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South: Company records changes could be ‘clean slate' for dodgy directors

31 August 2016
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Companies-default

Plans to slash the amount of time that records of closed companies are held could offer corporate fraudsters a clean slate to conceal their criminal activities.

This is the response of Mike Pavitt, vice-chairman of the Southern Committee of insolvency trade body R3 and corporate restructuring and insolvency partner in Paris Smith in Southampton, to proposals that would see Companies House erase their records of closed businesses after just six years, as opposed to the 20 years for which they're currently held.

Companies House has stated that the rule change “is being considered following a number of complaints made by members of the public who believe that retaining, and making publicly available, information relating to long-dissolved companies is inconsistent with data protection law.”

But Pavitt believes such a move could be detrimental to insolvency practitioners’ fraud and recoveries investigations, potentially hindering their efforts to detect fraudulent behaviour by company directors and impacting on the returns IPs can secure for creditors of insolvent businesses.

He said: "It is, sadly, not uncommon to discover that certain directors have been involved in a string of companies which have gone out of business, often for similar reasons which can suggest a pattern of intentional misbehaviour; deleting records after the short period of time that is being proposed would effectively destroy valuable evidence, acting as something of a charter for would be fraudsters to repeat what they've got away with in the past.

"Insolvency practitioners investigate company directors, recover money from them when appropriate and return it to creditors once a company enters insolvency. It can take time to find out the whole truth in a given situation, and even longer to trace and retrieve hidden assets.  

"While repeated company failures do not necessarily signal wrongdoing by anyone, and we have to also recognise there is a clear public interest in the rehabilitation of offending directors, it’s very useful to have evidence of directors’ track records when investigating whether there has been anything untoward in a failed business.

"Fraudsters often dissolve their corporate vehicles in the hope that no one will pursue them, and it’s not unusual for action to be taken against a dissolved company many years later, so if we were soon unable to look back over a long enough period of time, there's a real danger that corporate crimes and actionable behaviour could very well go undetected with the result that creditor returns could be lost forever."

And he is also highlighting the dangers that innocent business owners could face when working with individuals about whom they can't see the whole picture.

"From an entrepreneur's point of view, it's essential that they know who they're doing business with, whether as a partner in a new venture they're setting up or as a supplier who needs to have confidence they're going to get their invoices paid.

"The histories of dissolved companies need to remain easily available over the long term, and in my view the only people who would benefit from the removal of so much vital information from the public eye would be those who repeatedly open and close businesses for fraudulent or otherwise improper purposes. I would call upon Companies House to reconsider this proposed step urgently."


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