Claims against insolvency practitioners

This article follows on from our “A Brief Account” webinar on claims against insolvency practitioners. Presenters Lino Di Lorenzo and Helena Solomou discussed the issues that arise in claims against insolvency practitioners, and things that insurers should look out for when handling those claims within the professional indemnity and accountancy sphere.

Insolvency practitioners (IPs) play a crucial role in managing financially distressed businesses. With that responsibility comes significant personal exposure, and as insolvency activity continues to rise, so too do claims against IPs. These claims often come from directors, creditors, or litigants in person dissatisfied with the conduct or outcome of an insolvency process.

We look at the nature of claims against IPs, their core duties, and emerging issues for practitioners and insurers.

The role of the insolvency practitioner

IPs operate across a range of insolvency processes, each with distinct objectives and responsibilities:

• Company Voluntary Arrangements (CVAs): The IP supervises compliance with the arrangement and may terminate it or petition for winding up if the debtor defaults.
• Administration: The administrator replaces the board, seeking to rescue the company as a going concern or achieve a better result for creditors. Administrators are typically appointed by directors or secured lenders.
• Liquidation: A terminal process in which the liquidator collects and realises assets, adjudicates creditor claims, and distributes funds according to statutory priority.
• Bankruptcy: The Trustee in Bankruptcy manages the bankrupt’s estate, adjudicates claims, and distributes assets in priority order.
• Receivership: An LPA receiver’s role is to realise secured assets to repay the secured creditor, with a duty to obtain the best reasonable price.

Appointments are personal to the licensed IP, not their firm. Duties are owed to creditors collectively, and IPs act as regulated professionals, sometimes as officers of the court, subject to an overriding duty to act fairly.

Common claims and applications against IPs

IPs face a variety of claims and challenges, including:

1. Challenges to appointment

Disputes can arise where the appointment process was defective, for instance, an inquorate board meeting or invalid security. An invalid appointment can expose the IP to personal liability for acting without authority.

2. Challenges to decisions

Creditors or disappointed bidders may challenge the IP’s commercial decisions, such as asset sales or voting determinations. Courts generally give IPs wide latitude, intervening only if the decision is perverse or irrational.

3. Breach of duty

Under the Insolvency Act 1986, IPs can face misfeasance or breach of fiduciary duty claims. Allegations often relate to undervalue sales, failure to preserve assets, or incorrect distributions.

4. Removal from office

An IP can be removed by creditors or by court application, often following allegations of conflict, bias, or lack of progress. While not itself a claim, it can signal underlying discontent and potential litigation risk.

5. Technical trading issues

Claims occasionally arise from trading irregularities, such as disposing of assets not owned by the company.

Core duties of insolvency practitioners

IPs’ duties arise under statute and common law. Three key duties underpin most claims:

• Fiduciary duty: IPs must act honestly, in good faith, and avoid conflicts of interest.
• Independent judgment: They must exercise independent professional judgment and not be unduly influenced by vocal directors or creditors.
• Duty to creditors as a whole: IPs must act in the collective interest of creditors.

The courts are reluctant to second-guess commercial decisions, acknowledging the difficult circumstances under which IPs operate. The key question is not whether the court would have acted differently, but whether the IP’s conduct fell outside the range of what a competent practitioner might do.

Key issues for insurers and practitioners

When acting for IPs and their insurers we see several recurring themes feature in claims against IPs:

1. Lack of documentation

A lack of contemporaneous records remains a common problem. Without a clear audit trail of decision making, even reasonable decisions are difficult to defend.

2. Misidentification of defendants

Claims are frequently issued against the wrong party, often the firm rather than the individual officeholder. Clarifying who held the appointment early is essential.

3. Procedural irregularities

Many claims are brought within insolvency proceedings, not as standalone actions. This can lead to:

• Misconceived or procedurally flawed applications
• Claims against non-officeholders
• Urgent hearings listed on short notice
• Claims pursued post-discharge, when liability has already ended

4. Litigants in person

A growing number of claims come from litigants in person, leading to:

• Poorly pleaded applications
• Increased time and cost
• Delays and procedural uncertainty

For insurers, early ADR or strike-out applications can help manage costs and limit exposure.

Horizon scanning: What’s next?

• Rising insolvency rates: In March 2025, company insolvencies were 9% higher than a year earlier. Most remain small business liquidations where HMRC is a major creditor.
• Increased scrutiny: Larger creditors are more willing to challenge IPs or seek their removal if dissatisfied with progress.
• Litigation funding growth: Post-PACCAR, funders are increasingly backing claims against insured professionals.
• Evolving case law: Recent cases have focused on appointment challenges, undervalue transactions, and the adequacy of professional advice sought by IPs and directors.

Conclusion

The courts continue to recognise the difficult context in which IPs operate, but they will intervene where clear breaches of duty occur. For IPs and their insurers, the message is clear:

• Seek advice early on contentious issues
• Keep comprehensive records of key decisions
• Maintain independence and transparency at all times

If you would like to discuss this or professional indemnity concerns in the accountancy profession in more detail, please contact Lino Di Lorenzo or Helena Solomou. Both Lino and Helena have acted on numerous cases handling insolvency disputes, as well as defending professional indemnity claims.

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