Stakeholder confidence in the role of an IP
26 January 2018: The role of an insolvency practitioner (IP) is never straightforward as we frequently deal with stakeholders with competing interests. Despite trying to do the right thing by all concerned, an IP will come across understandably disgruntled parties.
A statement we often hear is that it is wrong for companies to go bust while owing significant sums to creditors, and for the directors responsible to suffer little in consequence. Such views perpetuate the negative perception of directors of failed companies and the IPs who facilitate the subsequent insolvency processes. It is incumbent on IPs to explain the necessity of their role to stakeholders in the process.to read more, please click here …
The worst case scenario for a creditor is for a debtor to go bad with no prospect of a dividend. It is understandably frustrating for a creditor to be informed that they will not be paid in full, if at all. Despite having advised the company during the initial stages of the process, an IP’s principal duty is actually owed to the creditors. The primary function of an office holder is to realise assets of the company and distribute funds to creditors.
The Milton Keynes office dealt with an insolvent liquidation involving more than 90 individuals who had lost deposits averaging £1,000 in value. Whilst acting as liquidators, BRI argued on behalf of those creditors that funds remaining in the insolvent Company’s bank account were, in fact, monies held on trust for those individuals, rather than an asset of the liquidation. This ensured that the affected individuals received a modest return where there was previously no prospect of distribution.
Employees of an insolvent company will invariably be disappointed upon being made redundant, often without notice. An insolvent company will not have the funds to pay employees and there may be a perception that the directors have the IP “on their side”. In fact, the IP will help employees understand the insolvency process and assist them to claim outstanding monies from the government.
BRI was instructed to assist with a restructuring process of a company employing in excess of 70 staff, some with over 30 years’ service. It was necessary for us to carefully manage the employees’ understanding of the implications of a voluntary arrangement. The threat of redundancy was an understandable shock for those involved and resulted in a mass of misinformation being shared on social media amongst those affected. It was therefore crucial for the staff at BRI to communicate the right information in a transparent and effective manner to ensure that those involved understood the implications of the process and how their interests would be affected. The restructure of the company was subsequently approved by creditors and the Company continues to trade out of its difficulties, with the majority of staff having retained their employment.
When a company is insolvent, the directors’ fiduciary duties switch and they are required to act in the best interests of creditors, rather than shareholders. Distributions of assets are made in accordance with the rights and interests of the stakeholders and only in the rarest of circumstances (i.e. when creditors are paid in full plus statutory interest) will shareholders receive any distribution. An IP will investigate the actions of the directors to determine whether there has been misconduct by the board, whom the shareholders had previously trusted.
BRI were engaged in a matter involving a shareholder dispute which resulted in a liquidation. It was clear that the minority shareholder was concerned by the conduct of the directors. We were able to diffuse the situation by ensuring that concerns raised were independently investigated, thereby avoiding considerable legal costs. Whilst a liquidator cannot divulge the precise details of an ongoing investigation, we were able to provide a sufficiently detailed explanation of the outcome of our investigations.
IP’s are required to be transparent in their dealings thereby increasing stakeholder confidence in the insolvency profession. Far from being on any one “side” the IP performs a valuable role by assisting with the difficult task of liaising with stakeholders with diametrically opposing views.
If you or your clients require any assistance in dealing with any queries, issues or financial difficulties then please contact a member of the experienced BRI management team at one of our offices for free, confidential, no obligation and independent advice.