Increase in ‘strike-offs’ could explain fall in insolvencies – R3

By November 11, 2014Finance, News

New research by the insolvency trade body R3 could help explain why the number of business insolvencies has been lower than expected since the last recession.

The numbers suggest that some failing businesses may have been opting to be struck off from the Companies House register instead of entering a formal insolvency procedure.

The number of companies asking to be removed from the register has jumped by 28% in the past four years – from 139,594 in the 2010-11 financial year to 178,996 in 2013-14.

Richard Wolff, North West regional chair of R3 and Head of Corporate Recovery and Insolvency at JMW Solicitors in MediaCity, said: “It has been puzzling why insolvencies have been falling when generally the numbers rise after a recession. It appears that many of the UK’s so-called ‘zombie businesses’ have simply been removing themselves from the Companies House register and therefore do not appear in the official formal insolvency figures.

“ ‘Strike-offs’ are designed for companies that have settled their debts, and are now dormant or no longer trading. Where the company still owes money, the creditors are likely to get a better deal if it entered into a formal insolvency procedure – particularly where there may be hidden assets which could be investigated by a liquidator.

“Creditors do need to keep a watchful eye out for ‘strike-off’ notifications and then they can object if necessary.”

Creditor objections to ‘strike-offs’ have grown by 38% over the past three years, rising from 1,738 in 2010-11 to 2,406 in 2013-14 – roughly one objection for every 74 applications, up from one in every 80.

Richard Wolff added: “In formal insolvencies, creditors’ interests are of course paramount. Insolvency practitioners will, once appointed, carry out important tasks like investigating directors’ actions. It’s quite surprising that creditor-led objections to ‘strike-off’ applications are relatively low – it may be that many creditors aren’t aware of their legal rights.”

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