Whilst you don’t need to say our name three times in front of the mirror, fall asleep so we appear in nightmares, or drag out the Ouija board to conjure a meeting with an insolvency practitioner (IP), the IP can still be effective in scaring your client (or more accurately, giving them a reality check) when there are some business failure warning signs which need to be addressed.
Accountants understand they have an obligation to their clients (whether it be ethical, moral or professional) to identify warning signs of business failure and, importantly, act on that by assisting the client with the underlying issues or introducing an IP, if necessary.
You can brush up on some warning signs here.
Accountants want to add value to their clients. It’s the overarching principal in everything you do. Facilitating an introduction of a client to an IP can be mistaken as a role not adding value. This could not be further from the truth. By identifying the early warning signs, speaking to the client about the issues and associated risks to them, and making an introduction to an IP to discuss these things, it has the potential to preserve value, protect assets and stop the bleeding, not to mention the mental health benefit for the client that can come with avoiding a slow decline.
You will have heard this a lot; when it comes to insolvency advice, the earlier the better. Sometimes the biggest challenge accountants face, however, is to get the client to listen and face reality, or accept they need to take some action. It can also put the accountant in a difficult situation, not wanting to damage a relationship by labouring about the client’s ‘issues’.
Often the client has a perception that taking action means cost or a journey down a path where there is no coming back. This is wrong, of course. But what should a client expect from a meeting with an IP?
What to expect in contacting an IP:
Once you have reached out to the IP about a client presenting with some warning signs, the next stage may see the client meeting one on one with the IP, speaking with the IP over the phone (or the numerous other electronic means we’ve become acquainted with recently), or meeting with you and the IP together. The latter can be really useful for a range of reasons but is not essential if you are keen to exit stage left from the process at this point.
The IP will look at the financial information available and listen to the client and accountant about what they see the issues to be. The IP may also ask what the client sees as being a good outcome or what they want to achieve out of the process.
From here, the IP may well be able to make some recommendations on the spot and discuss these with the client. Importantly, when considering a corporate insolvency, the IP will consider the consequences of any of these recommendations, not just on the business, but also the directors and other related parties. It is a myth that an IP acts exclusively in the interests of creditors prior to even taking on a formal appointment. Whilst an IP will not advise a client to do anything contrary to their statutory obligations or the law, they certainly can, and should, identify risks or exposure to directors in conducting their assessment and, where necessary, suggest they seek specific advice prior to proceeding with an appointment.
The IP will guide the client as to the most suitable course of action to resolve their financial issues, as well as the timing and strategy to execute that course of action. You should expect the IP to keep you abreast of this, even if you have ceased to be involved by this stage.
It will be important to the IP that your relationship with the client is preserved throughout this process, so thoroughly communicating what the client should expect moving forward is a critical component of the IP’s role.
Some things not to worry about when considering contacting an IP:
- Whether you think the client is able to fund an insolvency. The IP can assess this in due course, if necessary, including considering alternate funding solutions;
- Whether the client is ‘too far gone’. IPs deal with ‘too far gone’ cases all the time. The options on the table may be fewer, but it is often preferable to voluntarily make a formal appointment than wait for the courts to do it;
- Whether you think the client will ultimately turn things around. That’s great! A reputable IP should not try to push a client toward an insolvency process that they are not ready for, or can be avoided through a turn around. Furthermore, if trading out is the tonic, an IP can assist with this and even offer Safe Harbour advice which could protect directors from insolvent trading liability exposure during the turnaround;
- Losing a client. Whilst this may be perceived as the beginning of the end for the accountant/client relationship, this is often not the case. Typically, a client requiring some form of insolvency support will carry on, in some form or another, as a client of the accountant.
Halloween is a month away, but the warning signs for many clients are here now. So for those that need a ‘scare’, think about making contact with an IP today to assist you and the client in finding solutions to their issues.