Transport lawyers are warning directors facing mounting debts not to rely on so-called ‘corporate rescue’ schemes after the Insolvency Service shut down businesses that preyed on firms in financial distress.
Solicitors at JMW said it was aware of haulage directors who had agreed to sell their shares to a third party for a nominal value, believing they could avoid their liabilities.
The issue spilled over into a public inquiry last year, when traffic commissioner Kevin Rooney refused a licence application to an operator after discovering he had previously sold his business to a company called Atherton Corporate for £1 in order to avoid repaying its substantial debts.
Atherton Corporate (UK) and Atherton Corporate Rescue, plus five associated companies, are all now being wound up after investigations by the Insolvency Service found they facilitated the sale of struggling companies.
These businesses mislead directors into thinking they could keep their company’s assets, continue to trade the business through a new company and avoid any responsibility for its debts.
Scott Bell, partner at JMW Solicitors, explained: “With many hauliers struggling due to rising costs and falling demand, we have seen instances where a director may seek to sell their shares to a third party for a nominal value and seek to simply walk away from the business liabilities.
“The third party will simply appoint a new director and fail to deal with any creditor demands until eventually someone takes action against the business to wind it up.”
Bell said: “It raises an interesting issue, that fundamentally, what Atherton Corporate were offering is potentially legal, in the sense that a shareholder can sell their shares to whichever third party they wish, but by doing so, it certainly does not allow the previous director to avoid the scrutiny of the Insolvency Service.”
Bell added that the Insolvency Service is entitled to question any directors over the three years prior to the insolvency about their conduct and directors could still face disqualification proceedings: “From an operator licence perspective, the traffic commissioners are clearly alive to these avoidance schemes and will consider it a repute issue if it is found that a previous company was disposed of in such a way,” he said.
The Insolvency Service said the businesses they are now winding up bought companies that were teetering on the edge of collapse.
The purchasing company - such as Atherton Corporate - and its new directors existed to keep the companies active for as long as possible to create a gap between the former owners and directors in any future liquidation.
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.”
