New non-profit firms 'open to abuse'

A NEW type of non-profit firm designed to do good works in the community could be wide open to abuse by fraudsters and asset-strippers.

The Community Interest Company is a legal vehicle that the Government hopes will encourage social enterprise.

It wants thousands of CICs to be created to provide childcare, community transport, social housing and other services. The first could be set up next year.

But unlike private or public limited companies, CICs could be able to shield their assets from creditors indefinitely. And as there will be nothing to stop ordinary commercial firms setting up CIC subsidiaries, there is a danger of them being abused to shelter normal business assets.

Peter Joyce, former chief of the Official Receivers and now director-general of the Insolvency Practitioners Association, warned: 'A scandal in one of these companies would mean the credibility and validity of the whole idea would be blown.' And Keith Goodman, former president of the IPA said: 'Unscrupulous operators will scrutinise minutely the legislation and the opportunities it provides. That is what these people do.'

Under the proposals going through Parliament, the assets of a bankrupt CIC could be taken over only by another CIC.

Goodman warned that this could encourage CICs being formed with the sole aim of asset-stripping. The Department of Trade & Industry stressed that all creditors of a CIC would be paid, and that a powerful regulator would oversee the new firms.