15 February 2013 14:15
Three connected companies that misled directors of insolvent companies by promising they could help them walk away from their responsibilities have been wound up by the High Court, on grounds of public interest.
The orders follow investigations by Company Investigations of The Insolvency Service. Directors of ailing companies were misled into believing they could limit their civil and criminal liability, while creditors were misled as to the formal status of the insolvent company.
The three companies, Adam Smith Business Development Limited (‘ASBD’), Company Corporate Transfer Limited (‘CCT Ltd’) and Genesys 2000 Limited (‘Genesys’) acted together in this deception through a service called ‘Corporate Company Transfer’ or ‘CCT’.
In addition the investigation uncovered evidence that:
ASBD was paid ‘marketing fees’ by insolvency practitioners for the introduction of insolvency work contrary to the Insolvency Code of Ethics, further calling into question the integrity of the CCT process.
Assets were invariably valued at amounts that would just cover the fees charged, leaving nothing for creditors.
Graham Horne, the Deputy Chief Executive of The Insolvency Service, said:
“This is a shocking abuse of the insolvency regime, where directors are duped into thinking they can just ignore their liabilities and walk away, leaving creditors without any chance of recovering what they were owed.
“Directors should be aware that there is no escaping their responsibilities and they will still have to settle with their creditors in the right and proper way.
“I am pleased we have removed these companies from the business environment so that they cannot cause any more harm to the public. We want to send a strong message to any company that is tempted to abuse the insolvency regime by indulging in such ‘ambulance chasing’ operations that we will get them.
“We will liaise with the professional regulators of any authorised persons that are found to be involved in such schemes and are already doing so in this case.”
The typical CCT service involved new directors being parachuted in to take over the troubled company. These new directors would then arrange the sale of the company assets at a much reduced price to a new company (‘Newco’) set up and controlled by the former directors of the insolvent company. The old company would then go into company voluntary liquidation with few or no assets, with creditors losing out.
The investigation showed that the process whereby the assets were valued and sold to the Newco was flawed and was deliberately arranged to put it outside the safeguards of the statutory insolvency regime. In some cases, the sale value of a company’s assets had been agreed before a proper valuation had been carried out.
Almost invariably, the assets were sold for an amount that would just cover the various fees charged for the CCT service and a subsequent liquidation. Having transferred the assets to the Newco the CCT service arranged for what was on occasions described as a ‘NQA’ (No Questions Asked) liquidation.