Creditors are losing almost £5bn every year to businesses that are simply being closed down without going through any formal insolvency process.
An analysis by Experian of millions of supposedly solvent firms that decided to close down voluntarily revealed that they are in fact leaving behind combined ‘hidden’ average debts of £4.7bn each year.
This compares to the £11.7bn left by businesses that went through insolvency proceedings last year.
The credit ratings company analysed millions of firms which closed down voluntarily since 2000 and found that taken individually, the debts left behind are small – around 35pc of these firms had less than £10,000 of total assets.
However, Experian said the “sheer volume” of businesses using this apparently benign route are generating a significant combined loss to creditors.
More than one in ten of companies that asked to be struck off at Companies House had debts that exceeded their total assets just before they closed.
Max Firth, of Experian, said: “Most firms that apply to be struck off tend to have little or no debt owed to other businesses. However, hidden among these seemingly harmless business closures is a level of debt that has previously gone undetected.”
The majority of businesses that are wound up voluntarily are very small operations that are closed when the founder retires, for example.
However, a significant proportion are being closed down without settling debts or informing creditors, Experian warned.
Corporate insolvencies are at historically low levels although separate research by R3, the insolvency trade body, suggests there are 160,000 ‘zombie’ companies in the UK that are only able to pay the interest on their debt, but not the debt itself.
This represents a 10pc increase in zombie businesses since June, R3 said. Lee Manning, the organisation’s president, said: “Banks are displaying greater forbearance on existing debt, but when a business cannot get extra lending it will be unable to expand. Others would argue that this stagnation ties up capital that could be used for other, healthier businesses.
“Corporate insolvencies have traditionally tended to spike in early recovery, but so far this recession is re-writing the rules. This surely reflects this longer period of low growth that is the new norm, with low interest rates and low liquidation rates, but many businesses running at a loss.”
Marc Curtis-Smith, CEO of Leading UK Debt Collection firm, Federal Management said “It’s a problem we have been all too aware of for some time. Companies simply being ‘struck off ‘ with no consideration for their creditors” He added “We would welcome any new legislation or proposal to prevent this happening in the future, as would our clients”