors
• Selling assets to repay debts
• Distributing funds to creditors
• Investigating the conduct of directors in cases of corporate insolvency
Corporate Insolvency
When a company is insolvent, an insolvency expert can help with the process of winding up the company. This can involve selling assets, paying off creditors, and distributing any remaining funds to shareholders.
If your company is insolvent, the first step is to speak to an insolvency practitioner. They can help you determine which insolvency option is best suited for your business. For example, if there is potential for your business to return to profitability, Voluntary Administration may be the best route for you.
Voluntary Administration
Voluntary Administration (VA) is a process that allows a company to restructure its debts and operations in order to avoid liquidation. It is most commonly initiated by the company’s directors when they believe the company is insolvent or likely to become insolvent.
Voluntary Administration aims to allow the company to continue operating and potentially return to profitability.
Business Restructuring
In some cases, a business may not be insolvent but may still be facing financial difficulties. In these situations, an insolvency practitioner can help with business restructuring. This involves reviewing the company’s financial situation and creating a plan to improve its financial health. Business restructuring can involve a variety of strategies, such as renegotiating contracts, reducing costs, and refinancing debt. The goal is to help the business become profitable again and avoid insolvency.
Working with an Insolvency Practitioner
If you are considering working with an insolvency practitioner, it’s important to understand the process and what to expect. Here are some key things to keep in mind:
· Insolvency practitioners are legally required to act in the best interests of creditors, not the company or its directors
· They will assess the company’s financial situation and advise on the best course of action.
· They will communicate with creditors on behalf of the company.
· They may sell assets to repay debts.
· They will distribute any remaining funds to creditors.
· They may investigate the conduct of directors in cases of corporate insolvency.
Working with an insolvency practitioner can provide a range of benefits for businesses facing financial difficulties. Here are some advantages:
· Expert advice: Insolvency practitioners are experts in insolvency law and can provide valuable advice on the best course of action for your situation.
· Legal protection: Once you have engaged an IP, creditors are legally required to communicate with them rather than you, providing you with some protection from creditor pressure.
· Reduced stress: Dealing with financial difficulties can be incredibly stressful, but an IP can take on much of the burden, allowing you to focus on other aspects of your life or business.
· Improved chances of success: Insolvency practitioners have the knowledge and experience to help you find the best solution for your financial situation, increasing your chances of success.
Choosing an Insolvency Practitioner
If you are considering working with an insolvency practitioner, it’s important to find a reputable and experienced professional. Here are some tips for finding the right fit for your needs:
· Check their credentials: The Insolvency Practitioner Register is a list of all licensed practitioners in New Zealand
· Look for experience: Insolvency practitioners with years of experience will have a better understanding of the insolvency process and how to handle complex situations.
· Ask for recommendations: If you know other business owners who have worked with an insolvency practitioner, ask for their recommendations.
Real-world examples of Insolvency Practitioners in action
Helping a struggling retailer avoid insolvency
A struggling nationwide retailer with a focus on international tourism was facing financial difficulties due to declining sales when the Covid pandemic virtually wiped out New Zealand’s tourism industry. The company’s directors were considering liquidation, but they decided to seek the help of BWA Insolvency first.
We conducted a thorough review of the company’s financial situation and recommended a Voluntary Administration (VA) arrangement. This involved restructuring the business by vacating stores in towns where the industry was struggling and condensing the business to a select few key locations, such as their airport stores.
Thanks to the VA, the company was able to continue to trade and ensure it was in a good position to regrow the business once the tourism industry returned to normal.
Talk to the experts
An insolvency practitioner plays a crucial role in helping businesses navigate financial difficulties. They are experts in insolvency law and can provide valuable advice and assistance with corporate insolvency, business restructuring, Voluntary Administration and more. If your business is facing financial difficulties, it may be time to seek the help of an insolvency expert.
Ready to speak with an insolvency expert? Bryan Williams is an accredited RITANZ member and a fellow of INSOL International. BWA Insolvency has been helping businesses facing financial challenges since 1994. If you would like to find out more about insolvency services, contact us today for a confidential, no-obligation chat.