Creditors who wish to wind up companies do not have to rely solely on the strength of their own petitioning debt as evidence for winding up the company; the Secretary of State will actively wind up companies if it is in the ‘public interest’ to do so.

Company investigations

The Company Investigations arm of the Insolvency Service acts on behalf of the Secretary of State for Business, Innovation & Skills to carry out confidential investigations into active limited companies. If a creditor has reasonable grounds to suspect that a company is engaging in fraudulent activity, is breaking the law, has irregularity in its affairs and is causing harm to customers and suppliers, it can submit a complaint to Company Investigations who will then decide if it is in the public interest to investigate the company.

Phantom companies

The Secretary of State recently petitioned to wind up 15 construction and civil engineering shelf companies on public interest grounds. The companies, despite never trading, had combined sales of over £50 million and assets of £8.4 million. These so called ‘phantom companies’ were said to be fraudulently operating by falsifying their accounts to obtain credit with no intention of paying for the assets they obtained. The assets included expensive luxury vehicles on lease finance.

By digging further into the filing history of the companies, one was found to have backdated its director’s appointment to give the impression that it had been trading for a number of years. Others had submitted fraudulent accounts which illustrated that they were credit worthy. The Judge described the actions of the companies as a “…a deliberate attempt to hoodwink those who rely on documents filed at Companies House…”

What it means for creditors

Two of the petitions brought by the Secretary of State above were supported by the creditors of these companies who were owed £96,733 and £81,144, respectively. This means that creditors who are unable to fund the petition to wind up a company may be able to submit a complaint to Company Investigations which, if successful, may mean that they can ultimately support a petition brought by the Secretary of State to wind up the company.

This post was edited by Jenna King. For more information, email blogs@gateleyplc.com.

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.