Are Unlicensed Insolvency Practitioners Worth the Risk?

19 March 2024

When your company is struggling, you’re under huge pressure and creditors are pounding on the doors, it can be easy to place your trust in the wrong people.

An unlicenced insolvency practitioner promising an easy fix to all your financial problems might seem like an opportunity you cannot afford to turn down. But beware, you could be barrelling headlong towards a costly scam.

Though they may laud their unlicenced status as an advantage, behind the marketing hype typically lies someone unqualified, unregulated, and often inexperienced. After luring you in with false promises and usually seeking an upfront cash payment for their services, they usually fail to deliver.

Ultimately, they may end up achieving very little leaving a licenced insolvency practitioner to finish the job for them, and leaving you further out of pocket and with nothing to show for it in the process. Indeed, most financial institutions and secured creditors will refuse to deal with unlicenced insolvency practitioners.

This is because, by law, only licenced insolvency practitioners can act as office holders in insolvency proceedings. Only they can take your company into liquidation, administration, or through a Company Voluntary Arrangement. If your unlicenced insolvency practitioner has promised you otherwise, be warned, they are misleading you.

In fact, even the name unlicenced insolvency practitioner is a misnomer, because there is no such thing. All insolvency practitioners need to be licenced. If your adviser isn’t, then they are not really an insolvency practitioner.

The advice given by my industry’s rogue element is frequently wrong, dangerous, or even criminal. Often their recommendations can exacerbate the very financial problems they claim to be able to help you with.

This is hardly surprising when you consider you are working with someone who has proudly skirted all the safeguards put in place to protect you from unscrupulous actors.

Licenced insolvency practitioners must undergo extensive training and pass stringent examinations to earn their licenced status. Their actions are overseen by a regulatory body such as the ICAEW who ensures standards are upheld who will investigate any complaints or allegations of misconduct.

Without this protection, or that offered by professional indemnity insurance, you will have no avenue of recourse if the advice you are given by these self-professed insolvency experts turns out to be wrong.

Even a low-cost promise could prove to be little more than hot air. I have also seen numerous cases where a mishandling of their affairs resulted in directors being left personally liable for their company debts. Others have been surprised to learn they still owe money to creditors under personal guarantees.

You may also discover, too late, that the promises they made were wildly unrealistic. Be wary of any blanket assurances they offer you, such as to transfer your business to a new company for little consideration, or to write-off high levels of your personal debt. It is unlikely they will be able to deliver on them.

Worse still, you might find yourself steered towards illegal actions that could have far-reaching ramifications for both your professional and financial future.

Insolvency can be a legal minefield for the uninitiated. A highly regulated process, there are myriad pieces of legislation to traverse if you want to avoid the harsh penalties imposed on those who breach the law. There are rules governing everything from how your company can operate while insolvent, to the appropriate steps to be followed in such circumstances.

Sound professional advice can ensure you emerge on the other side of an insolvency in the best possible position, even financially secure. But take the wrong turn and you could find yourself disqualified from being a company director, liable for company debts, or even deemed criminally negligent.

Often, it is licenced practitioners like me who are left to pick up the pieces after the bad advice and unfulfilled promises wreak havoc. I have helped many clients navigate their way back to stable ground, but I would much rather they had avoided totally avoidable legal and financial difficulties in the first place. Sometimes, it is too late to undo the damage.

Unlicenced insolvency practitioners are nothing new. Sadly, wherever there are financially desperate people, there will be unscrupulous operators ready to take advantage of them. But since Covid, their numbers have been climbing at a disturbing rate.

It has never been more important to check the credentials of the ‘experts’ you turn to for advice, particularly if sourced online or through social media.