How many compulsory strike offs can a director have?

[justasking123]

Hi, I am after some advice. I have recently joined a partnership with 2 directors, however since signing the agreement I have discovered that both directors have 3 previous companies each that all received a compulsory strike off, one Director also dissolved a company to liquidation. I have concerns that these were tax avoidance schemes as not one of the 6 or 7 companies has had any accounts filed. They are currently directing a sizeable company in terms of income. There are concerns that they are acting fraudulently in the new company however evidence to support this is lacking; but partners have invested £15k-£30k into the business and they are not seeing a return for their money. My question is how many compulsory strike offs can a director receive and why are they not being disqualified if they are not filing accounts? And what evidence can I collate to quantify suspicions of fraud? Many thanks!

 

[Mr D]

Bearing in mind I do not know the circumstances concerned, the most I have seen any director have is 12 companies with that.

To be disqualified as a director appears to take some doing. Simply have company dissolve does not cause that.

Evidence of fraud? Good question.
Presumably this is a limited company and you are a director?

 

[justasking123]

Thanks Mr D, can I just ask the director you know of that had 12 compulsory strike offs (?!) Were his strike offs ever considered dodgy? My understanding is that the main reason for compulsory strike offs is either failure to sign annual accounts or submit the annual statement. The timings of the strike offs indicate missing accounts rather than statements. Which in my eyes looks unprofessional and deceiving. I can't understand why people would choose a compulsory strike off over voluntary ones. I appreciate that sometimes these things happen but Companies house do also allow 3 months before the first Gazette and the final strike off for action to be taken along with warnings and letters before that first Gazette notice. And again I could understand each director having 1 company each get to that point, but to have 3 each + 1 combined all within the space of 2 or 3 years just seems to be a very unprofessional way of working.

The directors currently have about 6 active limited company's where they are joint directors. Due to the nature of the business it makes sense for them to have that many, and all the companies are linked. I am not a director of any of their companies. I have however invested in 1 of their companies....a sort of franchise I guess....but I'm no longer sure exactly what I have bought!! Other investors are starting to express concerns that no money is being made. Many of the accounts are only due in the next few months hense why this is only just being discovered now. This is a substantial amount of money that has been invested by investors into these companies (between just a handful of us we are talking over £200k but I am still tracking down others) and yet I'm struggling to find an investor/partner/franchisee who has made a profit from their investment....when you combine that with their multiple compulsory strike offs....its easy to see why we are all concerned. But other than asking the other investors for their statements and accounts I'm not sure how I can prove wrong doings on the directors behalf.

 

[Socio South West]

Some things need to be understood here - You say you have joined a 'partnership' - is this as a director, or as a business partner? The difference between the two could be very important down the line should the suspicion of fraud be proved.

Opening one's mind to the strike offs - Some people set up companies and never do anything with them for whatever reason, and they are thus struck off if no information or returns are received, so don't read too much darkness into that.
Likewise, its not unusual to dissolve a company - the goodwill could have been sold, the business may have been failing anyway... any one of a number of reasons.

The definition of a 'sizeable company in terms of income' to me suggests £10million plus.... and anyone else on this forum that expresses an opinion will probably have a different figure in mind: Your suggestion that they injected £15-30k into the business suggests your concept of this is somewhat smaller.
The return that could be expected - say even an unrealistic 20% - on £30k amounts only to £6k between the two directors.... so again, the scale isn't massive.

For proof of fraud you need to be looking at false invoicing, incorrect VAT declarations and movement of money in and out of the company among several other accounts items which can be traced.

My advice to you would be to get your evidence as soon as possible and use the clause in your partnership agreement (ahem!) that dissolves the partnership automatically if a partner is found to be acting in detriment to the partnership's best interests.

 

[Mark T Jones]

It’s a shame you did your due diligence after the event!

The simple answer is that there is no maximum number of strike offs. I’ve come across as many as 30

In reality there can be any number of reasons ranging from simple and honest through to incompetence or outright dishonest.

What to you mean by proving fraud? To your own satisfaction or to the level of prosecution? The latter is very difficult indeed, requiring forensic investigation. The former very much depends on what form it takes and what your suspicions are founded on

There is clearly a lack of trust and communication. I suspect you are better getting out of there

 

[Mr D]

Thanks Mr D, can I just ask the director you know of that had 12 compulsory strike offs (?!) Were his strike offs ever considered dodgy? My understanding is that the main reason for compulsory strike offs is either failure to sign annual accounts or submit the annual statement. The timings of the strike offs indicate missing accounts rather than statements. Which in my eyes looks unprofessional and deceiving. I can't understand why people would choose a compulsory strike off over voluntary ones. I appreciate that sometimes these things happen but Companies house do also allow 3 months before the first Gazette and the final strike off for action to be taken along with warnings and letters before that first Gazette notice. And again I could understand each director having 1 company each get to that point, but to have 3 each + 1 combined all within the space of 2 or 3 years just seems to be a very unprofessional way of working.

The directors currently have about 6 active limited company's where they are joint directors. Due to the nature of the business it makes sense for them to have that many, and all the companies are linked. I am not a director of any of their companies. I have however invested in 1 of their companies....a sort of franchise I guess....but I'm no longer sure exactly what I have bought!! Other investors are starting to express concerns that no money is being made. Many of the accounts are only due in the next few months hense why this is only just being discovered now. This is a substantial amount of money that has been invested by investors into these companies (between just a handful of us we are talking over £200k but I am still tracking down others) and yet I'm struggling to find an investor/partner/franchisee who has made a profit from their investment....when you combine that with their multiple compulsory strike offs....its easy to see why we are all concerned. But other than asking the other investors for their statements and accounts I'm not sure how I can prove wrong doings on the directors behalf.

No idea if strike offs were dodgy that I saw. Not knowing circumstances - could have been perfectly good reasons for each one, could have fiddled investors on every one. Companies house tends to be very light on details.

Choosing compulsory strike off? It's cheaper. And you do not apparently have to notify creditors in advance as you are not taking action. Whereas it costs to file a DS01 and creditors have to be notified - and can object.

Hate to say it but due diligence before parting with money can save considerably. And knowing for certain from the paperwork what has been got for the investment.
I am guessing no one got a commercial solicitor themselves to read the paperwork?

If I was you I would sign up for companies house notifications on each company. Will not stop anything but will keep you informed of changes.

 

[Lisa Thomas]

There is no limit to insolvencies and/or strike offs.

However a history of repeated insolvency will be taken into consideration by the Insolvency service if considering disqualification.

 

[The Byre]

The number of dissolved or struck-off companies in a director's history is my first bit of due diligence that I do. One a long time ago or none is what I am looking for.

Yes, there may be honest and honourable reasons for multiple failed companies, but my experience has been that such things are very unlikely and we are dealing with either an idiot or a crook - and I do not do business of any sort with either!

 

[Clinton]

It’s a shame you did your due diligence after the event!

We seem to have no shortage of those in UKBF.

Everyone seems to think they know what they're doing when selling or investing in a business ...till it all goes pear shaped!

 

[WaveJumper]

Other than what has already been mentioned above, it just goes to show how important it is to to find out who you are actually getting into business with, and from a conversation i was having with someone this weekend you may well find this has a knock on effect such as increased insurance premiums and perhaps difficulty getting finance in the future

 

[The Byre]

you may well find this has a knock on effect such as increased insurance premiums and perhaps difficulty getting finance in the future

Another knock-on effect is potential customers looking up to see who they are dealing with! I am about to buy some new equipment and had to discount two possible suppliers because either their ownership was 'clouded' or the directors had a history of failed companies.

 

[Paul Norman]

A business relationship is a serious thing. You do not just enter into one one a whim. In a partnership, or as co-directors of a ltd company, the other people have the ability to drag you into a world of issues.

That is why you must do due diligence before getting involved.

Just asking the directors is not sufficient. If they are dodgy, they will lie. If they are not, you have potentially blown the relationship.

However, if you are in doubt, walk early. Every day adds to the potential cost to you personally of doing that.

 

[Mark T Jones]

If they are not, you have potentially blown the relationship.

I may have misinterpreted you here, but my business involves frequently asking for 'difficult' information, and experience says that the only people who aren't OK with at are those with something to hide.

 

[Paul Norman]

I may have misinterpreted you here, but my business involves frequently asking for 'difficult' information, and experience says that the only people who aren't OK with at are those with something to hide.

No, I don't think you have misinterpreted. I suspect I am being a bit pessimistic about the outcome of the conversation if it happens now, rather than earlier, before the business was formed.

Of course, the question will still need to be addressed, and any risk taken.