£4.7 billion in unpaid debt may be left behind every year by UK firms that choose to close down according to analysts.
Research undertaken by Experian reveals that among the business closures that were until today thought to be benign, billions of pounds worth of debt is left still owing to existing firms.
The analysis looked at millions of supposedly solvent firms that have decided to close down voluntarily and have applied to be struck off the Companies House register since 2000.
It found that each year around 13 per cent of these firms had debts that exceeded their total assets just before they closed.
Each year in addition to the billions in debt left behind by firms that are unable to pay their creditors and go through official insolvency proceedings, another 50 per cent as much again may also be left behind as debt by the 13 per cent of solvent companies that have voluntarily chosen to wind up.
For example, in 2011 the analysis reveals that hidden among the 300,000 firms that had wound up voluntarily, 36,000 had debts amounting to £5.9billion.
In comparison, 21,000 firms were declared insolvent during the same year with insolvency practitioners involved and the total estimated debt left behind by them was £11.7billion.
Hidden debts
Micro firms often wind up for reasons as simple as retirement or the opportunity to work in another company as an employee, so have little impact on other firms and leave behind little or no debt.
However, some of these businesses choose to close down without informing creditors or settling debts.
Going back to 2000, analysis of the last filed accounts of these firms at the time of winding up has revealed that 13 per cent of businesses may have been struggling and decided to wind up without settling debts.
During times of recession, research has found that the number of firms winding up voluntarily increases significantly.
However, with the sheer volume of businesses that have wound up and left debt behind means that in reality it can amount to billions of pounds each year.
"Most firms that apply to be struck of the Register tend to have little or no debt owed to other businesses" said Max Firth, Managing Director of Experian's Business Information Services.
"However, there are some that do and for the first time, we have been able to show that hidden among these seemingly harmless business closures is a level of debt that has previously gone undetected."
"Failing to detect signs of deterioration and not reacting before a customer or supplier gets to the insolvency or dissolution stage, can be crippling for some firms. Monitoring financial health of other firms is more than just good business practice at any time, but clearly more critical in today’s climate where many businesses are experiencing cash flow difficulties."
