APC Trainer: Dissolving confusion around insolvency (T0202)

This article focuses on the Corporate Recovery and Insolvency competency (T020 – for those who enrolled on the APC after 1st July 2006). Here we have identified the type of questions that the APC assessor could potentially ask in order to ascertain a candidate’s progress against the three APC competency levels. Under the Quantity Surveying and Construction pathway this is an optional competency which can be selected at either level 2 or 3.

Corporate recovery and insolvency is quite a specialised subject and in order to answer the questions that assessors may pose to you will require actual experience of the subject matter – particularly to demonstrate that levels 2 and 3 have been achieved. The candidate should ensure that their supervisor and councillor are comfortable that the desired level of competency can be achieved prior to pursuing it.

Level 1

The RICS guide outlines the requirements at Level 1 as ‘demonstrate knowledge and understanding of the role of the chartered surveyor in corporate recovery and insolvency situations’. Competency at Level 1 is generally focused on having a knowledge and understanding of the competency – ‘knowing’.

The candidate should therefore be able to clearly demonstrate an understanding of this competency:

Question Under what circumstance might a quantity surveyor encounter insolvency?

Answer A project that you are working on may have a main contractor or a sub contractor who is having serious financial difficulties which mean they cannot pay their debts.
You may be approached by a client who has a project where the contractor has ceased trading and he needs some advice.
You could also be appointed by an external body (generally a liquidator or administrator) to prepare a report on a particular aspect of the project.

Question What do you understand by the term insolvency?

Answer Insolvency is effectively the inability to pay off your creditors (the people you owe money to). This is often the first stage of bankruptcy. You should also be aware that the term ‘insolvency’ is often a generic term used to describe bankruptcy, liquidation, administration etc.

Level 2

The RICS guide outlines the requirements at Level 2 as ‘demonstrate an understanding of the various types of appointment that can be made to administer/manage the affairs of insolvent and potentially insolvent companies and individuals’. Competency at Level 2 is generally focused on having an application of knowledge and understanding – ‘doing’.
From a quantity surveying perspective the candidate would be expected to understand what a QS’s role might be if a project they are working on encounters some form of insolvency – be it administration or liquidation.

Question What is the difference between administration and liquidation?

Answer Administration is where someone (the administrator) is appointed to manage the company’s affairs on behalf of the creditors. You will also need to have a basic understanding of the administrators’ objectives, which would generally be to either assist the company in trading out of the situation, or alternatively to get the best price possible for the company’s assets.
Liquidation involves the shutting down of a company or partnership and the selling off of the assets to pay off the creditors – there are various types of liquidation including voluntary and compulsory.

Question What would you do if the main contractor on a project you were working on went into either administration or liquidation?

Answer You would need to clearly demonstrate a good understanding of the key tasks and duties to be undertaken, including:

• Verifying that what you have heard is true – it is not uncommon for rumours to spread
• Securing the site
• Advise your client to put some insurance in place
• Review and check what payments have been made
• Review any pending payments and temporarily stop them until a clear financial picture has been established
• Undertake a valuation of the works done on site
• Make contact with the administrator/liquidator
• Advise the client on the costs to completion
• Advise the client on what his options are from this point forward
• Consider the implication of any bonds of Parent Company Guarantees

Level 3

The RICS guide outlines the requirements at Level 3 as to ‘provide evidence of reasoned advice, prepare and present reports on the property assets of insolvent companies and individuals and/or in the administration of Fixed Charge Receivership appointments’. Competency at Level 3 is generally focused on the provision of reasoned advice and depth of technical knowledge – ‘advising’.
You would be expected here to be able to draw upon practical experience you have referred to in your diary to clearly demonstrate experience in advising clients in such matters.

Question I see from your diary that you have worked on a project where the main contractor went into liquidation. Can you outline what advice you gave your client in terms of the options available to him to complete the project?

Answer You would need to outline what options you presented (ie; re-tender the remaining works, negotiate with another contractor, sell the site etc), your reasons for identifying these options, and what your recommendation was. Don’t forget to identify why you recommended a particular course of advice.

Question What was the position with regards to the main contractor’s plant and equipment left on site?

Answer Here you would need to have an understanding of who this belongs to and perhaps touch on some of the issues encountered. Did the main contractor try to remove it? How did you deal with this?