Insolvency: where to get advice

08 September 2016

There has been increasing claims in the insolvency profession of unregulated or unlicensed advisors targeting distressed businesses, directors, and individuals. These advisors often claim to be able to remove all financial worries and help people avoid their legal duties. To help the public spot them, here are just a few of the ‘claims’ unlicensed advisors may make:

• “you may be in the incorrect insolvency procedure for your circumstances”
• “you may have been sold a service which you don’t need”
• “don’t take advice from an insolvency practitioner, as they only act for your creditors, whereas we act solely for you”
• “we have a way to allow you to continue trading, keep your assets and yet benefit from writing off all your debts”

While their marketing letters and websites may make these advisors seem legitimate and trustworthy, taking advice from them may make the situation of a distressed business owner or indebted individual much worse. Their advice can be incorrect or misleading, which could lead to people or businesses owing more money or in a debt solution which isn’t right for their circumstances. At worst, reliance on such advice may even place business owners, directors, and individuals in situations where they end up breaking the law.

Unregulated advisors may also recommend that distressed business owners or indebted individuals should avoid seeking help from insolvency practitioners due to the duty owed by insolvency practitioners to creditors in an insolvency situation. They’ll instead suggest that people should seek advice elsewhere (usually from themselves) before approaching an insolvency practitioner in order to maximise their own personal position before considering the rights of creditors. This is, of course, a potentially detrimental and illegal course of action, and distressed businesses, directors or individuals need to be aware of the risks of taking such advice.

Whilst there’s nothing to stop people from taking informal advice in order to deal with their financial situation, for peace of mind it is always advisable for those facing financial difficulties to seek advice from a regulated professional, such as an insolvency practitioner. Licensed insolvency practitioners are highly qualified, strictly regulated, and have years of experience providing professional advice. Most insolvency practitioners will provide a free initial consultation to discuss the details of a business or individual’s particular circumstances. Using an insolvency practitioner does not mean having to declare bankruptcy or insolvency. An insolvency practitioner will work with their clients to determine the most appropriate option for them and ensure that all statutory obligations are met.

For more information on unregulated advisers and how to avoid them, see R3’s new guidance documents for individuals and companies. These guidance documents clearly set out the misleading information provided by unregulated advisers, how to spot them, and why their claims are flawed. They also contain useful information about how directors and individuals should approach a potential insolvency situation and how they can get practical, professional advice to assist them.