It’s national Scams Awareness month.


In support of this we will be running a series of articles about scams over the remainder of this month and hope you will join us in sharing our stories to raise awareness of scams over the coming weeks given the impact these scams can have both financially and emotionally on the victims and those connected to them, as well as sometimes bring disrepute to a number of professionals.


We’re going to kick off with a post about something close to our hearts – insolvency advisers!


In times of desperate financial difficulty, those affected are vulnerable and are easily guided into a solution that sounds perfect whether that be alleviating stress, removing risk, or guaranteeing protection for your worldly possessions.


When you are vulnerable you never stop to think “is this too good to be true?”, or “does this sound right?”; failing that “how do I even check it is right?”.


We all know the internet is full of both useful and useless information.  Despite search engines’ sophisticated algorithms, it is not possible to rid the internet of false, misleading or just general information, so how do we know what is right from what is wrong and where to turn?  In general, this can be quite difficult, after all most of us have searched the internet when there is something wrong with our health and most people believe they have something horribly wrong with them, or alternatively there is nothing to worry about.  This leads to either panicked unnecessary action or inaction, which then turns into “if only I’d taken action sooner”.


What that person should do is seek advice in person from a qualified medical professional.  It’s easy to know that person is a qualified medical professional because they are called doctors and there is a national register and the vast majority of people wouldn’t go to someone who was simply claiming to be a doctor/pharmacist/etc.


The same applies to insolvency, but because it is not regulated in the same way as healthcare it can be confusing, and unlike doctors, insolvency advisers and professionals are all commercially driven, needing to generate income from clients to earn a living – there is no provision from government resources to pay them.


Insolvency advisers (a term we use loosely) can come in many shapes and forms, often promising the earth, such as complete protection for you from your creditors, and making sure your assets are completely protected.   When someone offers this to you, you are likely to think of them as your savior and pay them whatever they ask for.  But what are you getting in return?  Do you assume an ‘insolvency adviser’ is like an accountant, solicitor, IFA or similar?


Unfortunately only the term ‘Solicitor’ is a protected term in law, anyone can call themselves an accountant, insolvency adviser, an Insolvency Practitioner, even a licensed Insolvency Practitioner although holding yourself out to be licensed when you are not is a blatant lie, so we have never seen this happen, but it is theoretically possible.


Given that it is possible and does happen, then insolvency advisers scam money out of people, even offer to pay their creditors or sort their problems out but don’t.  There are sadly several examples of this in debt management and insolvency , such as Debt Help Direct; Money Worries; The Insolvency Group (The Recovery Partnership and Tag Chesterfield).  In the latter case they received £150,000 from a company that later went into liquidation and the funds couldn’t be accounted for.  The Insolvency Service said “These companies offered solutions to businesses that were experiencing financial difficulties, but they were operated in such a way as to undermine the insolvency regime by making it unclear where the lines of responsibility were drawn and by failing to adequately ring-fence client funds.”  It is not known what happened to the company or the directors that transferred £150,000 to it, but it is likely they ended up in hot water!


So how do you know who to turn to?


The answer is relatively simple.  A Licensed Insolvency Practitioner is what it says on the tin – licensed to give you insolvency advice.


Only Licensed Insolvency Practitioners have demonstrated they are competent to give advice and administer insolvency matters following the completion of a set of professional exams, demonstration of experience and continual monitoring by regulatory bodies.


Not only that but each licensed Insolvency Practitioner carries professional indemnity insurance and due to the laws that exist, they must confirm details of their professional indemnity insurance during their engagement with you.


There are approximately 1,300 licensed Insolvency Practitioners in the UK.  Not all of those will be practicing, some large national firms (who only deal with very large value and complex insolvencies) may have up to 50 within their firm so finding someone to advise you may not be an easy task.


However, the Insolvency Service hold a list of all licensed Insolvency Practitioners.  R3 – the Association of Business Recovery Professionals maintains a similar list, however whilst nearly all licensed Insolvency Practitioners are members of R3, there are a few who are not.  See the links to the registers at the footer of this article.


What both lists do though is provide you with licence numbers – something unique to each and every licensed Insolvency Practitioner in the country, and it is the individual person who is licensed and not the firm.  The registers also identify the firms they work for.


So what does this mean for anyone approaching a firm for insolvency advice?


Ask them who their Licensed Insolvency Practitioners are.


Ask for their licence numbers.


Check this person is genuine with either the Insolvency Service or R3.


See where that person works.  If it is not the firm you have approached, then perhaps that firm is an intermediary.


If the firm is an intermediary, who is actually giving you the advice to begin with?


If it is the intermediary, are they insured or qualified to give the advice?  They certainly aren’t licensed.  Therefore, is the advice right or even worth the paper it is written on?


Insolvency advisers often talk about being on your side and not the creditors, but no Licensed Insolvency Practitioner can be on your side as their duty of care once officially appointed in a formal insolvency process is to your creditors.  A Licensed Insolvency Practitioner can, and should be, very helpful and sympathetic to you and your situation, but cannot advise you to do something that is fundamentally against the law or their ethical principles.


As a vulnerable individual, getting the legally right answer might not be what you want to hear, but should be one you are grateful for as any alternative is potentially illegal and even criminal as evasion of liabilities is an offence under the Fraud Act.


So, with such uncertainty you may think turning to a charity is a good idea.  However, caution should be exercised.  In a charity there often aren’t licensed Insolvency Practitioners and if there are there is, almost zero chance you will get to speak to one.  You are therefore speaking to an individual who may have only ever worked as a call handler or adviser.  Is this person therefore competent enough to understand your query, your situation, consider all the impacts of your business/situation and advise you properly and accordingly with professional indemnity cover for you to fall back upon if the advice is wrong or incorrect?


For example if you are an individual – they need to know and consider your current or former occupation, the impact on any business you are involved in as owner or manager and its structure (sole trader, partnership, LLP or limited company), your future plans, your family situation – not just spouse/partner and children – including possible inheritances, your financial dealings over the last 5 years, leases or contracts you are party to and the impact of any action on those, etc.


If you are involved in an entity – what is the structure, are you an owner or manager, what shares do you have, are you trading in accordance with your agreements (articles of association, partnership deed, etc), what impact will it have on all concerned, what about personal guarantees and your ability/need to service them in the future, what are you going to do in the future, what about the issues of disqualification or reuse of name, what do your businesses finances look like and what could they look like, what is the impact on contracts of any decision you make and how vital are they, what about employees and who/how/what impact or payment, etc.


In our experience it is not possible for anyone in a charity who has not had the practical experience of dealing with these situations across the breadth of personal and business industries that exist, who understands the interaction of other laws – divorce, inheritance, health and safety, licensing, etc – can possibly properly advise you.  Even some Licensed Insolvency Practitioners cannot do this and need to involve solicitors to make sure all is covered.


The effectiveness of charitable organisations providing comprehensive advice is uncertain, however their assistance for individuals with simple personal financial situations is very good.


Useful links:-