The government’s apparent decision to abandon plans to slash the amount of time that records of closed companies are held has been hailed as excellent news for business transparency and honest entrepreneurs.
That’s the view of Neil Harrold, chair of insolvency trade body R3 in the North East and a partner with Hay & Kilner Solicitors, after it was revealed that proposals reported in the summer for Companies House to erase their records of closed businesses after just six years, as opposed to the 20 years for which they’re currently held, may have now been put aside.
The rule change was being considered following a number of complaints made by members of the public who believed that retaining, and making publicly available, information relating to long-dissolved companies was inconsistent with data protection law.
The potential impact of the plans had come in for criticism from a number of quarters, with R3 stating that such a move would be detrimental to insolvency practitioners’ fraud investigations, would hinder their efforts to detect suspected fraudulent behaviour by company directors and could potentially impact on the returns they can secure for creditors of defunct firms.
But now, in response to a written parliamentary question, Margot James, the parliamentary undersecretary of state at the Department for Business, Energy and Industrial Strategy, has revealed an apparent change of heart by officials, stating that it “has no current plans to bring forward proposals to reduce the period of time that Companies House retains records of dissolved companies.”
Neil Harrold says: “We were extremely concerned that the proposals that had been leaked could effectively have given corporate fraudsters a clean slate to hide their past criminal activities, so seeing that they may have now been abandoned is very good news for honest entrepreneurs and insolvency practitioners alike.
“It’s not uncommon to discover directors that are involved in several companies which have gone out of business, and deleting records after the short period of time that was being proposed would potentially have destroyed valuable evidence and hidden past director behaviour, thus giving fraudsters a far greater chance of repeating what they’ve done before.
“When businesses fail, it can naturally take insolvency practitioners time to find out the whole truth about the situation, and even longer to trace hidden assets, and while repeated company failures do not necessarily signal wrongdoing by anyone, it’s very useful to have evidence of directors’ track records.
“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 unable to look back over a long enough period, there’s a real danger that corporate crimes would go undetected and creditor returns would be lost forever.
“From an entrepreneur’s point of view, it’s also 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 only people who would have benefited from the removal of so much vital information from the public eye would have been those who repeatedly open and close businesses for fraudulent purposes, so ensuring that the histories of dissolved companies remain easily available over the long term is definitely the right decision.”