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‘Government must work to end scandal of hidden debts’

Nick Hood, Business analyst at risk management firm Company Watch.

Since the start of 2012 there have been 85 major retail failures threatening nearly 6,000 shops and more than 56,000 jobs, many of them in the fashion industry. The debts owed by the largest 20 of those companies totalled more than £1bn.

For suppliers, avoiding bad debts is made unnecessarily difficult by the pernicious practice of splitting the finances of a business between a trading company, which often looks perfectly healthy, and a parent company, where huge debts and other potential issues are hidden away, often offshore.

A recent example was Republic, where the operating company made £3m profit and had net assets of £49m with no debts. To the unwary, this was a perfectly good credit risk. The problems were concealed six steps up the corporate chain where debts of £50m and annual losses of £50m lurked. The ultimate owners who walked away from the company when the going got tough were another six steps further away in the Cayman Islands.

Structures like this are far from unusual, so how are suppliers supposed to work out whether to go on trading with their customers?

It’s high time the Government imposed more transparent financial reporting to stop this scandal.

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