The Atherton Scheme: A Toxic Solution for Struggling Businesses

The Atherton scheme, which promises struggling directors a way out of financial distress, is not just a loophole — it’s a dangerous manipulation of insolvency laws that allows directors to walk away from debts while potentially leaving creditors with nothing. Despite government crackdowns and the mounting evidence of its harmful effects, similar schemes continue to operate, exposing the very flaws in our financial system that it should be addressing.

At its core, the Atherton scheme enables business owners drowning in debt to effectively transfer their liabilities to a third party, in exchange for a nominal fee, while retaining control of company assets. Directors simply pay to sell their companies for a token sum, often £1, to Atherton, who installs a figurehead director (frequently an individual with a long track record of overseeing failing businesses) to take over. This transaction is presented as a “legal alternative to formal insolvency,” promising directors a clean slate by allowing them to walk away from their debts and continue trading through newly formed companies. However, while the scheme claims to remove the stigma of a formal insolvency, it simply fosters unlawful conduct such as hiding or stripping assets and illegal phoenixing by moving assets out of the way of any subsequently appointed insolvency practitioner (IP). The real winners, however, are Atherton and its operators, who gain a fee from desperate directors, while creditors — including HMRC and small businesses — are left holding the bag.

This is not a responsible solution to business failure. Rather than focusing on recovery or restructuring, the Atherton scheme appears designed to enable directors to shed their obligations without any genuine attempt to repay creditors. Worse still, in many cases, these businesses are left to dissolve or fade into insolvency, leaving a trail of unpaid debts and unaccounted assets. Directors who use these schemes often move on to new ventures, creating "phoenix" companies that start anew, free from the debts of the old. This pattern — where businesses re-emerge without their financial burdens — is a direct affront to the integrity of the insolvency process and an abuse of the legal system meant to balance the interests of both creditors and directors.

While proponents of the scheme argue that it is a legitimate service, this simply doesn’t hold up under scrutiny. The notion that Atherton merely “facilitates” a transfer of assets is misleading. In reality, the scheme encourages directors to ditch their financial responsibilities, leaving creditors — who are already vulnerable — to absorb the costs. It’s not surprising that The Insolvency Service have raised concerns about the scheme’s operations, noting how hard it is to track the assets or even locate the figurehead directors. Moorfields were recently appointed over a recruitment company whereby unbeknown to the secured lender, the director had already paid an advice fee of £3,000 to a company who offered to purchase the share capital for £1 and take over all liabilities.  Such an arrangement was not in the interests of creditors generally, and the secured creditor subsequently opted to work with Moorfields and the board on a consensual strategy to restructure the business via a pre-pack administration, thereby rescuing the business and preserving all jobs.

The recent involvement of several high-profile entrepreneurs in such schemes has further publicised their use and encouraged others. The broader issue here is not just the questionable ethics of directors exploiting this loophole, but the lack of accountability for their actions. Even as the Insolvency Service investigates, there’s no clear evidence that any individuals using the scheme have been held to account. This sends the wrong message to the business community — that directors can use such schemes as a cover to avoid the independent scrutiny afforded by a formal insolvency process and start fresh, unscathed.

The Government’s decision to crack down on such schemes should not stop at merely closing down individual companies. It needs to introduce stronger regulations and penalties to prevent such abuses from continuing. The Atherton scheme is a clear example of why reform is needed in the way we handle insolvency and corporate governance. Directors who fail in business should not be allowed to walk away from their debts without facing consequences. Instead, we need a system that incentivizes proper business recovery, where debts are restructured, creditors are paid where possible, and directors are held to their fiduciary duties.

As long as schemes like Atherton remain operational, the risk is that they will become a go-to tool for directors seeking to avoid the true consequences of failure. The only real beneficiaries of these schemes are the operators themselves, who make a profit from the misery of creditors and the failure of businesses. Does the government need to undertake a boarder review of the insolvency framework to take action against directors and unregulated pre-insolvency advisors?

Author: Michelle Sanchez 

ENDS

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About Moorfields

Moorfields Advisory Ltd is one of the UK's leading boutique firms of restructuring and insolvency specialists. The highly skilled teams include restructuring professionals and licensed insolvency practitioners who provide leadership, experience and high-quality advice to companies and their stakeholders in financially distressed situations.

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