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Companies House blamed for collapse of firm

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28th Jan 2015
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A High Court ruling has found that Companies House was to blame after Cardiff-based engineering firm Taylor & Sons collapsed into administration.

A High Court judge ruled that a spelling error caused the 124-year-old Welsh family business to fail after it was wrongly recorded by Companies House as being wound up in 2009.

Companies House inserted a rogue ‘s’ and the actual company that had been wound up six years ago was based in Manchester called Taylor and Son.

The information was wrongly recorded on the companies register on 20 February and was corrected three days later on 23 February, however by the third day it was too late as word had already got around that the company was in trouble. The blunder led to the firm’s suppliers to cancel orders and banks to withdraw credit facilities. 

The case was brought by the owner of Taylor & Sons, Philip Davison-Sebry, who is suing Companies House for £8.8m for false publication after at least 250 people lost their jobs.

Mr Justice Edis found Companies House owed a duty of care when entering a winding up order to take reasonable care to ensure that the order is not registered against the wrong company.

He added Taylor & Sons proved that the reason it went into liquidation was because of the Companies House error.

This is a preliminary judgement and the issue of damages will have to be resolved.

Companies House has said it is now considering the implications of the judgement.

Back in 2012 Jennifer Adams wrote an article for AccountingWEB on how important it is to be careful in naming a company.

On same names she advised: “If there are companies with the same name, which are not in the same group, it will not be possible to register the name, even with the consent of those in the group.

“If a company does get through the checks, another company (and only another company) could object under s67 CA 2006 on the grounds that the new name is too like an existing one,” she added.

Replies (15)

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By williams lester accountants
28th Jan 2015 18:10

Creditors
How will this affect unsecured creditors who lost money when this business failed. If Companies House will be compensating the shareholder then surely they should also compensate the creditors?

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Stepurhan
By stepurhan
29th Jan 2015 11:04

How did word got round?

This was the simplest of typos. The error was only on the record for three days. The error only had such severe consequences because of the similarly named firm having been wound up.

Yes, the consequences have been terrible. Yes, as the error that led to these was theirs, Companies House needs to take some responsibility for the result.

But it is only because word somehow got round in those three days that this most minor of errors had such grave consequences. Do we know what caused word to get round so quickly? Did Companies House actively disseminate the incorrect information? Because, if they didn't, then calling them a shambles for making one tiny mistake in one record, given the volume of records they handle, seems just a little ridiculous.

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Replying to Accountant A:
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By daveriches
29th Jan 2015 11:33

at stepurhan

Ok so you go and explain to the 250 that lost jobs just after Christmas "Sorry it was only a typo"

Of course CH have a responsibility to get the facts right - and irrespective of 3 days only - do you not use Facebook, twitter et al - word rapidly spreads but even worse rumour spreads faster.

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Replying to Manchester_man:
Stepurhan
By stepurhan
29th Jan 2015 20:36

Emotionalism is not an argument.

daveriches wrote:
Ok so you go and explain to the 250 that lost jobs just after Christmas "Sorry it was only a typo"

Of course CH have a responsibility to get the facts right - and irrespective of 3 days only - do you not use Facebook, twitter et al - word rapidly spreads but even worse rumour spreads faster.

Let me be clear. Are you saying someone at Companies House deliberately made the mistake? Failing that, are you saying that it should be impossible for Companies House to make such a mistake? I'm not saying the consequences haven't been dire in this instance. I'm just saying that, with the sheer volume of information they handle, a single letter typo going uncorrected for 3 days is hardly unexpected. How would you suggest Companies House ensures that none of the records they hold have errors this small and how would that be funded?

Thanks to Brend21 for addressing my query about how word got round so quickly. It's sad that their suppliers were so quick to shut the company down on the erroneous information. Surely the long-established business relationship and recent payment history should have given them some clue that the report of winding up was an error. 

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Replying to Accountant A:
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By Brend201
29th Jan 2015 13:18

In reply to Stepurhan:  Companies House disseminates all filed information.  Credit information agencies process all filed information and update their records instantly.  Creditors subscribe for automatic updates from those agencies or from CH (CH has a "MyMonitor" facility).  Suppliers would have processes to halt deliveries as soon as there is a "red flag" so the impact would be immediate.  

Companies House should have processes to guard against inaccuracies on their files - and the use of a company number when updating a particular company would seem to be a basic control.  

Having said all of that, I now wonder how CH update any files - are they not based on documents filed by others - companies, liquidators, administrators etc?

Maybe someone will give a clearer explanation of what happened.

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By armstrm
29th Jan 2015 12:05

It may be a simple error  but

It may be a simple error  but lots of simple errors can lead to significant consequences. This does not mean simple errors should be put down to bad luck. In the case of Companies House, they should be checking the company number and company name to ensure they both match, before making any changes. The chance of a mistake like this happening would then be significantly reduced, if not almost eliminated.

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Replying to Wilson Philips:
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By yamamy
29th Jan 2015 11:46

Agree

A simple check against the unique company number, and even registered address would ensure correct information.  Companies House deal with large volumes of information yet they haven't followed basic verification.  Did they delegate the work to an untrained apprentice or something?

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By InflatableBassPlayer
29th Jan 2015 11:39

Typo or no typo,  is this not

Typo or no typo,  is this not a case of a company putting all its eggs in one basket? Sounds like they were relying on one particular contract............

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Replying to penelope pitstop:
Should Be Working ... not playing with the car
By should_be_working
29th Jan 2015 11:54

Unavoidable

As I understand it, a major supplier was Tata Steel. I guess when you're making military hardware, no steel = no business, but a c*ck-up like this one would also preclude them from maintaining an existing 'back-up' relationship - or forming a new one - with anyone else. (And I imagine they would only hold so much stock of raw materials.)

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By the_fishmonger
29th Jan 2015 12:49

A very sad and painful consequence of the modern 'it's near enough' mentality shown by many of the more recent generations, which haven't had the discipline of getting things right first time instilled by grand-parents hardened by the wars.

I would also suggest these are not mistakes but results of laxity, mistakes being (that no longer allowed status of) accidents. The mistake was in allowing a 'near enough' to work for CoHo.

Yes, mistakes still happened but a lot less frequently and rarely with such bad effects.

Trying to get staff that accept they are the last check-point in practice work is like panning gold. Any 'near enoughs' that come my way are soon on their way

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By Mikolaj
29th Jan 2015 23:35

Reality

As commented earlier, if a formal notice is leaked of a company winding up then it is immediately disseminated through the credit world, and thus the rest of the business world. Once it gets out there (in minutes) it cannot then be recinded. Clerical error or no, there is a legal duty on Companies House to get such public information 100% correct, 100% of the time. The ramifications of errors have been extremely dire in this case, but CH incompetence is to blame!

CH MUST accept responsibility for this and I strongly believe the learned Judge will find in favour of the claimant, and rightly so

Shame on you CH!!!

 

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Replying to bernard michael:
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By daveriches
30th Jan 2015 12:26

totally agree - thank you for

Mikolaj wrote:

As commented earlier, if a formal notice is leaked of a company winding up then it is immediately disseminated through the credit world, and thus the rest of the business world. Once it gets out there (in minutes) it cannot then be recinded. Clerical error or no, there is a legal duty on Companies House to get such public information 100% correct, 100% of the time. The ramifications of errors have been extremely dire in this case, but CH incompetence is to blame!

CH MUST accept responsibility for this and I strongly believe the learned Judge will find in favour of the claimant, and rightly so

Shame on you CH!!!

 

 

totally agree - thank you for putting so succinctly Mikolaj

 

@stepurhan - I think this answers your query at me - of course nobody acted maliciously

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By ghewitt
30th Jan 2015 06:58

To err is human

but to really foul things up requires a computer (quote source unsure). We can really only blame ourselves as we drive for faster and faster communications; replacing 'instant-on' with 'always-on'. One small error - and it was small - has been greatly magnified, with the attendant consequences, by the lens of instant, if not sooner, communication. Chinese whispers at the speed of light. Add to this the dumbing down of society and the 'it'll do mentality' alluded to in an earlier comment and you have a recipe for disaster. Frankly I am amazed it does not happen more frequently - or maybe it does and is deftly 1984'd before it hits the proverbial.

 

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By The Minion
30th Jan 2015 11:56

The ridiculous thing with this is

That we have a trading name that is also a registered trade mark and we have objected in the past to people registering companies using our spelling and a "marginal" difference like location or indeed an added letter!

CH response?

It is not identical so it is ok and they will not make the other company change the name.

Well maybe if they had been a little more forward thinking this would not have happened...

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By Caber Feidh
02nd Feb 2015 03:14

The facts are not quite as clear cut as they might have seemed

The High Court judgment for the case of Philip Davison Sebry v (1) Companies House & (2) The Registrar of Companies [2015] EWHC 115 (QB) provides clarification for points raised in the above posts. Some of the facts are not quite as clear cut as they might at first have seemed. The judgment also provides useful background on the operation of Companies House.

Philip Sebry had been the Managing Director of Taylor and Sons Limited (“the Company”)and, after it went into administration, on 9 April 2009, the Administrators assigned to him any cause of action the Company may have had and he brought the claim “in the shoes of the Company”.

Paragraphs [12] to [17] of the judgment explain how Companies House’s error arose. Mr Philip Davies, a liquidation document examiner at Companies House of some thirty three years’ experience, received a winding up order against Taylor and Son Limited (note: only a single son) from the Chancery Division of the High Court. Crucially, the order did not carry the company’s number and it arrived without a covering letter or the Notice to Companies House form, either of which could have supplied that number. It was one of 200 documents that he would process that day, at about 2 minutes for each. At the time 40-60% of winding up orders arrived at Companies House without any indication of the company number and, if Mr Davies had followed procedure, he would have rejected the one for Taylor and Son. Instead, he followed common practice in his section and he tried to remedy the defect by seeking the number on CHIPS (the computer system with the information on registered companies). The Judge saw that practice as a management failure.

The Official Receiver’s staff in Manchester had previously made the same mistake as Mr. Davies and had then agreed to pay the Company’s solicitors fees for dealing with this mistake. Despite this, the winding up order did not include the company number. Companies House’s error was spotted quite quickly, because the situation was being monitored on behalf of the Company after the Official Receiver’s error. It was corrected on the CH online systems by 14:39 on the same day. The problem was with the “bulk products” that CH sells to a small number of clients, who then publish the data to their own clients. Correcting that seems to have taken about 17 days.

Although Philip Sebry has received judgment in his favour the Court has still to decide the quantum at a later hearing. The judgment described how the fortunes of the Company had suffered a setback in 2008 because of the recession and the banking crisis. Its largest customer, Corus, suffered problems of its own. Presumably CH’s counsel will claim that CH’s error only hastened the inevitable – and Mr Sebry’s counsel will disagree.

The judgment also notes that CH is self funding from the fees it charges to the companies whose information it keeps and to those who use its services. In most years it pays a dividend to the Government out of those fees. The CH report “Late Filing Penalties Statistics 2014-15 for Private and Public Limited Companies” shows that its income just from penalties for England and Wales was £77.5 million in 2013/14 and £49.5 million for the eight months to November 2014.

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