An individual or corporate body can apply for bankruptcy or be forced into bankruptcy if certain legal criteria are met. The individual or the business entity must be in debt and unable to pay or make reasonable repayment plan.
This article is not to discuss the intricacies of bankruptcy but to highlight the roles of accountants in bankruptcy and insolvency proceedings. If you are looking for more information on bankruptcy, I recommend you consult a bankruptcy lawyer or visit https://www.gov.uk/bankruptcy if you are in the UK.
Duties and responsibilities of accountants in bankruptcy and insolvency proceedings
- Preparation of financial statements: accountants are called upon to prepare the financial statement of an insolvent estate on a breakup basis. This is the opposite of the normal going concern basis that accounts are generally prepared.
- Valuation and Quantification of assets: in certain cases, the value of the debtor’s assets is not readily available and this requires the business valuation skill of professional accountants to ascertain the fair value of the assets.
- Acting as professional witness: bankruptcy as a process often involves lengthy legal proceedings requiring a professional to act as witness. Accountants are one of the most suitable finance professionals to act in this capacity.
- Providing forensic information: a major responsibility of accountants is to provide forensic accounting information that can be used by the court of law and other law enforcement agencies while dealing with some complex bankruptcy cases.
- Acting as receivers or liquidators: qualified accountants are called upon to temporarily manage the affairs of individuals and businesses that are in the process of going bankrupt. The aim is to ensure that assets are protected from misappropriation and embezzlement.
- Providing general insolvency services: accountants that are licenced by the Insolvency Act of 1986 can provide valuable information and assistance either before or during bankruptcy proceedings. In fact, an Accountant acting as an Insolvency Practitioner can help avoid the often rigorous and intimidating process of bankruptcy by professionally preparing acceptable payment proposal that your creditors cannot turndown. For businesses, accountants that are experienced in insolvency for example can champion a business turn around process to save the business from going burst.
- Sequestration procedures: accountants have vital role to play in modern day sequestration. They basically get involved in the process of keeping accurate record of the properties that have been seized during bankruptcy proceedings. If you would like to know more about sequestration, please visit http://www.sequestration.net
- Acting as trustee: the role of the trustee is to realise the assets of a debtor in a manner makes economic sense. This role is closely related to that of a receiver or liquidator but, the difference lies in the fact that while the receivers are called on from the very beginning of the bankruptcy proceedings, the trustee is called in once the assets of the estate have been secured.
As you can see from the above article, the modern accountant have incredibly important role in the bankruptcy and insolvency proceedings. If you are an accountant and think you have what it takes to be involved in the bankruptcy proceeding, welcome on board.