Gary Venner CEO of IFA Acquisitions, sat down with Glyn Mummery, Liquidator and Partner at FRP Advisory who are considered to be one of the top 10 liquidator firms in the UK and regularly acts on behalf of liquidations in the Financial Services sector. Gary had some questions for Glyn about the process of liquidations of Limited Companies and Limited Liability Partnerships in the IFA market. Here’s what Glyn had to say:
What is the role of a liquidator?
“I think I’d start that answer by saying that you need to identify what type of liquidation you’re looking to undertake for a particular firm. If it was a solvent liquidation the Liquidator would be acting in the best interest of shareholders looking to get a distribution back to them. Of course, there’s a role to the creditors as well and making sure that they’ve all been paid. In an insolvent liquidation the shareholders no longer have an interest in that business because they’ve lost their money. However, the Liquidators interest at that point is the creditors and making sure that they maximise the realisations for their benefit.”
Is a liquidator a licensed insolvency practitioner?
“Yes, so within our profession and to take appointments as a liquidator, you need to be a licensed insolvency practitioner. It’s an exam based qualification and then you make an application to your authorising body, then once you are authorised you’re able to take appointments as a liquidator.”
How many Liquidators are there in the UK?
“As of February 2023, there are circa 1,500 licensed insolvency practitioners, of which circa 1,250 are taking appointments currently in England and Wales.”
Gary added “That’s an incredible statistic and to me it’s saying there’s not a lot of you in the UK doing this profession”
Glyn continued “I think you’d be right there, I think there has been some shrinkage within our industry and I know that they are certainly looking at how we can improve the number of insolvency practitioners out there”
What are the stages of a liquidation within IFA Acquisitions?
Glyn “To explain, what I will go back to is just identifying whether it’s a solvent liquidation or an insolvent liquidation. That’s almost that pre-liquidation work that you would undertake. My role as the insolvency practitioner is to be advising the board and sometimes the shareholders as to what route is most applicable. Now that should be fairly transparent as to whether it’s solvent or insolvent, but that pre-insolvency work is hugely important. Engaging with the FCA at a very early stage and making sure that the company and the directors are engaged with the FCA at the appropriate stage as well. Having a wind down plan put into place making sure that has been understood by the FCA, and that they’re on board for that particular process. Then executing that wind down process to the point where the company is ready for liquidation. Then whether you’re implementing the solvent liquidation or the insolvent liquidation it goes off in two routes. If it’s the solvent liquidation it’s about making sure the members and their capital is returned to them. If it’s an insolvent liquidation it’s about making sure that the clients and the creditors are looked after. The FCA again is very much present in every stage of that process.”
When it is a solvent liquidation roughly how long can that process take?
Glyn responded, “The pre-work is probably the most difficult work. That’s down to you (the broker) I would say and the company’s advisors and accountants. That’s about identifying the contingent liabilities within the company and making sure that there are sufficient reserves to be able to deal with those liabilities. One of the documents that underpins our members of voluntary liquidation, is called The Declaration of Solvency. This is a document that has to be sworn by the majority of directors. It effectively is making a statement that the company is solvent and it states the assets and liabilities. It’s hugely important that the liabilities include any contingent redress and any other liability potentially out there that may come onto that balance sheet. It’s really crucial that the FCA understand that document and are aware of it and any concerns whatsoever are talked through them. Certainly if you’ve got contingent liabilities for claims, liaising with them (the FCA) and the Financial Ombudsman, just to make sure that they are properly reflected on that Declaration of Solvency. Once that document is in its final stage and can be sworn that really is when the liquidation process itself can start. If you have the shareholders’ consent and you can say you’ve got 100% of the shareholders supporting you, you can actually go for something called consent to short notice. Consent to short notice means that you can actually shrink the period of time that you need to give notice to the shareholders, to put the company into the liquidation process. You can shrink it down to whatever time scale you would like so long as you’ve got the consent. It’s actually 90% of shareholders to be exact. As long as you’ve got that consent then you can go through that process. Once into liquidation it’s about the Liquidator gathering the assets of the company, making sure the right adverts are put in the London Gazette to give notice to the world that the company has gone into the solvent liquidation. If there’s any potential creditor out there they have the right to claim and go through a 21-day period. After which, the Liquidator can then distribute those assets to the members subject to any indemnities that they need to be in place. Now that first distribution, we ordinarily within our industry, would limit it to 90% and we then look to obtain tax clearance. Once we’ve obtained tax clearance, we can distribute the final 10%. Again, that’s all subject to indemnities. Tax clearance is a bit of an unknown quantity, I would suggest it takes somewhere between six to nine months. It’s just as a rule of thumb and you’d like to think it’d be nearer to six months.”
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