Those in financial distress – how to avoid rogue advisors

A recent case in the High Court of Justice, undertaken by the Insolvency Service, highlights the worrying and growing trend of rogue advisors, particularly prevalent online, offering “unlicensed insolvency services” to companies and individuals in financial distress. The worst aspect is that these so called “advisors” prey on the vulnerable who then end up in far worse trouble than they would have been in if they had taken the correct advice.

Earlier this year, Kevin Morris (also known as Kevin Sykes) was disqualified for the maximum 15 years after he was found to be a de facto director of Rigil Kent Acquisitions Limited (RKAL), while disqualified from acting as a director. In addition, his company. RKAL, was found to be operating dishonestly as “unlicensed insolvency practitioners”. Furthermore, Nataliia Fox, who was in a relationship with Kevin Morris at the time, has been disqualified for 11 years, for allowing the company to trade as it did, and allowing Kevin Morris to act as a director while knowing he was disqualified from doing so.

RKAL operated dishonestly and undermined the Insolvency Profession.

RKAL, which was established in 2015, advertised itself as a turnaround or recovery service, promising companies in financial difficulties that it would enable them to wipe their business debts and avoid formal insolvency proceedings. This service was offered for a fee of between £5,000 and 10% of the failing company’s total liabilities. Morris also assured directors that they could walk away from any further financial or legal responsibility in the company. This type of assurance can never be guaranteed.
RKAL would “discuss options such as Corporate Rescue Sale, a Company Voluntary Arrangement or a Scheme of Arrangement all of which we will implement for you taking the worry off your shoulders.” However, no evidence of this was identified in the investigation. Whilst a Company Voluntary Arrangement (CVA) is a legitimate avenue for insolvent companies there was no evidence that RKAL actually offered this service. Morris benefited financially from RKAL’s activities while no money was returned to creditors including those of the distressed companies RKAL acquired.

RKAL was shut down by the Insolvency Service in February 2018, along with eight associated entities, and an investigation was launched. Unfortunately, RKAL is not the only instance of a company offering dishonest and unregulated advice. As well as those claiming to be an “unlicensed insolvency practitioner”, a role which does not exist, there are other online entities claiming to be regulated firms but are merely lead generation websites that demand upfront fees and act as middlemen before passing enquiries onto other rogue “advisory” firms.

Nick Oliver, director at specialist Insolvency and Restructuring firm of solicitors Isadore Goldman added that “ we are having to assist an increasing number of people who have been caught out by this type of operation, often after parting with substantial amounts of money. We advise people to seek advice from licensed professionals, and the earlier help is sought, the better”.

Warning signs

Those seeking debt or recovery advice are warned to look out for the following which often indicate that a company or service is not genuine:

• Companies advising you to ignore or dismiss communication from HMRC;
• Being charged up-front fees by a middleman who then passes you to an insolvency practitioner or other unlicensed advisor;
• Being charged up front fees or any pushiness towards a certain procedure;
• Companies making promises that all debts would be written off without an understanding of the debts or associated personal guarantees;
• Failure to explain the chosen insolvency process, e.g. Creditors’ Voluntary Liquidation, clearly; and
• Creditors still hounding you, despite supposedly being under the protection of a formal insolvency process, which a genuine licensed Insolvency Practitioner would manage for you.

Licensed and regulated insolvency practitioners

There is no such thing as an ‘unlicensed insolvency practitioner’, the role simply does not exist. All insolvency practitioners must be licensed and regulated by a regulatory body (such as the ICAEW) and must undertake significant training before becoming qualified to carry out their duties. Throughout their work, licensed and regulated IPs must follow the statutory regulations of the Insolvency Act 1986 and Insolvency (England and Wales) Rules 2016, with their main duties owed to the creditors of the insolvent individual or company to ensure they get the best result possible.

A licensed and regulated insolvency practitioner or insolvency solicitor should be your first port of call if you spot the signs of financial trouble in your own or your business’ finances. The faster you act, the greater chance you’ll have of a more desirable outcome.