Rogue firms are selling insolvency services that pretend to escape creditors and liquidators, but are they too good to be true? We highlight what to look out for.
According to the Official Receiver’s report on Atherton Corporate (UK) Ltd and Atherton Corporate Rescue Ltd (Atherton), these firms offered – as an alternative to liquidation – a scheme that allowed directors of companies facing insolvency, to walk away with no responsibility for the creditors’ claims.
For a fee based on how much a company owed its creditors, Atherton helped sell the shares in distressed and insolvent companies, ostensibly to associates. This allowed the directors to resign but continue trading through new companies, often using the original company’s assets.
Atherton advised directors that they could walk away from their insolvent company with no further implications. It told its clients they wouldn’t need to co-operate with liquidators, insolvency practitioners or the Insolvency Service.
What happened next?
The acquirers of the insolvent company kept that original company active for as long as possible, to bridge the gap between the resignation of the former owners and any future liquidation. Eventually, many of the companies purchased under this scheme were automatically struck off the register at Companies House for non-filing of statutory documents without even being placed into liquidation.
Any creditor trying to enforce or recover the debts owed to them would be met with a strongly worded response saying the company was insolvent, that it had no assets, and that it would be a waste of a creditor’s resources to pursue the debt any further.
Other advice from Atherton included claims that the director’s new company could use the distressed company’s trading names without paying for them, and that the books and records of the distressed company could be disposed of.
How to spot bogus offers?
When companies that have participated in similar schemes are brought to our attention, we invariably find that:
- The company has been struggling financially or is already insolvent
- The incoming director holds multiple directorships, sometimes in the hundreds, of companies in many different sectors
- Those other directorships often have accounts overdue or pending actions to strike the company off the register.
Our clients often tell us about other firms offering similar services to those of Atherton to directors of insolvent or financially distressed businesses. Sometimes directors are advised to sell their shares for a nominal sum to an entity that will then take responsibility for all of the creditors’ claims.
The directors are assured that their status as directors will be unaffected. But once the shares have been transferred, the shareholders immediately remove the directors, take control of the business, sell the company’s assets, steal the proceeds and leave the company to be placed into liquidation by aggrieved creditors.
Be prepared and take action
Having an effective and regularly updated ‘Know your client’ policy alongside early data alerts, allows creditors to produce periodic reviews and profiles of a company’s financial performance. This helps to check for signs of financial stress or insolvency and enables creditors to monitor key changes, such as in directorships.
The only real way to stop entities like Atherton offering these services is to petition to wind up companies that have been subject to such schemes. This can be costly for creditors with no guarantee of a return. But once the company is wound up, the Official Receiver or a licensed insolvency practitioner can investigate it with the ability to take appropriate action against those involved, including former directors.
How can we help?
Our Creditor Advisory team specialises in reviewing directors’ conduct on behalf of creditors to establish the likelihood of a return before any costly action is taken. We can also identify any red flags that could suggest a company is part of an Atherton-style scheme.
When we are appointed as liquidators over companies who have used such a scheme, our Contentious Insolvency team can locate assets or highlight areas for further investigation. But creditors do need to take action to ensure that such schemes are properly investigated and ultimately shut down.
We have recently helped clients on a number of cases. Many of these involve, or have similar traits to, the Atherton model and we are pursuing investigations in those cases.
The Contentious Insolvency team has extensive experience in investigating, and bringing claims against, company directors and third parties to make recoveries on behalf of creditors where a wrongdoing has been committed. The team often takes cases on a speculative basis, working alongside experienced lawyers to pursue claims and make recoveries possible.
If you, or your clients, believe you may have a debt due to you by a company that has been purchased under a similar scheme to the services offered by Atherton, or if you have any debt due to you from a company or individual who is failing to respond and you are considering insolvency proceedings, please get in touch.
