Last year R3, The Association of Business Recovery Professionals, launched a campaign to warn about the risk of using unlicensed insolvency advisors and produced a very helpful guide which can be found here.

Business Pressure

The problem of unregulated advisors is not a new one but something that has grown over the last few years. The guide highlights some of the common marketing phrases these firms use, including:

  • We act for you, not your business’ creditors
  • Don’t take advice from an insolvency practitioner, as they only act for your creditors, whereas we act solely for you
  • We can offer you an alternative way to close down your company, leaving you free to launch a new business debt-free
  • We have a way to allow you to continue trading, keep your assets and yet benefit from writing off all your debts

 

Late last year we experienced one situation with a client and so we thought we would share the story as an example of the advice being given by the unregulated advisor.

Our client X Limited had contacted us via his accountant and after an initial meeting it was clear that the Company had in effect ceased to trade and was insolvent. The director wished to wind the Company up and we were instructed to place the Company into liquidation.

The director asked lots of questions about the process and wanted to ensure he was doing the right thing. The liquidation was explained in great depth and all questions were answered.

A new style decision process was called to place the company into liquidation and on the day of that meeting the director arrived very concerned because he had been contacted by an advisor and was now unsure whether the liquidation was right for him.

He provided me with copies of the correspondence he had exchanged with the ‘UK’s leading Unlicensed Insolvency Practitioners & Insolvent Business Acquisition Specialists’. He had discussed the situation on the phone with them and thought he may take on this firm and cancel the liquidation process.

However he was concerned about what they offered. So I reviewed the paperwork he had received. The unregulated advisor’s offer was as follows;

  • The advisor would buy the Company for a nominal £1.
  • The director would resign and the advisor replace him.
  • He would be free of his debts and free to get on with his life.
  • When we read further through the terms and conditions the actual fees would be £5,000 plus VAT or 10% of the liabilities remaining on acquisition whichever is the greater.

 

In this example the unsecured liabilities were £165,619 so a fee of £16,561, although the unregulated firm had agreed a discounted fee of £9,400 plus VAT.  However of those unsecured liabilities £45,000 related to a directors loan account and there were other creditors which the director had personally guaranteed in any event, so he would not be free of some of his debts, as we had already explained to him.

I also pointed out that within the terms that the advisor had provided, whilst the advisor would try to have the Company struck off, he reserved the right to put the Company into liquidation.

In the end the director agreed the liquidation was the best way forward and we were appointed as the liquidator on that day.

To conclude the story I then found out on 8 January of this year the unregulated advisor was placed into provisional liquidation by the Official Receiver to protect the public interest.

We are aware that these advisors commonly chase directors who have received a CCJ and so are aware that the Company may be having cash flow problems.  PBC receives the same data and where possible we contact the accountant to make them aware of the situation so they can explain to the client that they may receive this sort of approach.

I hope this provides a clear example of the benefits of advising clients to seek professional help from a licensed insolvency practitioner.  PBC offer initial meetings which are free of charge and confidential.

Blog written by Gavin Bates