Insolvency Practitioners Insurance and Bonding
Corporate insolvency, business recovery, restructuring and turnaround advisory work produce claims from people who did not appoint the adviser. Creditors who think assets were sold too cheaply, directors pursued for wrongful trading who want to argue the practitioner's conduct, shareholders and purchasers. An insolvency practitioner acting as office-holder takes decisions that someone, almost by definition, is going to be unhappy about.
The profession carries a statutory requirement that sits apart from professional indemnity. The Insolvency Practitioners Regulations require a licensed practitioner to hold security for the proper performance of their functions, commonly arranged as a general or enabling bond with a specific bond for each appointment sized by reference to the assets. The bond protects creditors against fraud or dishonesty by the practitioner, and the bond provider will typically have recourse against the practitioner if it pays.
Licensing comes through a recognised professional body, such as ICAEW, ICAS or the Insolvency Practitioners Association, each of which monitors practitioners and may set its own expectations on insurance. Restructuring and turnaround advisers who are not taking appointments sit outside the licensing regime but face many of the same allegations, often from boards who acted on their advice.
We can advise insolvency firms and restructuring advisers on professional indemnity, the bonding arrangements their licence depends on, and the cover needed for assets that fall under an office-holder's control on appointment.
Common claims and risk exposures
The exposures that produce claims in this trade, rather than a generic list.
Asset realisation and valuation challenges
A business or property sold for less than a creditor or director believes it was worth, particularly in a pre-pack sale to connected parties. The allegation is that the office-holder failed to obtain the best price reasonably available, and the loss claimed is the difference.
Misfeasance and conduct as office-holder
Claims under the Insolvency Act alleging breach of duty by a liquidator or administrator, brought by creditors or a successor office-holder. Delay in pursuing recoveries, failing to investigate antecedent transactions or mishandling distributions can each found a claim.
Claims from directors
Directors facing disqualification or wrongful trading proceedings sometimes respond by attacking the practitioner, particularly where the same firm advised the company before the appointment. Pre-appointment advice that led to the insolvency route chosen is a recurring source of allegations.
Trading on and continuing contracts
An administrator who trades a business to sell it as a going concern takes on decisions about employees, suppliers and customers. In some circumstances liabilities arising during that period may be pursued against the office-holder, depending on how contracts were handled.
Restructuring and turnaround advice
Advice to a board on a restructuring plan, a company voluntary arrangement, refinancing or a moratorium. If the rescue fails, stakeholders may argue the advice was wrong or that the company should have entered a formal process sooner.
The cover we arrange
We arrange professional indemnity and related insurance around the services you provide, the clients you work with and the contractual requirements you face. The appropriate cover and limits will depend on your individual activities and the terms available from insurers.
Professional indemnity
Claims alleging negligence in appointment work and in advisory work, including pre-appointment advice and restructuring engagements. Cover for acts as office-holder needs confirming in the wording.
- Acts as liquidator, administrator or supervisor
- Pre-appointment and advisory work
- Restructuring and turnaround engagements
- Defence of misfeasance claims
Statutory bonding
The security the Insolvency Practitioners Regulations require, arranged as a general bond with specific bonds per appointment. A licensing requirement in its own right, separate from indemnity, and the bond provider's recourse against the practitioner should be understood.
- General or enabling bond
- Specific bond per appointment
- Sized to the assets involved
- Protects creditors against dishonesty
Insurance of assets under control
On appointment the office-holder becomes responsible for the company's property, stock and vehicles, often with the existing insurance lapsed or unpaid. Cover for unoccupied premises and assets awaiting sale can be arranged, subject to survey and insurer terms.
- Unoccupied premises
- Stock and plant awaiting sale
- Vehicles and equipment
- Arranged quickly on appointment
Directors and officers
Personal cover for the directors of the insolvency firm itself, relevant where regulatory or professional body action targets individuals as well as the firm.
- Regulatory investigation costs
- Professional body proceedings
- Personal liability of directors
- Separate from indemnity
Cyber, office and liability
Insolvency firms hold employee records, creditor data and company books for every case. Employers' liability can be arranged where required, subject to the policy terms, and is legally required for the firm's own staff.
- Case data and creditor records
- Payment fraud on distributions
- Office contents
- Employers' liability where required
What an underwriter will ask
Having these to hand shortens the process considerably, and usually improves the terms.
- Number of licensed practitioners, their licensing body and any monitoring findings
- Split of income between formal appointments and advisory or restructuring work
- Types of appointment taken: administrations, liquidations, voluntary arrangements, personal insolvency
- Volume of pre-pack sales and how valuations and connected party sales are handled
- Largest asset value under control on a single appointment
- Whether the firm advises companies before taking an appointment over them
- Procedures for verifying creditor bank details before distributions
- Claims, complaints and any regulatory or disciplinary action over the last six years
What affects the cost of your insurance?
The main factors insurers consider when assessing the premium.
Appointment mix
Large administrations with trading and pre-pack sales are typically rated differently from volume personal insolvency or members' voluntary liquidations, because the scope for dispute varies so much.
Advisory work
Restructuring and pre-appointment advice can carry a higher claims profile than appointments themselves, since the adviser has no statutory framework to point to when the outcome disappoints.
Monitoring and claims history
Findings from licensing body monitoring visits and the firm's claims record both feed into terms, and insurers look for evidence that issues raised have been addressed.
Conditions and exclusions to consider
Terms vary between insurers, so treat these as the questions to ask rather than a description of any one policy.
Dishonesty of the practitioner
Excluded under professional indemnity for the dishonest individual. The bond is designed to protect creditors where dishonesty occurs, which is why the two arrangements sit side by side.
Trading liabilities of the company
Debts of the insolvent company itself are not the practitioner's professional liability. Where an office-holder becomes personally liable on a contract, whether the policy responds depends on its wording and on how the liability arose.
Regulatory sanctions
Fines and sanctions imposed by a licensing body are generally uninsurable, though the cost of defending disciplinary proceedings may be covered depending on the policy.
Assets not declared
Asset insurance arranged on appointment only covers the property declared to the insurer. Premises left unvisited or conditions on unoccupied property not met can defeat a claim.
Common questions
Is the statutory bond the same as professional indemnity?
No. The bond is security required under the Insolvency Practitioners Regulations, protecting creditors and others against fraud or dishonesty by the practitioner. Professional indemnity answers claims of negligence. A licensed practitioner normally needs both, and the bond provider may seek to recover from the practitioner if it pays out.
What is a specific bond?
Security for each individual appointment, sized by reference to the value of the assets involved, sitting alongside the general bond. It needs to be in place for each case and increased if asset values rise.
Can directors sue the insolvency practitioner?
They can, and do, particularly where the practitioner advised the company before the appointment or where a sale to a third party is challenged. Clear records of advice given, valuations obtained and the reasons for decisions are what defend these claims.
Who insures the company's premises once we are appointed?
Existing cover may have lapsed or may not respond to unoccupied property. Office-holders commonly arrange cover for the assets under their control promptly after appointment, and insurers will set conditions on inspections and security that need to be met.
We only do restructuring advice. Do we need specialist cover?
You need professional indemnity that recognises restructuring and turnaround work as a declared activity. A general consultancy policy may not anticipate claims from lenders, creditors or shareholders of a client company, so the scope of who can claim is worth checking.
How do I get a quote from True Risk Solutions?
Call 01304 262880 and speak to a broker, or email info@truerisksolutions.co.uk with what you do, what you need cover for and a phone number with the best time to call, and a broker will call you back. We need a phone number to quote, because the cover and the price depend on questions that are quicker to answer on a call than by email.
Speak to a specialist who understands your industry
Tell us about your business and the work you undertake, and we will come back to you with cover options built around it. Call 01304 262880, or email us with a phone number and the best time to call and a broker will ring you back.