... I had to get the insurance company that had put the car on the register to remove it; I only managed to do this through persistence, providing copies of the vehicle registration documents and bills of sale. Also, previous HPI checks did not flag any problems so when the problem was registered no one knows.
Yes, that has been my resolution. My buyer spent several hours over a 3 day period plugging away at Island Insurance with all the evidence and they eventually agreed to remove the entry. All credit to the garage, they were keen to have what is a very nice car and were prepared to put in the effort. I'm not sure if Island Insurance accepted their mistake or did the removal just to get rid of him but it is done.
HPI insist that only the company that added a record can remove it and as previously mentioned if they refuse - or worse, no longer exist - then there is nothing you can do. I hadn't had much dealing with HPI previously but my faith in the system now is low. A quick search on the internet has found many similar examples, most commonly with insurance companies adding records sometime after the vehicle has changed hands. Given the potential impact when mistakes are made I think the system needs some kind of official regulation.
Anyway, thanks to everyone for their input and I'm happy to report that the issue is resolved. My parents have their cash and are none the wiser about the problems!