Bankruptcy & Company Credit Reports

As some may be aware I recently wrote an article about credit reports and I want to follow up on that with a case in point.

I was asked by a client to give my opinion on the credit worthiness of their potential client; I took credit reports from two different sources, one said they were of moderate risk of failure and recommended a credit limit of £7,500. The accounts looked O.K. there were no court judgments, they paid 8 days later than the average in their industry. In fact, the only slight negative was the number of searches on the credit report.

It did not look like anything to be concerned with but I thought I would get a second report from another supplier and see what their opinion was.

The second report said the rating was “fair” and risk was “normal” recommended a limit of £10,000 but there was an exception, a red flag, something that needed further investigation.

Aside from a very high number of searches something else piqued my interest!

As I looked down the report I noted that a director who had resigned was also the director of a company of the same name (changed its name) which went in to administration and has since been dissolved. Now, I did say he had resigned so why would it be a concern? (other than the failed company) well, there was more to it than met the eye, it looked like his wife was the sole director, another person who is a shareholder was also a director of the failed company, I decided to dig a bit deeper!

I was suspicious so I decided to look further in to the director that had resigned.

He was not listed as a disqualified director so that was a positive but, I was still suspicious that he had resigned and his wife was the sole director so, I dug some more.

I then discovered that he had been declared bankrupt twice and was still in bankruptcy ah I thought, that explains it!

Now I have no proof of the following but, my spider sense (otherwise known in the industry as paranoia) was tingling. (can paranoia tingle?)

I had a sneaky suspicion that the director was probably still involved, probably as a shadow director and for that reason I decided to seek a second opinion from a professional chap who makes his living out of putting credit reports on companies together. (I do him a disservice as he does a lot more than that, so, if he is reading, sorry!)

I got a comment back that it was hard to disagree with my thoughts / opinions and that he was of a very similar chain of thought with regards to the director that resigned.

So, I made my recommendations to the client which were not to offer credit but also, not to turn the work down. I advised the client to either get guarantees from the bank or a director or payment in advance.

The client was kind enough to offer his thanks by way of stating “this is probably the best money I will ever spend” [getting credit opinion]

In concluding, it takes me back to my article with regards to credit reports as well as my articles with regards to due diligence and due diligence, a case in point and the importance of thoroughly checking perspective clients credit worthiness before offering credit and starting work.

Written by Jim Sleith

JMS Credit Consultancy

 

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