Why should a director consult/use a licensed insolvency practitioner?
When a business is struggling to stay afloat and meet creditor demands, many unlicensed insolvency advisers make contact with a worried director and claim to have all the answers. Caution should always be observed, particularly when an offer seems too good to be true : because it usually is.
The reality is that only a licensed IP can accept formal insolvency appointments and manage corporate insolvency procedures from beginning to end. Indeed, before being appointed, the licensed IP must provide a letter of consent agreeing to act and demonstrate that he is properly authorised.
In contrast, an unlicensed insolvency adviser can only review a set of circumstances and determine which third-party service providers might be best placed to deliver practical solutions e.g. then for an advance fee.
An unlicensed insolvency adviser may well charge a fee to refer you to a licensed IP who you could have contacted direct.
R3, an insolvency trade body in the UK, issued guidance entitled ‘The Risks of Unregulated Advisers’. This focused upon the trend of directors feeling stressed and relying upon unqualified advice which often proves to be of little help to directors.
In addition, there are no safeguards in place which ensure that a director or creditors receive value for money or that the recommended solution is in accordance with current law.
A licensed IP has a legal duty to act in the interests of all stakeholder groups in an insolvency process. Using an unlicensed adviser can be a waste of valuable time and money and serve to delay the inevitable.
Using unlicensed insolvency advisers creates the situation that there is no recourse for anyone using their services and who subsequently feel that they have been overcharged or given unhelpful guidance. The lack of regulation and accountability of unlicensed advisers means that they can advise directors inappropriately, perhaps steer certain stakeholders towards illegal actions, that can have far-reaching ramifications, for the person seeking advice.
It is safer and more transparent to work with a licensed IP.