What Is The Insolvency Service & What Does it do?

The Insolvency Service is a government agency that forms part of the Department for Business, Energy and Industrial Strategy. The Insolvency Service has a number of roles and responsibilities where a company or individual enters an insolvency process.
As detailed below, The Insolvency Service sometimes acts in the same capacity as a private sector insolvency practitioner and, more often, works alongside the insolvency practitioner on a number of key procedures within an insolvency process. This article covers some, but not all, of the matters dealt with by The Insolvency Service.
Compulsory Liquidations & Bankruptcy
Many company directors do not really understand the difference between a compulsory liquidation and a voluntary liquidation. One of the key differences is the process in which the company enters liquidation. As the name would suggest, a creditors voluntary liquidation is a process initiated by the directors of the company voluntarily. By comparison, a compulsory liquidation involves one or more parties, usually creditors, applying to Court for the company to be wound up. This is achieved by issuing a Winding Up Petition.
At the hearing, the Court may grant a winding-up order against the debtor company. This means that the company is immediately placed into liquidation and the Official Receiver is appointed as the Liquidator of the Company. The Official Receiver is an officer of the Court, like a licensed insolvency practitioner, and their role and duties are administered by the Insolvency Service.
The Official Receiver may either act as Liquidator for the duration of the liquidation process or take steps to appoint a private sector insolvency practitioner in their place.
The same scenario applies in a bankruptcy process whereby the Official Receiver is appointed as Trustee in Bankruptcy immediately following the granting of the Bankruptcy Order. The bankruptcy process is administered by The Insolvency Service.
Director Disqualification & Investigations
When a company enters an insolvency process the appointed insolvency practitioner (or Official Receiver in the event of a compulsory liquidation) has a duty to investigation the affairs of the company and the conduct of its directors. The latter is conducted in accordance with the Company Director Disqualification Act 1986.
If there is any evidence of unfit conduct, the insolvency practitioner must notify the disqualification unit of The Insolvency Service of this. The Insolvency Service then has the responsibility of determining whether the directors are fit to act in the future. If not, The Insolvency Service will seek a disqualification undertaking or order which prevents that director from being involved in the management, promotion or formation of another business for a period between 2-15 years. For more information on the disqualification process please read our article entitled – Can You Be A Director Of Another Company After Liquidation?
The conduct of the directors are not reviewed in a members voluntary liquidation or a company voluntary arrangement.
The Insolvency Service also carries out investigations into live companies where it receives evidence to suggest wrongdoing. This could be due to a breach of section 216 of the Insolvency Act 1986 regarding an unlawful use of a same of similar name following an insolvency event, or perhaps exploring a possible winding up of a live company that is in the public interest.
The far-reaching nature of The Insolvency Service’s powers to investigate companies and the conduct of directors has been demonstrated again recently with new powers to tackle unfit directors of dissolved companies.
Redundancy Payments Service
When a company ceases to trade in contemplation of an insolvency process, it will be necessary to dismiss all employees with immediate effect. Employees have various rights under employment legislation upon dismissal that would ordinarily result in them lodging a claim against their former employer.
Where the former employer is insolvent, it is unlikely that they will be in a position to pay those employee claims. This is where the Redundancy Payments Service (RPS), a division of The Insolvency Service steps in. For more information on the claims former employees may make in an insolvency process, please click here.
The RPS division of The Insolvency Service will adjudicate upon the former employees’ claims, authorise payments from the National Insurance Fund (subject to statutory limits) and liaise with the appointed insolvency practitioner regarding any resulting claims to be lodged in the insolvency process.
Would you like to discuss this further?
If you would like some further information in respect of the role and functions of The Insolvency Service please contact us. Alternatively, you may obtain further information at Gov.uk.