The past six months have seen a total of eight insolvency firms wound up for abuses of the insolvency regime itself, a new Insolvency Service report reveals.
In the latest round of action, three related firms – Chiltern Consulting Ltd, Chilcons LLP and Source Finance Ltd – were put into compulsory liquidation for inappropriately promoting pre-pack administration to companies in financial difficulties.
Pre-packs have gained widespread criticism in recent years as being a soft-touch insolvency option; they are typically faster than other approaches to insolvency, and have raised concerns that they focus too much on selling the business’s assets, without enough attention devoted to paying creditors what they are owed.
In the case of the latest three closures, the firms were together responsible for sending around 1,000 unsolicited mail shots per week to local businesses, which contained inaccurate details and directed readers to a similarly inaccurate website.
Among the potentially misleading information was the claim that pre-pack administration is designed to benefit company directors at the cost of creditors, and that directors can avoid disqualification from running future firms, simply by being ‘careful’ about the answers they provide to the Insolvency Service.
Graham Horne, deputy chief executive of the Insolvency Service, says: “The rescue of businesses in trouble is at the heart of the insolvency regime, and every effort should be made to ensure that struggling but viable companies are turned around wherever possible, by getting good-quality advice.
“Trust is the cornerstone of business relationships, and the eight companies we have shut down violated that trust by giving misleading and inaccurate information to financially vulnerable businesses. They are now paying the penalty.”