How Insolvency Works

What is an Insolvency Practitioner?

An Insolvency Practitioner is someone who is licensed and authorised to act in relation to an insolvent individual, partnership or company. If you are insolvent, it means you cannot pay your debts when they become due.

Insolvency Practitioners must follow the law, and their work is monitored by regulators to make sure that they do. The Insolvency Service and the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) are the main regulators, and they along with the Recognised Professional Bodies (RPBs) and other Professional Body Supervisors (PBS) check that the work is being carried out according to the law.

Insolvency Practitioners are appointed to help resolve difficult financial situations. Where this involves a business in financial distress, the Insolvency Practitioner’s main task is to try to rescue the business.

Insolvency Practitioners’ work also involves:

  • selling the assets of the person or company who owes money to help them pay off their debts;
  • collecting money due to the person or company;
  • agreeing creditors’ claims; and
  • distributing the money collected after paying costs.

The Insolvency Practitioner’s work involves dealing with many competing interests, but usually their main duty is to look after the interests of creditors and the wider public interest. Although creditors can give details of their claims, Insolvency Practitioners will not agree the claims until they are sure that funds will be available.

In some cases, the Insolvency Practitioner will give advice to someone in debt before a formal insolvency process begins.

An IPA licensed Insolvency Practitioner is able to advise on, and undertake appointments in, all formal insolvency procedures, including liquidations, Company Voluntary Arrangements (CVAs), administration, receiverships, bankruptcy and Individual Voluntary Arrangements (IVAs).


Bankruptcy is a formal personal insolvency option and involves proceedings following a petition to the court. The petition can be made by the individual or someone they owe money to (a creditor)

Bankruptcy can impact on an individual’s property and other valuable belongings. Any funds realised from any sale are then shared among the creditors.

As a result of bankruptcy, someone who has been made bankrupt cannot act as a company director, and if they trade as an individual, they must trade in their own name so that people can search the register and know they are bankrupt.

An Insolvency Practitioner may act as the trustee in the bankruptcy.


Liquidation is a procedure where the assets (for example, the buildings, equipment and vehicles) of a company are collected by the Insolvency Practitioner (acting as a liquidator) and sold, and the money is used to pay creditors, in a specific order. The courts may make an order for liquidation (sometimes called ‘winding up’) or the directors of the company may decide to put the company into liquidation.


Administration is a procedure that allows an Insolvency Practitioner (acting as the administrator) to try to rescue a company or sell its assets to repay all the creditors as much as possible of what they are owed.

Voluntary Arrangements

Voluntary Arrangements are procedures that allow someone who owes money to enter into an arrangement with creditors to repay all, or a percentage of, the debts. The Insolvency Practitioner (acting as a Supervisor) makes sure the agreed terms of the arrangement are met.

Companies can enter into voluntary arrangements via a Company Voluntary Arrangement (CVA) and individuals through an Individual Voluntary Arrangement (IVA) or a Protected Trust Deed (PTD). PTDs are available in Scotland only.

There are other forms of debt repayment or management solutions, but these do not always involve an Insolvency Practitioner.

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