Insolvency Service Investigations Close Seven Companies Offering a “Corporate Rescue Scheme”

Two corporate rescue firms and five associated companies have closed in the aftermath of an Insolvency Service investigation.

The companies in question claimed to offer directors of insolvent companies access to a “corporate rescue scheme”, a supposed alternative to using a licensed insolvency practitioner (IP) that absolved those directors of responsibility for their company’s debts.

In reality, if you need advice on dealing with an insolvent company, you should speak to a firm of licensed and regulated insolvency practitioners, such as Wilson Field.

When do I need an insolvency practitioner?

What these companies offered

The two firms that traded under a unified brand offered insolvent company directors a “legal alternative” to insolvency practitioners and encouraged directors to dispose of assets before selling said company. Additionally, they advised directors that resigning before entering an insolvency arrangement would absolve them of any responsibility for that company’s debts.

On top of this, they claimed new companies that the directors might have established could use the same trading name as the insolvent company without consequence.

Reusing a company name after liquidation

Consequently, five connected companies offering these “Corporate Rescue Schemes” have been closed by the Insolvency Service.

“Neither company identified genuine purchasers for the businesses in financial distress but instead operated a scheme to help former directors and owners disassociate themselves from their company debts while retaining any assets.
“These actions would appear to have deliberately undermined the insolvency regime which is why the Secretary of State applied to have them and their associated companies wound-up in the public interest.”

Mark George, Chief Investigator at the Insolvency Service.

An expanded list of the Insolvency Service’s findings

The reality

Despite the promises made by these companies, many of their claims were misleading and lacked a clear grasp of insolvency rules and regulations, which all insolvency practitioners must abide by when practising their duties.

If you want to liquidate your company, or by extension, put it in any insolvency procedure, there is no real alternative to going through a licensed insolvency practitioner. Insolvency practitioners report to licensing and regulatory bodies; Wilson Field’s IPs are registered with the Institute of Chartered Accountants in England and Wales (ICAEW).

This incident and the unregulated £1 ‘insolvency avoidance’ scheme further emphasise the importance of seeking professional advice.

Firms without the relevant licensing and regulation might offer a lower-costing alternative that sounds tempting on paper. However, choosing one of these over a licensed and regulated practitioner, such as ours, can lead to issues later.

How much does an insolvency practitioner cost?

Why it’s important to speak to an insolvency practitioner

Only licensed insolvency practitioners can carry out formal insolvency procedures. All insolvency practitioners need to be licensed and regulated by a regulatory body such as the ICAEW. They must also follow the regulations in the Insolvency Act 1986 and the Insolvency Rules 1986.

If your company is in financial difficulty or insolvent, we can offer free, impartial advice and arrange a consultation to discuss the most appropriate solutions for your company. Unregulated and unlicensed advisers offering services such as ”corporate rescue” cannot legally carry out the services listed below.

Depending on your company’s situation, we may recommend one of the following solutions:

• Formal repayment plan for company debts
  If your company is struggling with burdensome debts but has an otherwise viable business model, the company could apply for a Company Voluntary Arrangement (CVA). These formal repayment arrangements allow insolvent companies to repay their unsecured debts in monthly instalments at a tailored, affordable rate. They enable the company to continue trading while repaying and will pause creditor pressure for the duration of the arrangement. Speak to us, and we can assess your company’s circumstances and determine whether a CVA could be a viable recovery option.
  More on Company Voluntary Arrangements (CVAs)
• Restructuring the company through administration
  If more substantial restructuring could return your company to a profitable state, we may recommend administration. Speak to our advisers to assess the company, determine whether administration is appropriate, and decide which parts can be restructured to a profitable state, with the rest sold off.
  More on company administration
• Closing the company through liquidation
  If the company’s debts are of such a level that recovery isn’t feasible or the directors decide they don’t want to continue trading, closing the company in an orderly manner might be the best option. In this case, the company can close through a Creditors Voluntary Liquidation (CVL). This process draws a line under the company’s debt, ending its operations. Doing so may generate a better return to creditors than if they were to wind the company up through compulsory liquidation. Speak to us if your company is under unmanageable creditor pressure and you wish to close it.
  More on Creditors Voluntary Liquidation (CVL)

Summary

Closure of companies by the Insolvency Service demonstrates the risks of engaging unlicensed firms, and only licensed insolvency practitioners can provide insolvency services and should be sought for advice in cases of insolvency.

These licensed and regulated professionals ensure due diligence is carried out during the process and can help mitigate potential issues that may arise from cheaper, informal alternatives.