As LGC revealed last week, Gaults owes at least 47 councils monies it collected on their behalf from debtors. The company's principal partner, Martin Pearce, has not been traced for the past fortnight (LGC, 26 May).
Association secretary Chris Tye said: 'On the evidence available . . . Gaults had been trading while insolvent, which is unacceptable. The directors [of the association] felt rather let down. Gaults had many opportunities to tell us they were insolvent.'
In a further development, Gaults' Newcastle office was broken into late last week, and computers containing important records were taken.
Newcastle now faces establishing whether debtors who claim to have paid up in full to Gaults have done so. One source said this could amount to 800 hours of work.
Gaults' five biggest council creditors - Newcastle, Manchester City Council, North Tyneside MBC, South Derbyshire DC and Lambeth LBC - will now push the case for bankruptcy proceedings to against Gaults and Mr Pearce.
Last month they rejected a voluntary arrangement tabled by Mr Pearce in which he offered less than 10p in the pound to creditors.