Latest economy news not showing the full picture

Despite the fact that we have been hearing in the news recently that business insolvencies are continuing to fall and the UK economy is, finally, coming out of the double dip recession, there is still major concerns as the spike indicating company dissolutions is hiding the true picture, so warn Cranfield Business Recovery, the insolvency experts.

Even though the national liquidation figures dropped by 2.4% during the last quarter, the total number of UK dissolutions uncreased by 10,000 when you compare July with August. This indicates that a growing number of businesses that are failing aren’t taking the official insolvency route by bypassing the system completely and going directly to dissolution.

Company strike-offs occur for a number of reasons, many of which are legitimate.  However, HMRC is paying closer attention when it is felt that company directors are using the dissolution route to quietly dispose of their company, expunge debt, bypass the rigors of the insolvency legislation and start up again with a similar name.

Brett Barton, director of Cranfield, said:  “This recent surge in the number of dissolutions and strike-offs has not gone unnoticed by HMRC, who in many cases is usually one of the major creditors of a business experiencing financial distress.  When HMRC receives notice of an impending strike-off, it is now scrutinising the company’s records and is actively lodging objections with the Registrar of Companies if there is any indication of potentially unscrupulous activity.”

The message from Cranfield is that company directors need to beware that they are being watched as these processes can be appealed by a creditor, including HMRC, which can lead to the company being restored to the register for a period of up to 20 years. This means the directors will have to repay anything taken from the business and creditors can seek to take action against them personally.

With an estimated one in ten (12%) of Midlands businesses currently at risk of becoming insolvent, compared with the national average of 8%, it is vitally important that directors are fully aware of the due processes and procedures they need to adopt to avoid closer scrutiny by HMRC and safeguard against any future serious repercussions that might follow.

Brett added:“Although there are some very positive signs that the economy is moving away from flat-lining, SMEs cannot be complacent about what the future holds. With dissolutions set to remain high into next year, there are clearly a lot of struggling SMEs out there that will need expert guidance to help steer them through the official routes.  I would urge directors in this position to seek advice now rather than try to manage the process themselves, and then find that they are in even deeper trouble, especially if this is unwittingly.”