Before anyone in British business should deal (frankly with anyone in trade, but) particularly with a trading entity that has limited liability – they should undertake a certain of due diligence upon those to whom they are (effectively) extending credit.
At the very least in relation to an English company limited by shares – review the publicly filed information held by the Registrar of Companies (at Companies House) – which can reveal quite a lot about both the owning company of the relevant business venture, and the individuals involved with it:-
https://find-and-update.company-information.service.gov.uk
Over recent years, that information has become available to third party commercial enterprises to “re-package”, and we favour “Endole” = as a particularly useful tool for summarising past financial information – especially balance sheet movements over time – which with some care, can give a useful broad idea of a company’s financial performance over time:-
Most companies settle upon an accounting reference date which suits them and their business, and produce statutory accounts (drawn to that date) for the whole of their existence.
Other companies change their accounting reference date during their existence – and – there can be many legitimate reasons for doing so.
However, the one change which should “always raise a red flag” = is when a company shortens its accounting reference date – by only one (1) day.
The only reason for doing this is that the relevant companies legislation – can give a company a further three (3) months from filing the notice to shorten an accounting reference period – to produce and file its statutory accounts.
We’ve recently been “examining” a company that we have become convinced is undertaking either a “long” or “short firm fraud” (i.e. it orders goods and/or services from suppliers, and delays paying them – until it can no longer – whereupon it dissolves, the fraudsters disappear and the suppliers are left out of pocket).
Action Fraud have produced quite a good note on the activity, here:-
https://www.actionfraud.police.uk/a-z-of-fraud/short-and-long-firm-fraud
The relevant company was formed in August 2020 – during the Covid outbreak, with the “remote working” environment seeming to have been a godsend to “long” and “short firm” fraudsters.
Automatically, its first accounting reference date was 31st August 2021, and its first statutory accounts should have been prepared and filed no later than twenty-one months after incorporating = May 2022.
However, the relevant company (in mid-May 2022) has just applied to shorten its accounting reference date by one day – meaning it has a three-month extension to prepare and file its statutory accounts (so as to be by mid-August 2022.
Thus a company which will have been in existence for nearly two years / circa 24 months (and trading / incurring credit across that period) – will only then be in a position where it can no longer avoid preparing and filing statutory accounts.
Companies House has produced quite a good (if dry) note, on changing accounting reference periods, here:-
https://companieshouse.blog.gov.uk/2015/12/23/a-guide-to-accounting-reference-dates-and-periods/
THE RED FLAG TO WATCH OUT FOR IS THE SHORTENING OF THE ACCOUNTING REFERENCE DATE BY ONE (1) DAY.
Such action can reveal a disorganised set of managers – who can’t produce their accounting information in a timely fashion – but it’s also used by companies to hide financial difficulties with their businesses.
In these circumstances, it’s likely to be more sinister than that – in that the relevant business online retails “garden based equipment” – and we believe the extra three (3) months will allow them to extend their fraud across their busiest trading period.
To discuss the issues raises in this note, please feel free to discuss the subject matter with its author:-
Mr. Dan.Johnson@EquitableLaw.com
Founding Principal – and – Business Law Solicitor
+44 (0) 7788 537 187 : U.K. Cell. (& e-)Telephone
+44 (0) 20 8780 3319 : London D.D. Landline Tel.
www.EquitableLaw.com – Solicitors For Business
