The work of an insolvency practitioner (IP) is much like that of the dentist. You expect your dentist to examine your teeth (and gums), to explain what needs to be attended to, to outline what treatments are available, to quote for the cost of each alternative treatment and to outline how long each course of action will take.
The IP must treat the debtor coming with a financial problem in much the same way: examine your financial circumstances, set out what needs to be addressed, explain what options are available and outline the cost, duration and effects of each course of action.
The need for treatment is usually clear and sometimes urgent, it may involve some pain but generally the patient (debtor) can truthfully say afterwards – “I’m glad I did that”. The debtor is not the only one in need of treatment and counseling. Various third parties are affected by the insolvency operation which the debtor undergoes.
These include the debtor’s spouse or partner and dependents and of course the creditors. Creditors often have an inadequate understanding of the role of the IP and may see him or her as an adversary to be confronted rather than as an honest broker to be consulted in maximizing the return to creditors while returning the debtor to full financial health.
There is a statutory obligation on the IP to advise the insolvent debtor and to outline all available options in the process of choosing a solution but ultimately it is the debtor’s decision which route to take. The role of creditors differs depending on the solution being proposed but creditors have a major influence on the outcome. They can for example vote to accept or reject a debtor’s IVA proposal, if that is the solution selected by the debtor. The various rights that creditors may exercise obviously depend on whether the insolvency process is personal or corporate and such rights are subject to the laws and regulations governing the particular process. Generally speaking creditors can:
Having a positive business relationship with the IP should result in win/win for creditors, debtor and IP alike. The chart below summarises the four principal solutions used to address personal insolvency problems in the UK and the main pros and cons of each of them.