Getting into Insolvency (non-qualified)
What is it?
Insolvency is when a company or individual is unable to pay debt when they are due or when the values of assets are exceeded by the amount of debts. Corporate Recovery usually refers to the recovery or restructuring of debt from/for a company, not necessarily recovering/restructuring the company itself. The creditors will have the right to appoint an Insolvency Practitioner (“IP”) if they have failed to recover their monies or reach an arrangement There are many different types of Insolvency/CR appointments, solutions and arrangements, the main ones of which are listed later in this article.
IPs are authorised on the basis of their licence to act in relation to formal insolvency procedures. They are able to provide companies and individuals facing financial difficulties with an independent assessment of the company’s, partnership’s or individual’s position; comprehensive information about the different procedures and their implications, and impartial advice on the courses of action available. It may be possible for example to avoid the winding up of a company using a voluntary arrangement, reorganising its financial structure or agreeing a “work out” with its creditors.
Who does it?
A well-established service-line, these teams are found in the big 4 (in the UK the big 4 team sizes can be anything up to around 800/1000 people) , the top 10, middle-sized general practice firms (many small general practice firms also have an IP) and of course specialist boutiques, which can range from those with just one or two IP’s to those who are large enough to compete with the big 4.
How do I get into it?
Formal insolvency traditionally recruits its trainees from school-leaver stage, with some larger firms occasionally taking graduates.
Conversion is also sometimes possible for those who have cashiering skills – we have seen conversion for legal cashiers and sometimes high-volume accounts assistant backgrounds into insolvency cashiering. Having achieved this, suitable insolvency cashiers have sometimes then converted into insolvency administration thereafter.
Study:
There are various ways of studying in formal insolvency.
- The insolvency-specific examinations are the CPI (Insolvency equivalent level to AAT) and JIEB (a full qualification which together with the requisite number of years experience entitles the holder to apply for license to practice)
- Additionally, or sometimes instead of the above, many people choose to embark on ACCA study, thus gaining knowledge of a broad range of accounting issues to back their experience.
- ACA study packages are rare due to their requiring exposure to audit, something difficult to facilitate when training in Insolvency. In the UK it is also the least relevant qualification in terms of topics studied compared to experience gained. It is better suited to those embarking on Corporate Restructuring than traditional/formal Insolvency. CA is a more common study route abroad, especially in Australia.
Which study package is on offer depends largely on the firm and on the stage at which you have left education:
School-leaver stage: GSCE: you may not get study to begin with but after a couple of years of practical experience it may become pertinent to study for CPI.
School-leaver stage: A-level: you would normally get formal study straight away, either CPI or possibly AAT/ACCA.
Graduate: usually ACCA study if specializing in formal insolvency
What will I be doing?
Casework at any level in formal insolvency will have exposure to some or all of the main types of cases below:
Administration order
A court order that creates a moratorium, freezing creditor pressure. It gives a breathing space when an IP (“the Administrator”) can work with the company to find a solution to the company’s problems. May lead to a rescue of the company.A company is usually referred to as being “in administration.”
Administrative receivership
A secured creditor (“debenture holder”), normally a bank, has the power to appoint an Insolvency Practitioner as Administrative Receiver under the terms of its charge. The function of the Administrative Receiver is to recover the lending of the secured creditor. Usually involved the sale of the assets as a “going concern” allowing the business to continue to trade but without paying creditors in full. Often followed by a liquidation of the remains of the company. (nb: the right of a debenture holder to appoint an administrative receiver was restricted by the Enterprise Act 2002)
Liquidations (winding up)
Applies to companies or partnerships. It involves the realisation and distribution of the assets and usually the closing down of the business. There are three types of liquidation - compulsory, creditors' voluntary and members' voluntary. The IP in these cases is known as the Liquidator and the company/partnership as being “in liquidation.”
Company Voluntary Arrangement (CVA): A formal deal with the company’s creditors supervised by an IP (“the Supervisor”). Often follows an Administration Order and can involve the restructuring of the company allowing it to continue to trade whilst contributing to creditors claims from the future profits.
Solvent work: used for MVLs (Members’ Voluntary Liquidations: winding down partnerships and trusts at the end of their useful lives and returning outstanding funds) and Corporate Simplification (helping larger companies/plcs etc find strategic exit routes from their dormant and unprofitable subsidiaries). This is non-appointment work as the bodies concerned are solvent.
For individuals (as opposed to companies) there are two main options:
Individual Voluntary Arrangement (IVA): A deal between an individual and their creditors as an alternative to Bankruptcy. Initial protection from creditors gained by an Interim Order which acts like an Administration Order in that a moratorium results. Can be done before or after a bankruptcy order
Bankruptcy: A court-driven procedures for insolvent individuals who may apply to court themselves or be made bankrupt on the petition of a creditors. Involves interviews with the Official Receiver. All the assets of a bankrupt vest in his Trustee who may be the Official Receiver or an IP appointed by the creditors.
Your involvement in these cases clearly increases with experience and responsibility. The career path available from trainee level is as follows:-
- Junior administrator
- Administrator
- Senior Administrator
- Assistant Manager
- Manager
- Senior Manager
- Director
- Partner (“IP”)
Juniors handles parts of cases; administrators will start to have their own caseload but not be running cradle-to-grave; senior administrators have their own caseload which is run cradle-to-grave. Managers clearly manage staff below them as well as handle more complex cases; at Senior Manager stage one would expect to be doing marketing and business development with a view to attracting enough new work to qualify being a Director or Partner, whether appointment-taking or not.
What’s in it for me?
Companies always need advice whatever the economic climate; even a boom economy can benefit IP’s as more companies are formed, more competition created and thus more casualties likely to occur. The effects for IPs of a stressed economy are evident. If you are strong enough to eventually become an appointment-taker (ie. a licence-holding Partner/Director) then the good news is that appointments follow licence-holders and thus (unlike many service-lines in the Profession) if you move firms you’re unlikely to be leaving much behind. Setting up on your own or with some other like-minded IPs may well be an attractive option.
The other route which some take on qualification is to start to convert their skills more towards non- and pre- appointment work. This is covered in more detail into our “Getting into Corporate Recovery” article, but essentially it’s the consultancy side of insolvency and aims to catch companies before they are anything like at the stage of needing a formal insolvency appointment. Phrases that may be familiar in this field are turnaround, business review, advisory/investigation, restructuring, profit improvement, working capital review. This side is generally most accessible as a full conversion to those who have studies ACCA/ACA; many Directors/IPs also build this type of work into their portfolios and you are more likely to get a share in it once well into the management hierarchy.
See “Getting into Corporate Recovery” for more detail.
