The Atherton Scheme: Thousands of creditors left out of pocket

The recent revelations about the Atherton Scheme, as reported by The Times, have left many in the legal and business communities surprised. Despite significant government efforts to clamp down on insolvency avoidance practices, this contentious scheme continues to operate, raising serious concerns about its impact on creditors and the integrity of the insolvency regime.

What is the Atherton Scheme?

The Atherton Scheme is marketed as a “legal alternative to using insolvency practitioners.” It offers directors of struggling companies a way to dispose of their debts and distance themselves from business failures. The process involves directors paying a fee to Atherton, selling their company for a nominal sum (often £1), and then effectively abandoning the company. Atherton installs new directors and waits for the company to be dissolved or fall into insolvency, with no attempt made to trade, repair the business, or recover money for creditors.

Why is it Surprising that the Scheme is Still Running?

The persistence of the Atherton Scheme is surprising for several reasons:

1. Government Crackdown: In September, the Insolvency Service closed seven companies associated with Atherton, accusing them of deliberately undermining the insolvency regime. Despite this, The Times has found that the scheme remains operational, suggesting that enforcement actions have not been fully effective.
2. Misleading Practices: The scheme has been criticized for misleading directors by promising that they can retain their company’s assets and continue trading through a new company, free from previous debts. This practice not only deprives creditors of potential repayments but also undermines the principles of fair trading and business accountability.
3. Impact on Creditors: According to Tax Policy Associates, directors using the Atherton Scheme have passed on debts amounting to tens of millions of pounds, including significant sums owed to HMRC. This has left creditors, including the tax authorities, empty-handed and exacerbated the financial strain on those owed money.
4. Legal and Ethical Concerns: The scheme’s operation raises serious legal and ethical questions. By allowing directors to offload debts and avoid liquidation, it creates an uneven playing field and potentially encourages irresponsible business practices. The Insolvency Service is reportedly considering further actions against directors who have utilized the scheme, highlighting the ongoing legal scrutiny.

Legal Implications

The Atherton Scheme’s continued operation has several significant legal implications:

1. Breach of Fiduciary Duties: Directors who use the Atherton Scheme may be in breach of their fiduciary duties. Directors are legally obligated to act in the best interests of their company and its creditors, especially when insolvency is imminent. By transferring assets and leaving debts unpaid, directors could be seen as prioritizing their interests over those of the creditors.
2. Fraudulent Trading: If it can be proven that directors engaged in business with the intent to defraud creditors, they could be held personally liable for the company’s debts. The Atherton Scheme’s practice of transferring assets while leaving debts unpaid could potentially fall under this category.
3. Wrongful Trading: Directors may also face allegations of wrongful trading if they continue to operate a business when they knew, or ought to have known, that there was no reasonable prospect of avoiding insolvency. The use of the Atherton Scheme to offload debts without attempting to rescue the business could be interpreted as wrongful trading.
4. Disqualification of Directors: The Insolvency Service has the power to disqualify directors who are found to have acted improperly. Directors who have used the Atherton Scheme may face disqualification proceedings, preventing them from acting as directors of any company for a specified period.
5. Criminal Liability: In extreme cases, directors could face criminal charges if their actions are deemed to constitute fraud or other criminal offenses. The promotion and use of schemes like Atherton’s could attract criminal investigations, particularly if there is evidence of deliberate deception or misconduct.

Thousands of Disgruntled Creditors

Given the scale of the Atherton Scheme, it is likely that there are thousands of disgruntled creditors who have been left empty-handed. These creditors, ranging from small businesses to large institutions, have been deprived of the money owed to them, exacerbating financial difficulties and potentially leading to further insolvencies. The frustration and financial strain on these creditors cannot be overstated, and it underscores the urgent need for more robust regulatory measures to protect their interests.

Conclusion

The continued operation of the Atherton Scheme, despite government crackdowns, underscores the challenges in regulating and enforcing insolvency laws. It is imperative for the authorities to intensify their efforts to close loopholes and ensure that such schemes do not undermine the insolvency regime. For directors and businesses, it serves as a stark reminder of the importance of ethical practices and the potential consequences of attempting to sidestep financial responsibilities.

As we navigate these complex issues, it is crucial for all stakeholders to remain vigilant and committed to upholding the integrity of our business and legal systems.