COMPANY LAW - 07.07.2020

Could your business be wound up?

A business published educational booklets for schools on topics such as bullying, knife crime and online safety. It was wound up in the public interest in JuneĀ 2020. Why, and what lessons can you take from this case?

Rogue publisher

The business model sounded public-spirited: Safety Guides Ltd (S) published educational material for schools, funded by sponsorship from local businesses. However, complaints about its practices led to an Insolvency Service investigation, which revealed that it misled and coerced small businesses into making sponsorship payments. S would call small businesses to ā€œchaseā€ for payment, claiming that they had entered into verbal contracts to sponsor a publication a few months previously. It told them that the booklets had already been printed with them listed as sponsors, and many businesses felt obliged to pay up. The investigation discovered that these agreements were non-existent, and the booklets were only printed after payments had been received. S secured over Ā£2.5 million using such tactics. The companyā€™s accounting and payroll records were also found to be inadequate, making it impossible to trace substantial outgoings.

Company investigations

Winding up in the public interest is relied on in cases where a companyā€™s conduct causes significant harm to stakeholders, including customers and suppliers. It is usually preceded by an official investigation into the companyā€™s affairs, often triggered by complaints from the public. Tip. Investigators have extensive powers to examine a companyā€™s affairs, including accessing its premises and information. If your company is under investigation, you must comply; failure to do so is a criminal offence.

Directorsā€™ liability. Those involved in running such a company can expect their own conduct to be scrutinised and may face legal action, for example for wrongful or fraudulent trading, misfeasance or breach of duty. This could result in personal liability, disqualification and, if criminal conduct is uncovered, prosecution.

Taking advantage

S preyed on small businessā€™ connections with their local communities, knowing that they would be less likely to question the motives of an apparently not-for-profit organisation. Tip. Always check out organisations offering this sort of opportunity, just as you would any other business deal. Genuine firms will expect this and will not rush you into committing funds. S also banked on small business owners being too busy or disorganised to remember whether they had signed up or not. It exploited this moment of hesitation to press for payment, either guilt-tripping businesses into paying because they believed that costs had been incurred because of them or threatening them with debt recovery action. Tip. Robust internal processes will help you rebut any such fishing expeditions with confidence:

  • only specific people within your company should be authorised to enter into contracts and make payments
  • staff should be trained to pass the matter on to someone authorised to enter into contracts if a conversation takes a contractual turn; and
  • verbal agreements should be confirmed in writing with the other party.

If you find yourself on the receiving end of such tactics, youā€™re unlikely to be the only one. Protect yourself and others by reporting the company concerned (see The next step ).

For a link to report a company, visit http://tipsandadvice-business.co.uk/download (CD 21.20.02).

The company took advantage of small businessā€™ desire to benefit their communities. Treat such opportunities just like commercial deals by checking out the organisation and keeping records of any agreement made. Only certain people should have authority to enter into contracts.


The next step


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