Do Insolvency Practitioners Have a Duty of Care?

Insolvency Practitioners don’t have a duty of care towards all stakeholders in a company. The case of Lathia v Dronsfield (1987) BCLC 321 demonstrates that insolvency practitioners only have a duty of care towards the party appointing them. The bank is the most likely party to appoint an insolvency practitioner and will not be interested in the assets of the business.

Personal Relationships Are Essential

The Insolvency Act 1986 aimed to reduce the incidence of the phoenix phenomenon and expects insolvency practitioners to root out rogue directors. In fact, the Insolvency Act introduced the concept of “wrongful trading” in which the directors of an insolvent company could be held personally liable for the debts of the company. However, the Act didn’t contain provisions for dealing with insolvency practitioners.

There is no monopoly of insolvency practitioners. The government is unlikely to interfere with the practice, as long as the fees are kept low. Ultimately, the role of insolvency practitioners is to provide relief to distressed companies. While there are plenty of insolvency practitioners to choose from, you should choose a firm with a good track record in working with similar businesses. Remember, however, that the costs of professional services should not be your only consideration. You can find practitioners who specialise in large companies, while others are experienced with smaller businesses. However, personal relationships are essential.

Although the regulatory bodies are supposed to be impartial, they are not. This means that their decisions are biased. It also means that insolvency practitioners are often highly secretive and do not publish meaningful information about their affairs. The lack of transparency in the industry makes it difficult for the public to know the true extent of the issues involving them. Because of this, it is unlikely that a complaint will be publicly recorded. As a result, the complaint may be dragged on for years before any action is taken.

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