Insolvency Insurance: Things You Should Know About

Almost all of us in the business world are familiar with the concept of insurance. It has been developed and has evolved over the centuries and decades past. Every so often, a new kind of insurance is made to meet the needs of the ever-developing world of business.

Insurance may be roughly defined as a contract or agreement entered into by two parties, insurer and insured, in which the former guarantees compensation for any specified or covered loss, damage or injury to the latter in exchange for a payment of a premium.

However, not all of us are adept in the rather unfamiliar concept of insolvency insurance…

As its name suggests, it is essentially insurance coverage for insolvency practitioners. Before we dig in further into the nitty-gritty of insolvency insurance, let us first deconstruct it into two parts: insolvency and insurance.

There are generally three kinds of liquidation that a company can go through: Members’ Voluntary Liquidation (MVL), Creditors’ Voluntary Liquidation (CVL) and Compulsory Liquidation.

In a Members’ Voluntary Liquidation (MVL) the company wishing to liquidate its assets and liabilities can still pay all its debts within 12 months counting from the date of the start of the liquidation process. In other words, the company is still solvent. This can be achieved through many ways, including the sale of its assets, in order to convert the same into money which shall be done through a liquidator or an insolvency practitioner.

On the other hand, a Creditors’ Voluntary Liquidation (CVL) is the course taken when the company is insolvent. In this type of voluntary liquidation, the company passes a special resolution published in the Edinburgh Gazette stating its inability to continue operating the business because its liabilities are greater than its assets and the last resort it could take is to wind up its affairs.

The last type of liquidation is Compulsory Liquidation. It is done when a court of proper jurisdiction orders the winding-up of a company upon the petition of a creditor on the grounds that the company cannot pay its debts.

In all the three cases of liquidation, an insolvency practitioner may be hired by the company for purposes of the winding up of its affairs. An insolvency practitioner is a person or a firm who has been hired and authorized to act in relation to certain matters involving an insolvent person, natural or juridical. They shall have the required licenses and qualification issued by the proper government agency or department.

In choosing an insolvency practitioner for your company, you must ensure that the practitioner you hire has a long background and competent experience in handling cases like the prime insolvency practitioner Glasgow.

An insolvency practitioner will not be qualified to act in relation to a company or individual unless there is a bond of caution for the proper performance of the practitioner’s functions. This is where insolvency insurance comes onto the scene.

An insolvency practitioner may take out insolvency insurance to cover liabilities resulting from any act or omission, with or without negligence, arising in the performance of their professional duties as the designated liquidator or trustee of an insolvent person or company.

Makeda Waterman

Makeda Waterman is an online journalist with writing features on CNBC Make It., Yahoo Finance News and the Huffington Post. She also runs an online writing business with 3.5 years of experience.

No Comments Yet

Comments are closed