‘Runaway businesses’ struck off at £200m taxpayer cost
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An increasing number of businesses may be being struck off by Companies House without full investigations into their directors’ dealings, according to a report from Moore Stephens.


The accountancy firm has compiled data showing as many as 3,000 firms may have entered into ‘shadow insolvencies’ last year.

‘Shadow insolvencies’ are where businesses are liquidated but do not declare any assets when insolvency proceedings begin, leaving little to pay the insolvency practitioners or any creditors.

According to the figures, these firms may have owed an average of around £65,000 each to HMRC, meaning the total loss in tax receipts is around £200 million.

What’s more, the prevalence of shadow insolvencies may be on the increase, as the opportunity to get struck off without undergoing more formal proceedings seems to be growing.

In 2011-12, nearly 17,000 company liquidations were reported, dropping to just over 15,000 the following year, and around 14,500 in 2013-14.

Moore Stephens suggest that the fall may be due, at least in part, to more businesses being struck off without going through the usual formal procedures.

With no assets to pay for liquidation, for instance, the involved insolvency practitioners may not be scrutinising companies’ affairs as closely before they are struck off.

But this means no scrutiny of director conduct either – and the accountancy firm argue that because there are no formal measures of this practice, the true scale in terms of the number of shadow insolvencies, and their cost to the taxpayer, may be much higher.

David Elliott, partner in the restructuring and insolvency team, said: “Too many businesses are disappearing with no assets and creditors must be concerned as to why that is the case.

“An increased budget for investigation work carried out by the Insolvency Service against suspect company directors would send out a powerful message to discourage unscrupulous behaviour in the first place.

“This would help to create a level playing field for businesses that publish regular accounts and that don’t try to play the system.”

 

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