What happens if I consult an Insolvency Practitioner?
July 16, 2024
There are so many misconceptions about talking to IPs about a business’s problems that it’s hard to know where to start with de-mystifying the process. The two immediate fears are how much will it cost and won’t they simply want to push my company into liquidation to earn a quick fee?
The first question is easy to answer. The initial discussion with an IP comes pro bono, with no fee. It’s also important to stress that neither side will be talking about commitments or exclusivity, so nobody is locked into continuing the relationship unless they agree that it’s mutually beneficial.
In fact there are no ‘sides’. This should be an open exploration of the issues and the potential solutions between a business that may need help and a professional firm with the knowledge, expertise and experience to provide that assistance.
Everyone involved should be working towards as successful an outcome as possible, which is very often not the instant burial of the company through liquidation. Instead, if advice is sought early enough, a whole range of possibilities can be explored with the hope of saving the business and its jobs.
What should the business bring to the meeting?
Obviously, no secrets. There must be full disclosure of the financial and commercial situation, starting with the ‘headlines’ on points such as cash flow, funding resources and any enforcement threats by creditors. Profitability past, present and future is a vital aspect too, as are any significant disputes with customers, suppliers, landlords, lenders or between shareholders. Management structures and resources are relevant.
The IP must be warned about any ‘no go’ areas in terms of possible remedial actions, any options that may not be acceptable to the key stakeholders.
Depending on the particular circumstances of the company, there will be much other specific information the IP would ideally like to be told at the start. The key point is that it’s no good telling the IP half the story and expecting them to come up with the optimum solution.
Most of all, the owners or directors must come to the table with open minds, ready to consider the advice offered by the IP. There is no obligation to accept or follow that advice, but there surely is to listen to it. Otherwise, this first contact is likely to turn out to be a frustrating waste of valuable time.
What is the IP’s role?
The IP’s focus will be to listen, learn and apply their experience to the situation explained to them. It certainly isn’t to judge the management or the owners for the state the business is in or their conduct, nor to go into the discussions with a pre-conceived way forward in mind.
Whenever possible, the IP will have done at least some homework in advance on the company, its stakeholders and the market in which it operates. This is so that they can provide comment and advice as tailored to the circumstances as possible by identifying the relevant experience they have or any stakeholders where they might have a productive, beneficial relationship. There is another reason: the IP needs to be sure they will not have any conflict of interest that would prevent them from advising and, where appropriate, working with the company.
The IP’s principal task is two-fold. Firstly, to establish a relationship with the business and its representatives and then secondly to explain the various options available under the circumstances with which they are presented and the implications of each.
What is the outcome likely to be?
The first pro bono meeting is essentially an exploratory exercise. Only under the more extreme circumstances can it provide an instant answer to the problems faced by the company, although the IP may be able to provide some limited initial guidance.
Most often it will lead to a ‘shopping list’ of further information and explanations to be provided to the IP and an agreement to meet again once these data have been supplied and the IP has considered them in the context of what they were told at the first meeting. The IP will want to be able to put together a detailed report on the company, including definitive advice on its options and recommendations on the best way forward.
This second stage will not usually be free of charge, but the cost will be confirmed by the IP and agreed with the company in advance. The work will be subject to a Letter of Engagement, which will be issued by the IP’s firm once the necessary due diligence has been completed.
If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.