Bad Debt and Personal Insolvency Scam

In Lucas Johnson’s 3rd article during Scams Awareness month, we turn to the practice of preying on vulnerable creditors who have suffered a bad debt following the liquidation or administration of a company or llp.

 

For some creditors, the bad debt of a customer going under can have dramatic knock on consequences (the domino effect) and see the creditor themselves encounter financial difficulties.  As a result, they may resort to any method to get their losses back, either searching the internet for answers and solutions or responding to the mailshot that lands on the doormat promising to get them their money back from a director personally through specific knowledge the mailing company has of the wrongdoings of the insolvent company.

 

Of course, there is a fee for their services and it is most definitely up front, but when someone says they can bypass 32 year old insolvency legislation, companies/llp legislation, and goodness knows what else and get you your money back, why, when you are desperate for your money back and thrilled that someone is offering you something that a Licensed Insolvency Practitioner acting as liquidator or administrator cannot do, would you question it or say no?

 

For the same reason that when someone sends you an email out of the blue saying they have 20 million dollars they wish to transfer to your bank account and you can have 10%, you can’t resist giving away your bank details.  Hang on, you don’t do that, you forward it to Action Fraud or just press delete?  So, why fall for other scams then?

 

Companies and llp legislation states that the liability of those involved in running the business is limited – i.e you are not personally liable.  Therefore, how can a debt collector suddenly bypass this fundamental principle?

 

Perhaps it is because the company/llp is in liquidation/administration?  Simple answer to that is no.  There are mechanisms to bypass the limited liability concept, but they rest with the liquidator/administrator.

 

There is one instance where the ‘veil of incorporation’ can be lifted (or the limited liability concept departed from) and that is when there has been an instance of clear fraud.  However, fraud is by its nature difficult to prove and because fraud is a criminal offence, it requires the criminal burden of proof test to be met – which is beyond reasonable doubt, which is far greater than the civil burden of proof of on the balance of probabilities.  Look at it in number terms – on the “balance of probabilities” is probably greater than 50% in favour of there being a claim, whereas beyond reasonable doubt is probably 75%, 80% or potentially even higher.  That is a staggering level to reach

 

Furthermore, who holds information concerning a company’s/llp’s affairs and who is entitled to obtain that information?  Who is given the full weight of the court via the law to obtain more information?  It is not a creditor of the company, it is not a shareholder of a company, it certainly isn’t an agent (debt collector) of a creditor of the company.  The only person with the judicial support to do that is a liquidator or administrator (or of course the police if it is a genuine fraud).

 

So, lets take all of those factors into consideration.  Someone without legislative power to obtain or gather information from any legal or legitimate source, holds information not available to a Licensed and regulated Insolvency Practitioner, says they can recover something a Licensed and regulated Insolvency Practitioner cannot, which by conclusion must mean they can bypass legislation whose roots were established back in the 15th century or they can prove beyond 75% that fraud has taken place, whilst all it costs you is £x…………………are you going to buy from them?

 

Similarly, it’s not just creditors targeted by this scam.  If you are a company director you may be on the receiving end of a threatening letter outlining how you are personally liable and you will be sued to the ends of the earth.  Having now read this are you going to pay?  I hope not.

 

 

To give you some real life examples of where we have encountered this, please read on:

 

As liquidator of 2 separate companies I witnessed these practices first hand.

First was when a creditor contacted me and said we have had a letter out of the blue from ABC.  They are saying they have information about the affairs of the company and can get our money back separately from you.  I of course asked for the details of the ABC in order that I could contact them and extract the said information to assist in my statutory duties.  Unsurprisingly, despite umpteen letters and emails and even threats of using the powers afforded to me to obtain that information, not even the courtesy of an acknowledgement was received………….I wonder why not?  After all, surely as a decent, upstanding, debt collection firm they would comply with their statutory obligation to provide it to me?

 

The second instance was with the same firm, who contacted me on behalf of a creditor whose Retention of Title Claim I had previously rejected.  The successful rejection was despite the creditor appointing a licensed, regulated and insured firm of solicitors to deal with their claim previously.  ABC informed me of the personal liability risks I faced for conversion and all manner of other things and how they were sure I would not like this to get out of hand and invited me to agree to a meeting at my office or theirs, which they kindly informed me was within a barristers chambers, in particular barrister Mr X who has informed them of the significant breaches of legislation I had embarked upon.  Furthermore, to make sure I understood the risks I was facing they would issue proceedings if this was not immediately resolved and had ATE cover in place and I would have to pay their premium, etc.

For anyone who knows me you will appreciate this filled with ………….. absolutely no fear whatsoever, in fact it filled my day with much amusement.

Unfortunately the creditor had chosen to ignore the work and advice of a regulated, insured and qualified firm of solicitors; had engaged a firm who thought scare tactics would work by mentioning personal liability for me as the liquidator and barristers who were qualified (by their own profile on the Chambers website) in employment law; whilst believing that costs of an ATE policy could be recovered from me even though the law had changed some 6 months earlier to prevent that.

Why did that creditor engage ABC?  Because they were vulnerable, desperate to recover tens of thousands of pounds, and were deliberately targeted as such and therefore probably acted against their better judgement.

 

Certain professions are qualified, licensed, regulated and insured for a reason.  Going to anyone else is a risk.  Please make sure you check credentials first and don’t fall victim to good sales patter.  You know the saying, if it’s too good to be true then it probably is, and in this instance it definitely is.

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