Insolvency Advice – What and who to ask?
There are many companies and individuals advising directors and sole-traders about insolvency for their businesses. Not all these advisors have the knowledge or qualifications to provide a sound level of advice (across the board) on all insolvency solutions that are available and the consequences of such actions.
A Licensed Insolvency Practitioner is not only qualified in all areas of insolvency, but is also heavily regulated to ensure that their advice is of the highest standard.
What Should You Ask – (Before Meeting)?
When making an appointment, talk to the person who is coming to see you. Briefly explain the situation and they will be able to assess the urgency of an appointment. You should also be given full contact details so that you can talk to them prior to the appointment if there are any changes or you have any worries or concerns.
Talk to them about their qualifications and experience so you can assess that they are up to the job. You can check out a person’s credentials by looking on their website, LinkedIn and The Insolvency Services register of Insolvency Practitioners.
What Should You Discuss – (At the Meeting)?
Discuss the business at length including (but not limited to):
- What the business does
- A brief history of the business – why is it in this position, what has changed?
- Future orders, hopes and aspirations
- Look at any financials that you have such as cashflows and management accounts
- All Assets – stock, machinery, vehicles, book debts
- All trade liabilities and when they are due
- Any threats from creditors – landlords, legal demands
- All loans, bank and HMRC liabilities
- Property – leases or freehold
- Any secured creditors – legal mortgages and debenture holders
- Invoice finance / Asset finance / Factoring companies
- Employees – and key staff
- Connected companies and how they interact
- The bank and how supportive they are
- Personal guarantees given in support of the business
- Directors previous insolvencies
Your advisor should prompt you on these key areas, but more importantly should listen and take notes.
By laying all the cards on the table, the advisor should be able to determine what hands can be made and advise you on the options available.
They should discuss with you the most suitable solution and justify why this is so. Advantages and disadvantages of this should be laid out to you and you should be advised of what this procedure involves.
They should also discuss the other procedures available, the pro’s and con’s of each and brief details about the procedure.
The impact of any procedures on all the stakeholders should also be explained, for example if there are personal guarantees on a lease, the advisor should point out that the landlord may pursue these individuals in a personal capacity.
The advisor should let you know what involvement in the procedure you will have and also of any other professionals who may be brought in, such as solicitors and agents.
Directors (or sole-traders) Responsibilities
Running a business or limited company whilst it is insolvent can have consequences on the sole trader or directors. You should be advised of the do’s and don’ts. These are guidelines only as the advisor has no control over your business and you should feel comfortable discussing these. Nobody is trying to catch you out, they are there to help.
Being from Yorkshire, I am quite familiar with this phrase. This is usually left to the end (and there are reasons for this), but it is probably the first thing you want to ask. An advisor will only be able to provide you with this information once they have processed the information. Different procedures have different costs depending on the level of complexity and the size of the job.
Fees are usually in two parts, pre and post appointment, where the insolvency appointment is a set ‘effective date’, which will be some time in the near future. The quote will normally involve a set fee for the pre-appointment work and the post appointment fee is usually set on time costs. It is usual that the creditors (or debenture holder) will set the post appointment fees.
Don’t be afraid to ask the following questions:
- Can I have an estimate of the total fees?
- Can these fees be capped at a certain level?
- What other disbursements will there be?
- What are your charge out rates?
- Are any of these required up-front?
Who Pays the Fee?
The limited company is responsible for the fee. When there are insufficient assets to allow the fee to be discharged, the directors may be asked to pay the fee personally.
With a sole-trader business, the sole-trader is responsible initially, until an insolvency procedure is entered into.
I hope this article provides some help to ensure that you get the advice you deserve.
I have been advising companies and sole-traders on insolvency for over a decade and pride myself in providing a thorough service that leaves the sole-trader/director with a plan and relieves some of the pressures on them.
The initial meeting is free and without obligation and I would love to hear from you if I can help. Call Claire Foster on 01302 965485 or email firstname.lastname@example.org.