Defunct businesses leave council in £500,000 debt

Defunct businesses in West Dunbartonshire have left the council in more than half a million pounds of debt.

The council had a total sum of £535,646 due in unpaid National Non-Domestic Rates (NNDR), a tax on property used for non-residential purposes. The sum, which was amassed by businesses that have dissolved or gone into liquidation, was deemed irrecoverable in February. As such, councillors on West Dunbartonshire Council's corporate services team agree to write it off. Some of the council debts had been standing since as far back as 1993; one company alone owed almost £50,000.

"Companies must be chased"

Members of West Dunbartonshire Council stressed that more must be done to help companies pay back their debts, as these sums deprive the public of large amounts of money – which could otherwise be invested back into the community on key services.

Committee chair Kath Ryall highlighted a number of potential issues, noting that sometimes the landlord who is responsible for the property has not been informed that their tenant is actually subletting the space out to someone else. This can then cause a chain of owed money through three businesses, making payment recovery much more difficult.

Phoenix companies

Ryall also raised concerns over liquidised businesses using a legal practice of so-called phoenix companies. She said, “These amounts are substantial. When we look at this in detail the background is not going to surprise anybody. Unfortunately, there are clearly businesses who see the root of dissolving their company as the mechanism of avoiding paying NNDR." In other words, companies go bankrupt, only to start up again with the same directions and without any legal obligation to repay their previous company’s debts.

Because of this, commentators have highlighted that it's important to recognise council debt should first and foremost as ‘priority debt’; that is, that there can be consequences if arrears are not repaid. It makes up about a quarter of local authority incomes across the UK – so its loss can have serious budget repercussions.  

Dukes Bailiffs offers a range of debt advisory services. For more information, contact one of our centre operators.