Eight companies which offered misleading, inaccurate and financially damaging information to ailing businesses in England and Wales, or were guilty of serious financial irregularities relating to insolvent companies, have been wound up in the public interest by the High Court in the last six months as part of ongoing investigations by the Insolvency Service.
The latest companies to be wound up are connected firms Chiltern Consulting Ltd, (Chiltern), Chilcons LLP (Chilcons) and Source Finance Ltd (Source) based in Chesham, Buckinghamshire. The three were put into compulsory liquidation today for promoting pre-pack administration to businesses in financial trouble in an inaccurate and misleading way.
The three firms sent over 4,000 unsolicited mailshots a month to businesses and directed recipients to Chilterns website www.prepacks.co.uk; both the letters and website contained inaccurate, misleading and incomplete information.
Directors were given the impression that pre-pack administration was a closed process, that it was designed to benefit them rather than the companys creditors, that asset values would be kept low and that avoiding disqualification was simply a matter of giving the right answers to questions from the Insolvency Services investigators. The marketing material also risked bringing the insolvency regime into disrepute by making generalised, unsubstantiated and disparaging remarks about the insolvency profession.
The investigation is part of an ongoing operation by the Insolvency Service to look at unregulated businesses offering insolvency advice, after the agency became aware of a potential abuse of the insolvency regime by some companies that offer consultation services to businesses requiring the involvement of Insolvency Practitioners (IPs).
Eachof these companies introduces potential clients to select groups of IPs and, in the case of Chiltern, Chilcons and Source, the clients were not told that they would be referred to one of only three firms of IPs, or that those same IP firms each paid a substantial monthly retainer to the three companies.
So far, eight companies have been wound up including Adam Smith Business Development Ltd, Company Corporate Transfer Ltd, Genesys 2000 Ltd, The Recovery Partnership Ltd and TAG (Chesterfield) Ltd.
The conduct of six IPs connected to the companies will be assessed by the relevant recognised professional bodies (RPBs) which regulate IPs, to assess whether action should be taken due to their involvement.
Commenting on the case, Graham Horne, Insolvency Service Deputy Chief Executive, said:
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.
The action we have taken is part of an on going operation and further action is anticipated in the future. These orders should serve as a warning to other companies tempted to indulge in such blatant abuse of the insolvency regime. We take this seriously and we will close you down.
Graham Rumney, the Chief Executive for insolvency trade body R3 said :
We welcome the courts decision to consent to the compulsory winding up of these companies in the public interest. This outcome is the fruition of a number of years work by the Insolvency Service to clamp down on companies which abuse trust in the insolvency regime.
We applaud the Insolvency Services efforts in this regard, and are keen to see them continued. R3 will continue to work with the Insolvency Service to guard against companies that undermine the UKs business rescue culture.