5 Mins
Facing financial difficulties can be incredibly stressful, and navigating the complexities of dealing with matters can sometimes feel overwhelming. If you or your business is facing insolvency in Scotland, seeking advice from an insolvency practitioner (IP) is an essential step to ensure you’re making informed decisions. In this article, we’ll guide you through what to expect when you seek advice from a Scottish Insolvency Practitioner and how they can help you manage your financial challenges.
Who are Insolvency Practitioners?
Insolvency Practitioners (IPs) are individuals who have, due to their knowledge and expertise, are licenced to act as IPs. Their licence is issued annually by their Recognised Professional Body (RPB), for example the Institute of Chartered Accountants of Scotland (ICAS), who monitor the IP’s work to ensure they comply with their statutory duties and the professional standards expected of them.
Part of the RPB’s monitoring includes regular visits to the IP’s practice ensuring all case work is compliant and of a high standard. IPs are responsible for ensuring their staff also work to the same rigorous standards. Regulatory failures can result in reprimands, fines and even the revocation of their licence rendering them unable to continue in practice. Insolvency procedures in Scotland are highly regulated and closely monitored making it one of the most stringent and reliable systems for managing financial distress in the world.
Initial Consultation
Most IPs offer a free initial consultation to the directors or individuals looking for help with their finances and options.
Your first meeting with an IP will usually begin with an in-depth conversation about the nature and structure of your business and your current financial position. This will include:
- A review of assets and liabilities and preparing an up-to-date balance sheet.
- Looking at current trading, stock levels, order books and cash flow projections
- Looking at staffing level.
- Considering if conversations are required with suppliers, customers, landlord, HMRC etc
- Review of any ongoing legal actions and creditor/ payroll pressures
- The urgency of matters and an assessment of the time available to put a potential restructuring plan into place or the optimum time to close the business.
- Your goals i.e. do you want to keep the business running, restructure or liquidate.
Explanation of Available Insolvency Options
After gathering your financial details, the insolvency practitioner will provide a clear breakdown of the options available to you. These could range from restructuring strategies to liquidation or even voluntary arrangements. The options will depend largely on whether you are an individual or a business, and whether you can continue to operate while addressing your financial difficulties.
For individuals, the practitioner might discuss:
- Bankruptcy: A legal process that helps individuals clear their debts, though it does have consequences such as asset liquidation and a negative impact on your credit score.
- Protected Trust Deed is another solution that may better suit the individual circumstances.
- Debt Arrangement Scheme (DAS): An option where agreement is reached with creditors to pay them over an extended period, often avoiding the necessity to realise assets, in particular the family home.
For businesses, the practitioner may discuss:
- Informal arrangements: A process in which the company contacts creditors to agree time to pay or even reduced settlement terms while continuing to trade.
- Administration: A procedure that aims to rescue a company in financial difficulty by allowing it time to restructure while protecting it from creditors.
- Liquidation: If recovery is not possible, the company may go into liquidation, where its assets are sold to repay creditors.
The practitioner will explain the pros and cons of each option and help you understand the potential impact on your personal or business finances, as well as the long-term consequences.
Exploring the Impact of Insolvency
The practitioner will help you understand the potential consequences of pursuing insolvency. For individuals, this may include:
- Impact on your credit rating: Bankruptcy, for instance, can remain on your credit report for several years.
- Impact on your assets: Depending on the insolvency route, some of your personal property may be sold to repay creditors.
For businesses, consequences can include:
- Reputation damage: A formal insolvency process like liquidation could harm the business’s reputation, especially if clients and suppliers are affected.
- Employee implications: If you are running a business, the practitioner will also advise on how to handle employees in a liquidation or restructuring.
Fees and costs
IPs should provide a transparent breakdown of fees. Generally, the fees depend on the complexity of your case, the type of insolvency procedure chosen, and the value of the assets involved. In general, fees and outlays will be met from the realisation of assets in the chosen process.
You’ll be informed whether their fees are fixed, hourly, or based on a percentage of the assets recovered. IPs accounts and fees are generally subject to audit and approval by the company, the Court and /or creditors.
Ongoing Support and Advice
Once you’ve selected a course of action, your insolvency practitioner will continue to support you throughout the process. They will provide ongoing updates, ensuring you understand your rights and obligations during the process.
Conclusion
Seeking advice from a Scottish insolvency practitioner is a crucial step when facing financial difficulties, whether personally or as a business. They offer expert guidance on the best course of action, help you navigate legal processes, and provide ongoing support to ensure the process goes as smoothly as possible. While it may feel overwhelming at first, having an experienced professional in your corner can help you better understand your options and make informed decisions that set you on the path to recovery.