Updated: 16th September 2016
If your business is struggling to stay afloat and meet creditor demands, you may find that unlicensed insolvency advisers will claim to have all the answers to your questions.
However, only licensed insolvency practitioners are legally able to take insolvency appointments and manage corporate insolvency procedures from beginning to end.
In contrast, unlicensed insolvency advisers are only able to look at your circumstances and determine which third-party service providers might be best placed to deliver practical solutions to your problems.
So even in a best-case scenario, an unlicensed insolvency adviser will charge fees to connect you with licensed practitioners who you could have contacted directly as your first port of call.
New R3 guidance issued earlier this month, titled 'The Risks of Unregulated Advisers', highlights the worrying trend of relying on unqualified advice which can often prove not only to be of little help to directors but can also exacerbate the problems and challenges being faced.
In addition, there are no safeguards in place to ensure that you or your creditors are getting value for money or that the recommended solution is even in accordance with the law; something that unregulated organisations rarely take into account.
It is understandable that anyone managing a business struggling to meet its liabilities might be inclined to place trust in an adviser who claims to be acting in their best interests whilst offering cut-price solutions but, unfortunately, it is these 'ambulance chasers’ that are often leaving directors in even deeper trouble.
Licensed insolvency practitioners have a legal duty to act in the interests of creditors in an insolvency process but their interventions are inevitable where businesses are demonstrably and unquestionably unable to pay their debts.
So listening to the advice of unlicensed advisers is often, in essence, a waste of both time and money and a process that only serves to delay insolvency-related undertakings that need to happen and should only be handled by qualified experts.
Another issue with using unlicensed insolvency advisers is that there is no recourse for anyone using their services who subsequently feels that they have been overcharged or given unhelpful guidance. It is a far safer and more transparent process to work with a fully licensed practitioner rather than someone whose activities are unregulated and essentially rogue as far as any legalities may be concerned.
The lack of regulation and accountability of unlicensed advisers means that they often freely advise directors inappropriately and even steer certain stakeholders towards illegal actions that can have far reaching ramifications both professionally and financially.
In summary, the message from R3 is clear; it is far more prudent to contact a licensed insolvency practitioner if your company is facing financial distress. At Begbies Traynor, we offer a free consultation with a licensed insolvency practitioner at more than 40 office locations across the UK.
Gary is a Fellow of the Institute of Chartered Accountants in England and Wales and a Licensed Insolvency Practitioner with over 20 years experience in the profession.
He has worked extensively with Banks, Asset Based Lenders & Private Equity on mid market & SME assignments. He has a broad range of experience gained through a variety of assignments, working on formal insolvency appointments, informal workouts, debt negotiations and independent business reviews.