A series of sham construction companies with reported sales of £50million and assets of £8.4million have been forced into compulsory liquidation by the High Court. Rather than legitimate companies, an Insolvency Service investigation found the 15 organisations were nothing but fronts to obtain credit by fraud.
The ring of bogus construction and civil engineering companies were all bought ‘off the shelf’ from two company formation agents by an individual calling himself Jonathan Hunting. These companies were then run solely as instruments to obtain credit by filing false accounts and other inaccurate information.
Winding-up orders have now been issued against all 15 companies on the grounds of the public interest following petitions presented by the Secretary of State for Business, Innovation & Skills. The hunt is now on to identify the individual or individuals involved.
Dormant companies that never traded
The court heard how all 15 construction companies remained dormant and never traded while under the control of the formation agents. Once the companies had been purchased and activated by the new owner, a number of fictitious directors were appointed. The dates of their appointments were back dated several years to add legitimacy to the spurious accounts which were soon to be filed.
Despite the fact that the companies had no physical presence at their registered offices, false accounts were filed that reported significant assets and trading activity, including:
• A company with a registered office in Leeds and a sole director going by the name of Mr Fitzgerald. The company filed dormant accounts until December 2013, when it was bought by Jonathan Hunting. The new owner purported to show turnover since incorporation of £4.3million and total assets of £948,000 as at 31 December 2013, despite the company being dormant until this time.
• Another company with a registered office in Bristol and a civil engineer director similarly filed accounts reporting turnover since incorporation of £11.9million and total assets of £1.9million. This was despite the fact the company had remained dormant until September 2014;
• A third company, with a registered office in Cardiff and a civil engineer director called Mr Lloyds-Brown, was inactive with dormant accounts until September 2014. However, the new owner filed accounts reporting turnover of £13.5million and assets of £1.8million as of 31 October 2014.
The companies were set up for the sole reason of duping prospective creditors, including a steel supplier who was conned out of £170,000. This type of fraud is not uncommon and can fleece genuine, honest and hard working businesses out of amounts up to £200,000. However, in one recent case a company dishonestly secured the supply of bandwidth technology resulting in a loss of $7million (USD).
What should genuine companies lookout for
Welcoming the court’s winding-up decision, Chris Mayhew, a company investigations supervisor at the Insolvency Service, said: “These supposedly unrelated companies had no legitimate purpose and existed solely to seek to obtain easily disposable goods on credit, including expensive motor vehicles on lease finance, with no intention of paying for them.
“False accounts were filed by some of the companies to create the impression that they were substantial and credit worthy businesses that had been trading profitably for a number of years. The investigation found this to be blatantly untrue.
“I would urge businesses approached for credit to question why a potential new corporate customer would choose to back date the appointment of its recorded officers. They should also be extremely wary of companies that file accounts showing significant trading and assets when the company was still on the shelf of the formation agent awaiting sale.”