by Nelvin Tam | Feb 20, 2015
At KordaMentha Forensic, we are frequently asked to reconstruct corporate structures and flows of funds as part of forensic accounting investigations. This requires us to use publicly available information (such as ASIC company searches) to ascertain the ownership of companies, trusts and their related parties. Differentiating between entities with very similar names and attention to details is important, particularly to identify any possible ‘phoenix’ companies, which may acquire the assets of a company in liquidation. As this case demonstrates, mistaking one company as another could potentially have dire consequences!

Companies House is a UK government department that is responsible for incorporating and dissolving limited companies, a role performed in Australia by ASIC. It also registers the information companies are legally required to supply (such as annual returns and financial statements) and makes this information available to the public. Credit reference agencies frequently use this information to adjust the credit ratings of companies.

Taylor & Sons Ltd, a Cardiff engineering firm, had a profitable business, although it was facing some difficulties after the GFC, and was undergoing a financial restructure. However in April 2009, a Companies House document examiner wrongly amended the companies register to state that a winding up order had been made against Taylor & Sons Ltd in February 2009, when in fact it was against Taylor & Son Ltd (with no ‘s’), a completely unrelated company. 

Although the mistake had been left unattended for only three days, the incorrect information was passed onto various credit agencies by Companies House, and was not quickly corrected on those records. This led Taylor & Sons’ suppliers to doubt the company’s credibility, terminate all their orders and shut down all their credit facilities. 

The directors of the company said that as a result of the error “the Company ran out of cash and the Bank would not lend it any more... because its suppliers demanded to be paid up to date before supplying any further goods or services rather than allowing the usual 30 days credit which actually extends to 90 days in real life... Unfortunately, this unexpected reduction in cash occurred just at the time when the Company was in any event trying to restructure.”1

Despite attempts to reassure suppliers, within two months, 250 people lost their jobs, and the company had to go into administration.
 
A UK Court recently ruled that the Companies House was held responsible for this avoidable blunder as it owed a duty of care to enter a winding up order against the correct company. The administrative slip-up was apparently the only one of its kind ever recorded at Companies House and Justice Edis said: "That can only be because it was easy to avoid." The amount of damages payable by Companies House has yet to be finally assessed but Mr Davison-Sebry (owner of Taylor & Sons Ltd) has claimed damages at GBP 8.8 million. Ouch.
 

End notes
1. From paragraphs 11 and 32 of the judgement Sebry v Companies House & Anor [2015] EWHC 115 (QB) (26 January 2015)