Insolvency Avoidance Scheme: creditors left empty handed and directors at risk of personal liability

You may have seen an article in The Times earlier this week on the continued promotion of a purported insolvency avoidance scheme, despite The Insolvency Service’s efforts to shut it down.

The Atherton Scheme is promoted as a ‘legal alternative to using Insolvency Practitioners’ where directors pay a fee to Atherton, selling their company for a nominal sum of as little as £1.00 with the directors effectively ‘deserting’ the company with the aim to distance themselves from the failure of the company. Atherton will then appoint new directors to the company, not take any action and wait for the company to fall into formal insolvency or be dissolved (if a creditor does not take action). It has been reported that one of the directors who takes over the distressed companies has been extremely hard to trace and it is questionable whether he even exists. Additionally, government investigations discovered that the scheme encourages directors to dispose of all of their assets.

There are several legal implications of attempting to use the scheme, including but not limited to, fraudulent trading, breach of fiduciary duties, disqualification of directors and criminal liability. Additionally, the use of the scheme is likely to leave thousands of disgruntled creditors who are left receiving nothing.

Directors should take note that there is no substitute for taking advice from suitably qualified professionals. Directors have various duties to uphold including considering the creditors’ interests if directors know or ought to know that the company is bordering insolvency or is insolvent. Attempts to distance themselves from the failure of the company does not facilitate avoidance of personal liability.

At Barker Gotelee LLP, we have specialist knowledge, expertise and many years of experience in advising clients on a wide range of insolvency matters. For a confidential initial discussion, please contact a member of our Insolvency & Business Recovery Team.