Risk Assessment: CAFE AKBAR LTD

1. Risk Rating: HIGH

Justification: The company is deeply insolvent with net liabilities of £382,985 as at 31 October 2023, has experienced a catastrophic deterioration in its balance sheet over the most recent year, and is subject to an active proposal to strike off. The accounts are overdue, and the latest filings are explicitly labelled as "Cessation Financial Statements," indicating the company is in the process of winding down. These factors collectively present severe solvency, liquidity, and operational risks.

2. Key Concerns

Concern 1: Extreme and Worsening Insolvency

The company has carried negative net assets throughout the entire ten-year period available for review, but the position has deteriorated dramatically in the latest year. Net assets fell from -£142,750 (October 2022) to -£382,985 (October 2023) – a worsening of approximately £240,000. Total assets collapsed from £172,147 to just £18,908, while total liabilities increased from £385,461 to £463,948. The company is technically insolvent on both a net assets basis and a net current assets basis (net current liabilities of £445,040). This raises serious questions about whether the company can continue as a going concern.

Concern 2: Active Proposal to Strike Off

The company status is "Active – Proposal to Strike Off." This means an application has been made to remove the company from the Companies House register. Combined with the accounts being labelled as "Cessation Financial Statements," this indicates the company is in the process of being dissolved. The strike-off process can be initiated voluntarily by directors or compulsorily by a third party (e.g., a creditor). Either scenario warrants urgent investigation to understand whether creditor interests are being properly protected.

Concern 3: Severe Liquidity Crisis

Cash at bank has fallen from £159,840 (2022) to £16,892 (2023), representing a decline of approximately 89%. Current assets total only £18,908 against current liabilities of £463,948, meaning the company has virtually no capacity to meet its short-term obligations. The current ratio is approximately 0.04, indicating extreme liquidity stress. Debtors also declined from £4,820 to £2,016, and stocks were written down to zero from £7,487, suggesting either disposal or write-off of inventory.

3. Positive Indicators

Historical Longevity: The company has been incorporated since 2007 and has operated for 16 years, suggesting some degree of operational resilience in prior periods.

Period of Improvement (2019–2021): Between 2019 and 2021, there was a notable improvement in the balance sheet. Net assets improved from -£318,423 to -£24,309, and cash increased from £19,423 to £234,568. This may indicate the business had viable trading periods, potentially supported by pandemic-related support measures or other temporary factors.

No Director Disqualification Records: Based on the available data, none of the current directors appear on the Insolvency Service's disqualification register, which is a basic but important governance check.

4. Due Diligence Notes

1. Investigate the Strike-Off Origin: Determine whether the strike-off was initiated voluntarily by the directors or by a third party (e.g., a creditor seeking compulsory strike-off). A creditor-initiated strike-off would suggest active enforcement action. The Gazette notice should be reviewed for details.

2. Examine PSC – Beaumont Management Services (UK) Ltd: The corporate PSC owns 25-50% of shares and voting rights. The financial health and status of this entity should be investigated, as it may be a related party with significant influence. Given the company's name suggests a management services firm, there may be inter-company balances or related-party transactions within the £463,948 of liabilities that need to be understood.

3. Creditor Composition: The breakdown of the £463,948 in current liabilities is not available from the abridged accounts. It is critical to understand how much is owed to trade creditors, HMRC, related parties, and whether any security or charges exist. A search of the register of charges at Companies House is recommended.

4. Director Responsibilities Under Insolvency Act 1986: Given the company has traded with negative net assets for the entire decade under review, and particularly given the severe deterioration in 2023, there is a material question as to whether directors have properly considered their duties under Section 122-124 of the Insolvency Act (wrongful trading). The fact that cessation accounts have been filed may indicate the directors have recognised this obligation.

5. Volatile Financial Performance: The dramatic swings in net assets (improvement from -£318,423 in 2019 to -£24,309 in 2021, then deterioration to -£382,985 in 2023) suggest either significant one-off items, potential reclassification of liabilities, or unusual transactions. The 2021 cash position of £234,568 against total assets of £254,569 warrants explanation – this may reflect government support received during COVID-19 that was subsequently utilised.

6. Overdue Accounts: The accounts are marked as overdue. While cessation accounts have been filed, the overdue status may indicate administrative delays or complications that could affect the strike-off timeline.