Insolvency Practitioner Insurance

The structural feature of insolvency practice is that you make decisions on behalf of an estate, and everybody with a financial interest can take a view on whether you got it right.

Selling an asset below what a creditor thinks it was worth, accepting a claim another creditor says is inflated, rejecting a claim, deciding not to pursue a transaction at undervalue, choosing to pursue one and losing, or distributing on a basis somebody disputes are all ordinary case decisions and all reviewable. The person bringing the challenge frequently has no relationship with you and no interest in whether the decision was reasonable in context, only in the outcome they received.

Which makes contemporaneous reasoning the only real defence. A file that records what was known at the time, what alternatives were considered, what advice was taken, what the estimated outcome of each option was and why the chosen course was in the creditors' interests, defends a decision that turned out badly. A file that records only the decision does not, because the test applied later is whether a reasonable office holder would have done the same on the information available, and the information available has to be evidenced rather than remembered.

This distinction is understood inside the profession and misunderstood everywhere else, and it is worth stating plainly because it affects how cover is arranged.

A specific penalty bond is required for each appointment and is sized to the estimated value of the assets. Its purpose is to protect the estate against loss caused by the practitioner's fraud or dishonesty. It is a guarantee in favour of the estate, not an indemnity in favour of you, and it does nothing at all for a negligence claim, a decision challenge or your defence costs.

So the arrangement has two separate parts that need managing separately. Bonds, which have to be in place for every appointment, at the right level, adjusted where asset estimates change materially, and recorded. And professional indemnity, which has to be written to reach your acts as an office holder rather than only your advisory work, with a limit set against the size of the estates you handle rather than your fee income. A practice holding substantial bonds and a general accountancy indemnity has the wrong half of the protection.

Within hours of an appointment, assets you have never seen are your responsibility, and the insurance position on them is frequently a mess.

A failed business leaves premises that may be unoccupied, unheated, insecure, contaminated, part let, or full of stock and plant. Its own policies may have lapsed for non-payment, may be about to, or may be void because the premises are now unoccupied and nobody told the insurer. Meanwhile an unoccupied building deteriorates fast: water damage from a burst pipe, vandalism, metal theft, squatters, and in a bad case a fire that spreads to a neighbour.

Which makes the first day's insurance decisions part of the appointment rather than an administrative follow up. Establish immediately what cover exists and whether it is valid now the position has changed, put appropriate cover in place where it has not, address unoccupancy conditions specifically because they usually require inspections and services drained down, and record what you did. Where an estate cannot fund cover for an asset, that decision needs recording with reasoning too, because the alternative is a challenge from creditors about a loss that was foreseeable.

Where a business continues to trade in an appointment, the practice has taken on exposures that have nothing to do with advice.

Employees are working, customers are being served, products are being supplied, vehicles may be moving and premises are operating, all under your control. Public and employers' liability exposures are live, product liability continues on goods supplied, health and safety duties apply, and employee claims about redundancy, consultation and transfers arrive quickly. None of that is professional indemnity territory; it is the operating insurance of a trading business, and whether the company's own policies remain effective in administration needs establishing rather than assuming.

The practical point is that trading cases should be treated as a different insurance exercise from advisory work, done at the start rather than when something happens. Confirm the operating covers are in force and that the insurer knows the company is in administration, check whether the appointment itself affects validity, and make sure the practice's own indemnity contemplates trading appointments. The exposure lasts only as long as the trading does, but while it does it is a real business risk rather than a professional one.

The question that matters is whether your acts as office holder are covered. We are an FCA regulated broker and will not tell you we are the best choice. These are the questions that decide it.