In the first quarter of 2021, there were a record 39,601 applications by companies to be struck off the register at Companies House, a startling increase of 843% on the same quarter in 2020.

Some of these will have been the normal dissolution of businesses past their sell-by date or where the owners are retiring or moving on to another enterprise. Some will be businesses so badly disrupted by the pandemic that the owners are throwing in the towel before things get any worse and while they can still pay all their bills.

However, suspicion is growing that much of the huge increase in striking offs is part of an attempt either by fraudsters or by desperate businesses to avoid the massive debts that have been taken on under the government’s various Coronavirus support loan schemes, in particular those Bounce Back Loans (BBLs). These were made available on a no questions asked basis from May 2020 until the scheme closed at the end of March 2021 and came with a 100% government guarantee to the lender. The lenders were not allowed to take personal guarantees as security for the loans.

The total amount of money lent under the BBL Scheme was £46.5bn to 1.53m businesses, or 38% of all active UK companies. The average loan advance was £30,390 and the maximum loan was £50,000. The Office for Budget Responsibility estimates that £22bn of these BBLs will default at some stage.

Struck off criteria

So what exactly is the cunning plan with getting your company struck off? The answer is a lack of scrutiny and a preposterously short time window for unpaid creditors to object. All this process needs is a simple form to be filed at Companies House requesting voluntary strike off. The only limitation on this being approved is that the company must fulfil these criteria:

• It has not traded or sold off any stock in the last 3 months
• It has not changed names in the last 3 months
• It is not threatened with liquidation, and
• It has no agreements with creditors, e.g a Company Voluntary Arrangement (CVA)

A keen eye will spot that this list does not include any requirement that the company should be solvent, that is able to pay all its creditors. Nor is there any prohibition on the sale of other assets beyond stock.

Companies House then published a notice in The London Gazette giving just two months for objections, at the end of which time it is struck off, ceases to exist and its debts are extinguished because there is no longer a legal entity for creditors to pursue for payment. After that only shareholders or directors can apply to restore the company without having to apply to court, which can be a famously messy and quite expensive exercise.

The next upside for directors going down this route is that they escape any risk of investigation for their conduct and therefore, any sanctions for bad behaviour. This is the simplest possible downside-free way to walk away from a business’s debts.

How many borrowers are dormant or have been struck off?

No wonder lenders under the BBL Scheme are scrabbling to check how many of their borrowers have been dormant since the loan was made and have been struck off under this arrangement. Even then they face the onerous and time-consuming task of putting them back on the Register so they can take action against the company, its officers and connected parties, when in all probability there will be no assets and the directors will have ‘disappeared’. Their only incentive is the risk that the government refuses to honour its guarantee, because the lender has taken no recovery action.

The seriousness of the situation has prompted action by the government, which is legislating at what by normal standards is breakneck speed to introduce a new procedure to deter directors from taking this route to financial freedom.

How is the government addressing this?

The Ratings (Coronavirus) and Directors Qualification (Dissolved Companies) Bill is scheduled for its second reading in the House of Commons soon and is expected to be enacted into law before the end of the Summer. The legislation grants powers to the Insolvency Service to enable it to investigate and disqualify the directors of dissolved companies.

The impetus for this is that the government and therefore, the taxpayer stands to lose enormous amounts from this wheeze through its BBL Scheme guarantees. If 30,000 of the strike offs in Q1 2021 are businesses taking advantage of this loophole, the government stands to lose £911m at the average loan figure of £30,390.  Assuming this trend has continued in Q2 2021, the size of the problem has crashed through the £1bn barrier and is heading rapidly north.

Even if the creditors and in particular the BBL lender of a dissolved company, decide not to restore the company and pursue the business owners through that route; the Insolvency Service could still go after that company.

How can Opus help?

If you are contemplating applying for strike off or could already be affected by these issues, we are here to advise and assist in a situation where difficult negotiations may be necessary to avoid action by the Insolvency Service or your lenders.

If you are a creditor experiencing these problems, we have extensive expertise in asset and people tracing, fraud investigation and recovering assets both on a national and international basis. We can undertake any necessary insolvency process on the behalf of yourselves and any other creditors.

If you have concerns, please contact one of our Partners through your nearest office.