Plans to slash the amount of time that records of closed companies are held could enable corporate fraudsters to hide previous criminal activities, it is claimed.
The rule change would see records of closed businesses erased after six years rather than the current 20 years.
Compabnies House said the move “is being considered following a number of complaints made by members of the public who believe that retaining, and making publicly available, information relating to long-dissolved companies is inconsistent with data protection law.”
But Chris Wood, a partner at Clough Corporate Solutions in Cleckheaton and a member of insolvency trade body R3’s Yorkshire R3 committee, said such a move could be detrimental to insolvency practitioners’ fraud investigations, hindering their efforts to detect fraudulent behaviour by company directors and potentially impacting on the returns they are able to secure for creditors.
Mr Wood said: “Insolvency practitioners investigate company directors and seek to return money to creditors once a company enters insolvency. It can take time to find out the whole truth in a given situation, and even longer to trace hidden assets which could be through prior insolvencies of connected companies.
“While repeated company failures do not necessarily signal wrongdoing by anyone, it’s very useful to have evidence of directors’ track records when investigating what has happened to a failed business.
“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 the trail could be lost and corporate crimes could go undetected and creditor returns lost.”
Mr Wood also highlighted the dangers that unsuspecting business owners could face when working with individuals about whom they don’t have the whole picture.
He said: “From an entrepreneur’s point of view, it’s 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 histories of dissolved companies needs to remain easily available over the long term and the only people who would benefit from the removal of so much vital information from the public eye would be those who repeatedly open and close businesses for fraudulent purposes.”