Company directors in and around Hexham have been warned to steer clear of 'rogue, unlicensed insolvency advisors'.

The caution comes with a stark reminder of the potential consequences: hefty financial penalties, disqualification as a director, or even a prison sentence.

Kerry Pearson, a restructuring and insolvency partner in the North East for UK top 10 accountancy and advisory firm Azets, expressed concern about the situation.

She said: "It is very concerning that some directors are engaging the services of unlicensed advisors, often in the belief that they can abdicate themselves of financial and legal obligations."

According to Ms Pearson, these unlicensed advisors often target businesses that have encountered financial difficulties through social media and direct marketing.

They offer to purchase the business share capital and promise to relieve directors of their liabilities and debts.

Ms Pearson said: "They will usually offer to facilitate, for a fee, the sale of a distressed company to a firm associated with the rogue advisor which they claim will absolve the director of any responsibility."

However, these promises are often 'completely false', putting the directors at risk of future action.

The company estimates that several hundred businesses have engaged the services of these unlicensed advisors over the last five years.

Ms Pearson said: "Our advice to any businesses experiencing financial difficulty is to engage the assistance of a licensed insolvency practitioner.

"Legal obligations cannot be simply sold away, and the best approach is to tackle issues promptly and to do so with the support and advice of a licensed professional.

"Business owners should be wary of any advisors who seek to avoid engaging with a licensed IP."

Her warning comes after the Insolvency Service (IS) wound up Save Consultants Ltd, which was found to be offering the services of an insolvency practitioner without the authority to do so.

The IS also appointed provisional liquidators to two connected corporate rescue companies – Atherton Corporate (UK) Ltd and Atherton Corporate Rescue Limited - offering services facilitating the sale of distressed companies as an alternative to using insolvency practitioners.

New laws introduced in 2021 have strengthened the ISs powers to clamp down on company directors who dissolve their businesses to avoid paying debts and settling liabilities.

Directors found to have acted improperly in dissolving a company can be banned for up to 15 years or prosecuted in more serious cases.

Ms Pearson said: "It is becoming more and more difficult for rogue insolvency advisors to operate.

"However, they still present a substantial risk to directors who decide to engage their services and follow their advice, which is often completely incorrect.

“Selling the share capital of a business and/or changing the directors noted at Companies House does not absolve any director from being liable for a director’s loan account owed to the company or other proceedings for misfeasance, wrongful and/or fraudulent trading, or reusing a restricted company name.

"Licensed insolvency practitioners often have a network of professional advisors and work in conjunction with them to offer the appropriate advice.

"However, directors should be extremely wary of any advisors encouraging them to avoid seeking advice from a licensed insolvency practitioner.

"Licensed insolvency practitioners are qualified and regulated individuals who have many years of experience and are best placed to assist businesses experiencing financial distress."

For directors uncertain about the legitimacy of an insolvency practitioner, Ms Pearson points to the Gov.uk website, where a register of licensed insolvency practitioners is available.