Risk Assessment: AURA PRINT (UK) LTD

1. Risk Rating: HIGH

The company is technically insolvent on a balance sheet basis, with negative net assets of £15,797 as at March 2025, deteriorating from a marginal positive position of £378 the prior year. The combination of technical insolvency, significant directors' loan accounts extracting funds, and substantial long-term obligations presents material solvency and governance concerns.

2. Key Concerns

i. Technical Insolvency and Eroding Equity Base

The company has moved into negative net assets (£15,797 deficit), meaning total liabilities exceed total assets. This position has been deteriorating over recent years from £8,833 in 2017 to near-zero and now negative. The shareholders' funds reflect an accumulated loss of £15,897 in the P&L reserve. While net current assets remain positive at £111,920, the overall balance sheet position raises questions about the company's ability to meet all obligations if long-term creditors demanded repayment.

ii. Directors' Loan Accounts – Significant Value Extraction

This is perhaps the most concerning finding. Directors' loan accounts total £97,915, representing approximately 87% of total debtors (£112,721). Both Mr Liam Smith and Mrs Emma Smith each owe £48,958. These loans: - Increased from £96,820 in the prior year (net increase of £1,095) - Are unsecured (the accounts text was truncated but confirmed unsecured status) - Are owed by directors who control the company and have the right to appoint/remove directors - Represent significant value extraction from a company that is technically insolvent

The directors are simultaneously the largest debtors and the decision-makers regarding repayment. This creates a clear conflict of interest and raises questions about whether these funds will be recovered.

iii. Heavy Long-Term Debt Obligations

Long-term creditors amount to £419,036, comprising: - Finance leases/hire purchase: £249,312 - Bank loans: £169,724

These obligations significantly exceed the company's net asset position and represent ongoing financial commitments that must be serviced. The finance leases relate to the substantial plant and machinery assets (£214,877 net book value), suggesting the company's productive capacity is largely financed through debt rather than equity.

3. Positive Indicators

i. Positive Working Capital

Despite the overall negative net asset position, net current assets are £111,920 (current assets £272,727 vs current liabilities £160,807). This suggests the company can meet its short-term obligations as they fall due, which is critical for operational continuity.

ii. Stable Cash Position

Cash at bank has remained relatively stable and improved slightly to £83,665 (from £82,330 in 2024, and significantly up from £1,057 in 2018). This provides a buffer for operational needs and indicates the business is generating cash from operations.

iii. Filing Compliance

The company's filings are current and not overdue. Accounts are filed under the small companies regime with total exemption, and confirmation statements are up to date. This suggests the directors are maintaining basic statutory compliance.

iv. Revenue Generation Indicated

The corporation tax liability of £45,580 (compared to a credit of £5,619 in 2024) suggests the company generated taxable profits in the year, which is a positive operational indicator despite the balance sheet weakness.

4. Due Diligence Notes

Priority Investigations:

1. Directors' Loan Repayment Terms: Urgently clarify the terms, interest rates, repayment schedules, and security (if any) on the £97,915 directors' loans. Determine whether any formal repayment agreements exist and whether these loans are genuinely recoverable. Consider whether these should be classified as current or long-term assets.

2. Going Concern Assessment: The accounts were signed on 30/12/2025 for the year ending 31/3/2025. Investigate whether any going concern disclosures or director support letters exist confirming continued financial support. Given the negative net assets, the auditors (or directors in this audit-exempt case) must have considered going concern viability.

3. Stock Valuation and Realizability: Stocks remain unchanged at £90,000 for both 2024 and 2025. Investigate whether this represents genuinely saleable inventory or whether any provision for obsolescence is required. In the printing industry, stock can become outdated rapidly.

4. Finance Lease and Bank Loan Terms: Review the terms of the £419,036 in long-term obligations, including maturity profiles, interest rates, and any covenant conditions. Determine whether any breaches of covenant exist and whether refinancing risk is present.

5. Related Party Transactions: Beyond the disclosed directors' loans, investigate whether any other related party transactions exist, particularly with the PSCs who hold 25-50% ownership each. The accounts note appears to be truncated at the directors' loans section.

6. Profit and Loss Account: The company has opted not to file its profit and loss account (permitted under s.444(1) Companies Act 2006). Obtain the full P&L to understand revenue trends, margin performance, and the drivers behind the deteriorating net asset position.

7. Deferred Tax Asset: Note 6 references a deferred tax current asset of (£16,659) shown as a negative figure within debtors. Clarify whether this represents a genuine recoverable asset and the assumptions underlying its recognition given the accumulated losses.

8. Trade Creditor Increase: Trade creditors increased from £72,409 to £85,006 (17% increase). Determine whether this reflects normal trading growth or potential cash flow pressure leading to delayed supplier payments.