Atherton Scheme | The Insolvency Service Takes Action
The Insolvency Service is reportedly considering further actions against directors who have utilised the Atherton Scheme and, this is likely to mean that former directors of other similar schemes will also come under scrutiny.
Company directors and other officers have strict duties and obligations to uphold at all times and no more so than when the company becomes insolvent or is bordering on insolvency . Prime considerations are the protection of assets and their proper distribution in the interests of creditors.
Any attempt to abandon responsibility by, for example, creating distance from the failure of the company or avoiding established insolvency procedures does not facilitate avoidance by a director of personal liability.
Various organisations, such as the companies comprising ‘The Atherton Scheme’ endeavour to entice directors of distressed companies to buy into their scheme by misrepresentations promising an easy, seamless exit from their failed company.
By way of inducement, misrepresentations are made such as the promise that formal insolvency proceedings can be avoided, creditors can be ignored and assets can be legitimately transferred. Basically, the promise that all statutory company obligations can be avoided without the fear of any consequences.
Such promises are totally false and, as part of its endeavours to maintain the integrity of the insolvency provisions generally, the Insolvency Service will not hesitate to wind up companies operating such schemes.
The Insolvency Service recently wound up several companies conducting the Atherton Scheme including Atherton Corporate (UK) Ltd and Atherton Corporate Rescue Ltd.
The Insolvency Service accused Atherton of ‘several misrepresentations’ and ‘misleading clients’, causing thousands of creditors to be left out of pocket.
However, despite the action taken by the Insolvency Service there remains an active website associated with the Atherton Scheme. It continues to seek to attract business from company directors who may well be unaware of the pitfalls they face if they adopt the procedure advertised by the Scheme.
Stuart Southall of KANGS explains the nature and dangers of the Atherton Scheme and similar schemes.
How the Atherton Scheme Operates
Directors of a failing company are misled into believing that they can simply hand over the insolvent company, legally retain their assets by transfer to a new company, continue with the established trading name, avoid all responsibility for the accrued debts to creditors whilst avoiding the need for adopting established liquidation procedures through insolvency practitioners.
After receiving its fee, which could be anything up to fifteen thousand pounds, the Atherton Scheme replaces the former director(s) with a substitute, who, in many instances was Neville Taylor, referred to below.
The new director, who has absolutely no interest in the conduct of the company, simply abandons any trading activity and allows it to fall into insolvency without any attempt to legally manage it, recover outstanding debt or protect its creditors.
The newly appointed director may attempt to keep the company operational for as long as possible when, by doing so, a time distance may be created between the removal of the defaulting director and liquidation if it is thought that reputational damage may be avoided.
The Advertising material promoted by the Atherton Scheme states that:
- as the company itself is being bought, all its historical, current, and future debts and liabilities are taken over,
- only one fee for the entire service is charged,
- it utilises specialist UK Lawyers offering ‘over a decade of experience in this sector’,
- a quick completion can produce a settlement within five business days or sooner,
- the business assets including the debtor book and money owed are not touched and remain with the current director(s) as do company or private bank accounts,
- no insolvency practitioners are involved in the process,
- no entry is made on the public insolvency register,
- no reputational damage will be caused.
Potential Liabilities of Directors
Becoming involved in schemes like the Atherton Scheme may potentially subject participants to accusations of:
- Breach of Fiduciary Duties: As directors must act in the best interests of the company and its creditors, the transfer of assets away from the company to the detriment of creditors, thereby prioritizing their interests, may result in a civil claim for damages.
- Fraudulent Trading: Where directors conduct business with the deliberate intent to defraud creditors, they will be held personally liable for the company’s debts.
- Wrongful Trading: An offence arises when directors conduct a company when they know, or ought to know, that it is insolvent. Avoiding debts through the Atherton Scheme without any attempt to rescue the business may well amount to wrongful trading.
Director Disqualification Proceedings
Directors who are found to have acted improperly in the conduct of a company’s business will normally face disqualification for a number of years. A Director Disqualification Order prevents an individual from acting as a director or company officer of any company.
In the conduct of the Atherton Scheme, an individual named Neville Taylor, was appointed as a director of as many as four hundred companies in place of the original directors receiving more than a quarter of a million pounds for his services.
He has been disqualified from holding a position as a director or other company officer for a period of nine years.
Official Comment
Dave Magrath, Director of Investigation and Enforcement Services at the Insolvency Service, said:
"Neville Taylor hampered efforts by liquidators to identify assets, caused a widespread loss to creditors and breached his duties as a director to act in the best interest of the companies and creditors.
He also accepted that his conduct was part of a scheme designed to subvert and undermine insolvency legislation.
At the same time, he was paid by Atherton Corporate (UK) Ltd to enable this scheme."
Mark George, Chief Investigator at the Insolvency Service, said:
"The Atherton companies told customers that resigning as directors before formal insolvency proceedings would remove the risk of reputational damage.
However, neither company identified genuine purchasers for the businesses in financial distress but instead operated a scheme to help former directors and owners disassociate themselves from their company debts while retaining any assets.
These actions would appear to have deliberately undermined the insolvency regime which is why the Secretary of State applied to have them and their associated companies wound-up in the public interest."
How Can We Assist?
It is clear that the Insolvency Service continues to investigate the Atherton Scheme and organisations conducting similar schemes and their users with the likelihood that further proceedings will follow.
In any situation where fraudulent activity is suspected, a director could face a criminal investigation and potential prosecution. The deliberate endeavour to avoid liability as promoted by Atherton Corporate could attract criminal investigations, particularly if there is evidence of deliberate deception or misconduct.
The statutory duties and responsibilities imposed upon all directors and other officers involved with the management of companies are crystal clear and endeavouring to abandon them in the manner promoted by Atherton Corporate and similar organisations is very likely to result in official investigation.
Should you become subject to an Insolvency Service investigation or should you have concerns concerning your company’s relationship with Atherton Corporate or a similar organisation, you should not hesitate to contact the team at KANGS who will be delighted to hear from you.
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
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