Role of the Insolvency Practitioner: The work of an insolvency practitioner (IP) is much like that of the dentist. You expect your dentist to examine your teeth (and gums), to explain what needs to be attended to, to outline what treatments are available, to quote for the cost of each alternative treatment and to outline how long each course of action will take. The IP must treat the debtor coming with a financial problem in much the same way: examine your financial circumstances, set out what needs to be addressed, explain what options are available and outline the cost, duration and effects of each course of action. The need for treatment is usually clear and sometimes urgent, it may involve some pain but generally the patient (debtor) can truthfully say afterwards – “I’m glad I did that”. The debtor is not the only one in need of treatment and counseling. Various third parties are affected by the insolvency operation which the debtor undergoes. These include the debtor’s spouse or partner and dependents and of course the creditors. Creditors often have an inadequate understanding of the role of the IP and may see him or her as an adversary to be confronted rather than as an honest broker to be consulted in maximizing the return to creditors while returning the debtor to full financial health.
How creditors can gain from working with the Insolvency Practitioners: There is a statutory obligation on the IP to advise the insolvent debtor and to outline all available options in the process of choosing a solution but ultimately it is the debtor’s decision which route to take. The role of creditors differs depending on the solution being proposed but creditors have a major influence on the outcome. They can for example vote to accept or reject a debtor’s IVA proposal, if that is the solution selected by the debtor. The various rights that creditors may exercise obviously depend on whether the insolvency process is personal or corporate and such rights are subject to the laws and regulations governing the particular process.
Generally speaking creditors can:- remove an IP – appoint an IP in whom they have absolute confidence – cap or restrict fees charged by the IP – influence the fees being charged by an IP in a particular case and question the fees if they feel they are disproportionate – attend meetings and vote on proposals. Such rights apply to corporate as well as personal insolvency processes – increase the contributions to be made by the debtor – insist on the sale of assets – request that the equity in the debtor’s property be released – assist the IP by providing relevant information on the insolvent person or entity – furnish proofs of debts – help the IP to establish the whereabouts and identification of assets of the insolvent estate – verify the historic trading relationship they have had with the debtor – clarify their expected future trading relationship, if the debtor is to continue trading – and participate in creditors committees – seek to increase the dividend on offer to creditors without jeopardizing the arrangement
In order to have a ‘win-win’ situation for creditors, the debtor and the Insolvency Practitioner, it is essential they have a positive business relationship with the Insolvency Practitioner. The four principal solutions used to address personal insolvency problems in the UK and the main pros and cons of each of them are outlined below: Debt Consolidation: Creditors are paid in full, stop chasing for payment, doesn’t affect your credit rating, can have lower interest rates if part of a mortgage. Although, it can be seen as delaying the inevitable D-Day. The availability of Debt Consolidation depends on your status and interest costs are still significant. IVA: Has advantages in protection from creditors. Has a specific end point. The monthly IVA Payment is affordable. You avoid Bankruptcy. You get to keep your car and house (if applicable). Your interest is frozen and any legal action is stopped when an IVA is set up. You can be debt free in 5 years. The drawback is that you have 5 years as opposed to 3 years in Bankruptcy and you can borrow no more during the IVA period. Bankruptcy: Addresses your debt problems fully. You have an Income Payments order for a maximum of 36 months. You have an affordable Monthly payment. However there is a certain social stigma attached for some profession which in some cases, can lead to a career loss. Also, restrictions on Bankruptcy can last anything from 2 to 15 years. Debt Management: This can be a simple, straightforward and flexible Debt Solution with affordable monthly payments. Another party can help to communicate with your creditors. Although things like charging orders can put your house at risk. There is the threat of legal action from your creditors. It can last indefinitely. Interest isn’t always frozen so can accrue.
In Scotland the term for Bankruptcy is known as Sequestration and the term for an IVA is known as a Protected Trust Deed. There are some differences in the legislation for these Scottish financial solutions in from that which applies in England, Wales & Northern Ireland. In the Republic of Ireland there is no legislation similar to an IVA as of yet. Bankruptcy laws in Ireland are very ancient and the cost of Bankruptcy there is so expensive that only a few people are made bankrupt in Ireland annually. In stark contrast to Ireland there were over 135,000 personal insolvencies in the UK in 2010. These consisted of Bankruptcies (44%), IVAs (37%) and Debt Relief Orders (19%). None of these products, the IVAs or Debt Relief Orders are available to the insolvent consumer in Ireland. With so many options available in the UK, it is evident that your Insolvency PRactitioner can do a lot for you when your financial affairs run into difficulties.
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