Number of businesses struck off Companies House up 743%

It comes after its analysis found that the number of companies closing down once being struck off the Companies House register increased by 743% in the first quarter of 2021, this is compared to the same period in 2020.

In the first three months of 2021, the number struck off - which means a firm cannot have traded or sold any stock in the previous three months - by Companies House went up to 39,601, this is compared to 4,695 recorded in the same period in 2020.

And, while many legitimate businesses will have closed their doors due to the pandemic, it’s thought some companies are shutting down purely to avoid repayments to the UK’s two Covid support schemes - the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS).

The pressures of the pandemic combined with the speed of the rollout of both of the schemes meant many of the standard underwriting checks were not carried out before lenders wrote these loans.

Of the pair, BBLS - which provided up to £50,000 in loans to assist the smallest businesses through lockdown - are thought to have been the most open to abuse, with data showing that 80% of BBLS applications were granted, with the overwhelming majority going to firms that have at most 10 employees.

Additionally, estimates by the Office for Budget Responsibility suggest that as much as £22bn in BBLS lending alone will be lost to defaults and fraud.

And, while the government has ultimately pledged to guarantee almost all of the value of pandemic-related loans - 80% in the case of CBILS and 100% for BBLS - according to Mazars, lenders are likely to have to “exhaust their recovery options” before turning to the government for compensation on defaulted loans.

Mazars’ director of restructuring services Michael Pallott said: “Even though some level of fraud was anticipated with CBILS and BBLS, these strike-off numbers suggest that the worst-case scenario might be in play for some lenders.

“With the government unlikely to pay out to lenders who cannot prove they have actively pursued all the available debt recovery options, banks are now gearing up to identify the potentially thousands of loans on their books likely to default. They need to have a strategy in place to pursue debtors, either through insolvency or by enforcing personal guarantees.

“Many of these loans will have gone to legitimate businesses who have not survived the last year. When it comes to those who were less honest however, the task of pursuing bad debtors who never intended to pay these loans back will be costly and time-consuming without the right tools.

“It is reassuring to see that the government is alive to this fraud and is proposing to enhance the powers granted to the Insolvency Service to enable it to investigate and disqualify the directors of dissolved companies.”

Some lenders who suspect strike-offs have occurred to avoid CBILS and BBLS repayment have already started applying to have these companies reinstated by Companies House in order to pursue debt recovery.

Fraud experts are also currently attempting to identify firms that have been dormant since receiving a coronavirus loan. As for loans backed by personal guarantees from directors, lenders will be able to pursue these individuals directly.