Shadow insolvencies ‘a concern’ for company liquidations

Published on November 21, 2014 by Crawfords Accounting

The process of company liquidation may be undermined by the prevalence of ‘shadow insolvencies’, in which a company is struck off without declaring any assets, according to an accountancy firm.

A report from Moore Stephens claims there could be as many as 3,000 shadow insolvencies each year, with each company owing about £65,000 to HMRC at the time of being struck off.

The total cost to the taxpayer if this money is not paid is up to £200 million – but with no assets declared, there can be nothing to cover the cost of formal company liquidation proceedings.

As a result, insolvency practitioners may be forced to perform their required duties, but unable to carry out the detailed scrutiny needed to spot fraudulent director dealings.

David Elliott, a partner in Moore Stephens’ 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.”

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