A Growing Risk for Struggling Businesses
At Smith & Barnes we have recently explored further marketing and have come across numerous worrying posts from unregulated businesses, offering “liquidation services” for an extremely low fixed fee. Our licensed insolvency practitioner Jessica Thomas did some digging and offers clients some insight and guidance.
These firms mislead directors and exploit business owners whilst at their most vulnerable, and have been responsible for the loss of millions of pounds’ worth of company assets.
For small business leaders already under the pressure of financial distress, spotting these unregulated operators can be difficult, yet protecting yourself against them is vital.
The Rise of Unqualified ‘Advisers’
In recent years, unlicensed firms have started advertising “insolvency and rescue” services that they are neither trained, nor legally permitted, to deliver. They make promises of “quick fixes”, “low-cost solutions”, and “freedom from company debts” all of which are tempting to directors desperate looking for a way out.
The Insolvency Service (a government department) has recently highlighted the dangers posed by these companies that claim to provide a “legal alternative to using insolvency practitioners.” In response, they have stepped up enforcement and shut down numerous businesses, but despite their efforts the number of rogue operators continues to rise.
How These Firms Mislead Directors
Investigations have revealed that some unlicensed firms falsely claim they can provide legitimate alternatives to using licensed insolvency practitioners. In reality, they:
* Facilitate sham company sales to give directors the impression that their responsibilities have ended
* Strip assets from businesses without paying creditors
* Leave suppliers, customers, and other creditors out of pocket
* Pocket fees from directors and then disappear without carrying out the promised work
* Change the company directors register, and wait for the Company to be wound up by the court. This leaves the previous directors at risk of being asking to attend an interview from the Official Receiver, and responsible for the Company’s position.
A number of individuals behind these schemes are now facing director disqualifications and further legal action.
Directors who relied on this advice have not only been left financially worse off, but in some cases, they also remain liable for their company’s debts.
The Risks for Company Directors
Directors who fall victim to these operators often pay fees upfront, only to find that no meaningful insolvency process has been carried out. Without a proper Creditors Voluntary Liquidation (CVL), creditors may still pursue action against the company, potentially leading to compulsory liquidation or even personal consequences for the directors. Worse still, some directors who take advice from unlicensed firms could face scrutiny themselves from The Insolvency Service. To date they are currently investigating over sixty companies that used such advisers.
If your business is facing financial distress, only a licensed insolvency practitioner can legally handle formal insolvency procedures and many are also able to give restructuring advice to help businesses avoid insolvency where possible.
Here are some warning signs to be aware of when seeking help:
Licensing: Insolvency practitioners must be regulated by the IPA, ICAEW, or ICAS. Be cautious if this is not clearly stated. Some firms deliberately omit the word “licensed” in their marketing.
Government accreditation's: Reputable firms may also hold recognisable government-backed accreditation, which can be verified online.
Lead generation sites: Some websites posing as insolvency specialists are in fact marketing portals that sell your enquiry to unregulated firms.
Too good to be true offers: Extremely Low, fixed fees that later escalate through hidden charges.
Unclear advice: If an adviser cannot clearly explain the implications of directors’ loan accounts, employee rights, personal guarantees, or tax consequences, they are unlikely to be properly qualified.
Protecting Your Business
For directors under financial pressure, the appeal of a quick, simple solution is understandable. But advice from unlicensed advisers often makes a bad situation worse. Not only can it lead to the loss of company assets, but it can also expose directors to ongoing liabilities and even personal legal risks.
The safest course of action is to utilise a properly regulated insolvency practitioner who can provide transparent, compliant advice. If you are worried about business debt, please contact our licensed Insolvency Practitioner, Jessica Thomas, who will be able to provide you with initial advice.
Jessica@sbip.co.uk / 07523 906 167
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