BusinessBusiness RecoveryLaundering rules threaten creditors

Laundering rules threaten creditors

Money laundering regulation, which has recently been amended to include insolvency work, will give 'dodgy' company directors a chance to wreak havoc on the insolvency process, claim business recovery experts.

Link: Insolvencies see worrying growth

The draft legislation was revealed in November, and is due to come into effect this June as part of the Proceeds of Crime Act. It states that insolvency practitioners have to investigate insolvent company directors or bankrupts before they take up an appointment.

The original legislation concerned banking and accountancy work, but it has been recently redrafted to include ‘any activity on a person who acts as an insolvency practitioner’.

According to IPs, the consequences of these rules have not been properly thought through.

Jeremy Willmont, insolvency practitioner at Moore Stephens, said: ‘It is the first time we are specifically included in money laundering legislation, but no one has properly considered the potential difficulties it is going to cause.’

He said real problems would come in cases where the appointment is hostile, such as a compulsory liquidation without the director’s consent. In these circumstances, directors could withhold vital identification documents.

‘We are only able to act if the debtor has satisfactory evidence of their background,’ he said.

Willmont claimed that difficulties are likely to arise in cases where creditors suspect management. ‘It gives dodgy directors ways to slow down the process, and plays directly into the hands of the people the government wants to clamp down on.’ He added that it could also mean less return for creditors: ‘There is scope for assets to disappear or for their value to deteriorate if we do not realise their value as soon as possible.’ The new measures also means more preparation work for IPs prior to appointments and a slower process.

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