Dormant businesses cost region £88m claims study

DORMANT companies are costing West Midlands businesses £88m per year, a new survey has suggested.

Deloitte said an analysis of the legal company structures of West Midlands businesses had shown that of the 20,339 subsidiary companies registered in the region, 8,824 (40%) were dormant.

The advisor said with an estimated cost of up to £10,000 per year in unnecessary administrative costs and management time, the surplus businesses could be draining the region of £88m, money which could be put to more profitable use by the groups concerned.

Dominic Wong, partner in the restructuring team at Deloitte in Birmingham, said: “The figures from the analysis indicate a missed opportunity. Whist there is inevitably some cost associated with groups eliminating their unwanted subsidiaries using appropriate procedures; the payback period associated with this ‘one off cost’ is very attractive.

“Most business leaders do not realise how much it costs to keep an oversized legal structure running, with only the statutory filing costs often being considered.   This is not surprising, as most accounting systems set up by management do not provide information on the cost of maintaining a group’s legal structure.”

However, he said cost was only one issue.  The regulatory burden of having unnecessary companies increases risk and diverts management time, he said. In addition to which, having an operating structure that is aligned to a legal structure would also help to drive business efficiency.

“Streamlining operations can often be put into the ‘not urgent’ or ‘too difficult’ pile.  As a result, many businesses miss the opportunity to simplify the legal structure of their group,” he added.

“A way round this can be to go for the low hanging fruits – get rid of the companies that are not trading but have a clear plan for the operational companies.  The journey towards that plan can then be completed by a series of easier steps at an appropriate time, often triggered by something else such as a change in accounting system or tax legislation.”