Recent years have seen a growth in the number of unqualified, unregulated so-called “insolvency advisers”. Frequently the advice given is, to say the least, decidedly dodgy, and the Insolvency Service is conducting an ongoing operation looking at such businesses.
Yesterday (12 September 2013) the Insolvency Service obtained winding-up orders against three companies operating as insolvency advisers. The three firms sent out large numbers of mailshots to distressed businesses which, together with their website, contained inaccurate, misleading and incomplete information, particularly about pre-pack administrations. They gave the impression that pre-packs were a closed process, designed to benefit directors rather than creditors and that asset values would be kept low. They suggested that disqualification could be avoided simply giving “right” answers to questions put to them. They also risked bringing the insolvency regime into disrepute by, to quote the Insolvency Service, “making generalised, unsubstantiated and disparaging comments about insolvency practitioners”.
We recently advised a social club in Dorset which had taken advice from such an unqualified and unregulated “adviser”. His advice to the management had been to sell their premises for a low consideration, with the intention that it should then be leased back to a new entity. The existing company would be liquidated leaving a significant shortfall as regards creditors. The advice ignored the fact that, once a company is insolvent or in danger of becoming insolvent, in the “twilight zone”, then the directors are required by s172(3) Companies Act 2006 to act in the interests of the company’s creditors. It’s an unavoidable statutory duty for directors. An unrestricted sale on the open market may well have raised enough to pay creditors in full and (who knows?) even produced a return for members. He also overlooked the connected party provisions of the Companies Act.
Readers will be unsurprised to learn that the “adviser” had recently had his knuckles rapped by the Advertising Standards Authority for the content of some of his advertisements in a local business publication.
Our Team of experienced, qualified insolvency professionals is committed to saving businesses wherever possible. Of course there are times when the point of no return has been reached and there is no alternative to company liquidation. But even then we will work with directors to see whether something can be salvaged from the wreckage. A first meeting will always be without charge or obligation.