Can Creditors Control An Insolvency Practitioner?

This guide considers the following question: can creditors control an Insolvency Practitioner?

In this article you’ll learn about:

  • How creditors might look to control a case
  • How an Insolvency Practitioner might look to maintain control
  • An example of how creditors might look to exercise control in an investigation

Let’s get cracking.

Can Creditors Control An Insolvency Practitioner?

Overview: Can Creditors Control An Insolvency Practitioner?

Can creditors control an Insolvency Practitioner?

Creditors are one of the most powerful stakeholders in an insolvency case. Ultimately the wishes of creditors should be considered as they are the primary beneficiaries once the costs have been taken into account. Creditors are the party that has suffered loss and it is largely for creditors that the insolvency regime exists.

However, the insolvency regime also exists to enable an orderly resolution of the affairs for insolvent companies and individuals.

Insolvency is a class action when the creditors bind together as a group to seek to share the benefits of the work undertaken by the Insolvency Practitioner.

The Insolvency Practitioner has a duty to act in the interests of and act with consideration for the interests of creditors as a whole.

Sometimes creditors may look to exercise control over an Insolvency Practitioner and this may on occasion give rise to some difficulties.

How Creditors Can Control An Insolvency Practitioner

Creditors can attempt to control an Insolvency Practitioner because ultimately they can look to remove and replace the Practitioner. However, an Insolvency Practitioner should be independent of creditors and not be controlled because they might be removed from office.

An Insolvency Practitioner should therefore be wary of being controlled by a creditor in a case as they may have an agenda that could conflict with that of the creditors as a whole.

Even where there is a Creditors Committee, creditors do not have the power to direct or instruct the officeholder.

How An Insolvency Practitioner Might Maintain Control

A Practitioner should deploy their time on a case so there is as little wastage as possible ie. be efficient.

If an Insolvency Practitioner was at the beck and call of a creditor then costs could be run up to the detriment of creditors as a whole by giving disproportionate attention to such a creditor.

Mr Justice Lightman in Ng v Ng (1998) 2 2 FLR 386, (1997) BCC 507 highlighted an ethical consideration:

A trustee in bankruptcy is not vested with the powers and privileges of his office so as to able him to accept engagement as a hired gun.

It is proper for an Insolvency Practitioner to maintain their position of independence by paying close attention to Mr Justice Lightman’s comment.

Example Of Creditor Attempted Control

It is possible a creditor may wish for an Insolvency Practitioner to adopt a particular approach such as to investigations to be carried out.

An example might be for certain enquiries to be undertaken and interviewing potentially relevant parties. However, when investigations do not produce results voluntarily then a creditor might ask an Insolvency Practitioner to initiate Court proceedings to examine individuals who are thought to be able to assist the officeholder.

In general, a decision by an Insolvency Practitioner to interview someone is a matter of judgment. It is not something that should or should not be done. It depends on the facts of the case.

It might be a strategy deployed to obtain information if the officeholder for example thought they could obtain better information than through written interrogatories. Written interrogatories are usually considered less oppressive. So an Insolvency Practitioner might reflect upon how someone had responded to written enquiries as part of an assessment of whether or not there was a point to then deploying time to attempt to interview someone.

Section 236 of the Insolvency Act 1986 and Section 366 of the Insolvency Act 1986 apart from potentially being expensive procedures to instigate, however, require the officeholder to show a reasonable requirement when seeking a Court order for examination.

What Next?

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Disclaimer: Can Creditors Control An Insolvency Practitioner?

This page Can Creditors Control An Insolvency Practitioner? is not legal advice and should not be relied upon as such. This article is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.

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