‘Shadow insolvencies’ cause £200 million loss to taxpayers

HMRC may have lost out on a massive £200 million in the last year as a result of ‘shadow insolvencies’, analysis suggests.

A ‘shadow insolvency’ refers to when a firm becomes insolvent and when going into liquidation reveals no assets that out-of-pocket creditors can claim.

Research from accountancy firm Moore Stephens discovered that a total of up to 3,000 companies could have filed for shadow insolvency last year.

This would mean a loss of £200 million to HMRC, with each business owing £65,000 in average crown debt.

This process highlights a large number of businesses registered as liquidated after a formal insolvency proceeding. So in fact the problem could be much larger than it seems.

The resulting lack of scrutiny into a director’s behaviour is worrying, and this trend is causing major problems for creditors, including HMRC.

David Elliott, partner in the restructuring and insolvency team, warned: “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.”

He added that it would bring about greater fairness for those businesses who do not play the books but instead regularly publish their accounts.

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