Third-Party Actions: The Hidden Path to Real Recovery

When a company funded by investors collapses, most investors assume that is the end of the story. The directors vanish, the administrators take over, and creditors are told to wait for a few pennies in the pound. But that is only half the story.

The real opportunities for recovery often lie outside the company itself. They lie in third-party actions: claims against the people and organisations that helped create the problem or looked the other way while it happened.

These actions are not technical or obscure. They are often the difference between walking away with nothing and uncovering real accountability.

What Are Third-Party Actions?

A third-party action is a legal claim against someone other than the insolvent company. That might include:

• Former directors or shadow directors
• Accountants or auditors
• Security trustees
• Legal or professional advisers

These claims seek to recover money or assets lost through negligence, breach of duty, or misconduct. They also help expose how investor funds were diverted or misused before collapse.

Common examples include:

• Misfeasance or wrongful trading when directors kept trading despite knowing the company was insolvent.
• Breach of trust when a trustee failed to enforce security or protect investors.
• Negligence when professionals failed to carry out proper checks.
• Fraudulent misrepresentation when investors were misled about risk or returns.

Each of these claims has one goal: to get to the truth of what happened to your money.

Why Administrators Rarely Pursue Them

In theory, you might expect administrators to pursue every possible claim to recover money for creditors. In practice, most third-party claims lie outside their control.

Administrators can only act on behalf of the company. They can bring claims where the company itself suffered loss, for example, against directors for wrongful trading or misfeasance. But they cannot bring claims where the loss was suffered directly by investors. Those belong solely to the investors and sit outside the company’s estate.

Even when administrators identify potential third-party wrongdoing, they are usually unable to pursue it because they have no legal standing to do so. And because they are paid from what remains in the company’s funds, not from new recoveries outside the estate, there is little scope for them to fund or coordinate such actions.

That is why many viable recovery opportunities are left untouched. It is not that administrators refuse to act, but that they are restricted by law and by funding. This is where creditors must take the initiative themselves, particularly when the potential claims belong to them directly.

Who Might Be Liable?

Liability does not stop with the company’s directors. It can extend to anyone who played a meaningful role in the scheme.

1. Company Directors
If directors continued trading when they knew the business could not pay its debts, or took dividends from investor funds, they can be held personally liable.

2. Security Trustees
Investors are often told a security trustee is protecting them. But many trustees simply collect a fee and stay silent when payments stop. Failing to enforce or report defaults can amount to a breach of trust.

3. Professional Advisers
Accountants, lawyers, and valuers who structured or approved these schemes may also face scrutiny if their work fell below acceptable standards.

The point is this: responsibility often spreads wider than anyone first admits.

Why Creditor Action Matters

Where administrators stop, creditors must start.

Third-party actions can still be brought, but they rely on organisation. That means creditors working together, sharing evidence, and presenting a united front.

A small, determined group of creditors can force real change. By identifying potential claims, gathering documentation, and demanding transparency, creditors can build the foundation for recovery.

These actions are not built on hope. They are built on evidence: contracts, emails, payments, and conduct. Facts that speak louder than words.

The Benefits of Third-Party Actions

Pursuing third-party claims is not easy. But when creditors act together, the results can be powerful.

1. Accountability -exposing how funds were misused and who benefited.
2. Deterrence -showing others that negligence and deception have consequences.
3. Recovery Potential – reclaiming losses directly from those responsible.

Even if the outcome is uncertain, these actions bring transparency to a process that too often leaves creditors in the dark.

The Challenges

No one should pretend this route is simple. It requires coordination, evidence, and sometimes funding. But that is not a reason to walk away.

As a creditor, you are entitled to ask difficult questions:

• Did the administrator review possible third-party claims?
• If not, why not?
• Who might be liable for the losses beyond the company itself?
• Were there professional failures that helped create this situation?

These questions are not about blame. They are about responsibility.

Realism and Results

Third-party actions take time. They are rarely quick wins. But they can uncover assets, expose misconduct, and hold individuals accountable long after a company folds.

While administrators divide what is left, creditors who act can chase what was taken.

That distinction matters. It is the line between accepting a small loss and fighting for a fair outcome.

The Takeaway

If you have invested in loan notes, property schemes, or similar products and you are told “there is nothing more to be done,” remember this: that is rarely true.

Third-party actions open a different door. They target those who caused the damage, not just those closing the file.

Administrators may close cases. Creditors open them. The system relies on silence and resignation, but creditors who stay informed and organised can change outcomes.

This is not about revenge. It is about accountability, transparency, and recovery.

If you’d like to know more about Third Party Actions, contact Insolvency & Law’s investigations team today at investigations@insolvencyandlaw.co.uk to discuss your situation and explore recovery options.

Disclaimer: Insolvency & Law Ltd is not a firm of solicitors or licensed insolvency practitioners and does not provide legal advice, investment advice, or any regulated services under the Legal Services Act 2007 or the Financial Services and Markets Act 2000. All content published by I&L relating to companies mentioned therein, including blogs and podcasts, is provided free of charge for general information and educational purposes only. Therefore, it must not be relied upon as professional advice.

Where appropriate, I&L may take legal assignment of loan notes issued by companies in its own name, for the purpose of enforcement and recovery. In such cases, I&L bears all associated costs and risks, and the original loan note holder is fully insulated from legal expense and liability.