Red Flags in UK Startup Filings: A Risk Guide

Startup failures don't happen overnight. Angel investors and syndicates can identify financial distress early by knowing which Companies House filings and market signals indicate trouble. This guide shows you how to spot red flags before committing capital.

Critical Red Flags in Companies House Filings

1. Late or Missing Filings

Companies House penalties for late filings are a key warning signal.

What to check:

Confirmation statements: Must file annually. More than 6 months overdue is critical
Annual accounts: Due within 9 months of year-end. Delays suggest accounting or cash flow problems
Dissolution notices: Companies dissolved or struck off indicate company has ceased operations

Why it matters to investors:
Late filing penalties compound. Directors facing penalties rarely resolve financial problems quickly. Multiple years of penalties suggest serious governance issues or inability to afford accountant fees.

Risk level: High—often precedes insolvency within 12-18 months.

2. Director Resignations and Removals

Sudden leadership changes can signal internal disputes or financial distress.

What to check:

Founder exits: Founding director resigning unexpectedly (search LinkedIn for context)
Mass resignations: Multiple directors leaving within 3 months
Removal from office: Companies House form TM02 indicating removal (often by creditors)
New administrators: New directors with "Administrator" or "Receiver" titles

Why it matters to investors:

Founder exit = loss of key team member, potential cap table disputes
Multiple exits = shareholder conflict or impending insolvency
Administrator appointment = company in formal distress

Risk level: Medium-High—requires investigation into why directors left.

3. Negative Financial Trends in Accounts

Review filed accounts over 2-3 years to spot deterioration.

Red flag patterns:

Declining turnover: Revenue falling year-over-year without clear plan to recover
Mounting losses: Net losses increasing despite founder efforts
Cash depletion: Cash balance dropping rapidly with no new funding disclosed
Growing debts: Liabilities increasing while assets shrink
Net liabilities: Company technically insolvent (debts exceed assets)

Why it matters to investors:
These signals indicate business model problems or failed product-market fit. Without disclosed funding to support burn rate, company will fail within months.

Risk level: High—direct sign of financial distress.

4. Undisclosed Debt and Charges

Companies House charges register shows secured debt obligations.

What to check:

New charges: Mortgages or secured loans registered recently
Multiple charges: Different lenders suggest struggling to secure favorable terms
Charge increases: Growing debt-to-value ratios
Fixed charges on IP: Lenders taking security over core assets indicates distress lending

Why it matters to investors:

Unsecured investors (equity holders) are last in line if company fails
Bridge loans indicate cash emergency
Multiple lenders suggest company couldn't secure favorable terms

Risk level: Medium—depends on relative seniority of equity to debt.

5. PSC and Share Structure Changes

Sudden ownership or control changes may indicate disputes or forced restructuring.

What to check:

Founder PSC removal: Original founder no longer listed as owning >25%
Recent additions: New corporate PSCs registered shortly before fundraising
Share dilution: Excessive preference shares issued
Nominee PSCs: Opaque corporate ownership structures

Why it matters to investors:

Founder dilution without explanation suggests forced restructuring
Corporate PSCs can hide disputes or creditor actions
Preference shares mean equity investors are subordinate

Risk level: Medium—requires investigation into circumstances.

Market Signals That Confirm Financial Stress

Hiring Activity Freeze

Monitor LinkedIn and job boards regularly.

What to watch for:

No hiring for 3+ months: Budget constraints or uncertainty about runway
Mass layoffs: Company in emergency cost-cutting mode
Removal of job posting: Rescinded offers indicate financial changes
Salary reduction postings: Founder pay cuts before layoffs

Investor implication: Early sign of cash crisis, likely to result in emergency funding or shutdown.

Negative Press and Legal Issues

Search for regulatory or legal problems.

Red flags:

Regulatory fines or warnings: GOV.UK, FCA, or ICO penalties
Employment tribunal notices: Unpaid wage disputes public record
Supplier payment disputes: News about non-payment to vendors
Customer complaints: Negative mentions in industry press about service failures

Why it matters: External pressure amplifies internal cash flow problems.

Employee Sentiment Deterioration

Check Glassdoor and employee social media.

Warning signs:

Low Glassdoor scores: Sudden drop in rating suggests recent problems
Leadership criticism: Negative reviews specifically about founder/CEO decisions
Salary/payment issues: Employees posting about late wages on Twitter
Recruitment slowdown: Long-standing open roles showing they can't hire

Investor implication: Talent leaving indicates founder knows problems exist but may not disclose.

Investor Due Diligence Checklist for Risk Assessment

Before backing a startup, verify:

✅ Filing compliance: No late or missing Companies House documents in past 2 years
✅ Financial trajectory: Revenue growth or clearly funded path to profitability
✅ Cash runway: Sufficient months of cash disclosed or in accounts
✅ Founder stability: No recent director changes, PSC removals, or equity dilution
✅ Debt transparency: No undisclosed charges or bridge loans
✅ Team momentum: Active hiring, positive employee sentiment, founder still engaged
✅ Cap table clarity: No nominee PSCs or complex structures hiding disputes

Red flag threshold: 3+ concurrent warning signs = pass or request detailed explanation.

Real-World UK Startup Collapse Examples

Example 1: Filing Neglect Warning (Typical Pre-Seed Stage Failure)

Companies House signals:

Confirmation statement 8 months overdue
No accounts filed for 2 years (threshold for micro-entity exemption exceeded)
Founder director still listed but no social media activity

Market signals:

No job postings for 6 months
Founder LinkedIn last updated 10 months ago

Outcome: Likely dissolved within 12 months, customer deposits lost.

Investor lesson: Don't ignore filing delays—they signal deeper problems.

Example 2: Hidden Debt Crisis

Companies House signals:

Accounts show £500k cash, but two charges registered for £300k total
New charge registered 2 months ago for £150k
Director changes: investor-appointed directors added to board

Investor implication: Cash position is misleading. Secured lenders paid before equity.

Outcome: Company eventually wound up, equity worthless.

Investor lesson: Check charges register, don't trust cash position alone.

Example 3: Founder Conflict Signal

Companies House signals:

Original founder PSC (60% ownership) removed
New corporate PSC registered (investor-controlled entity)
Founder remains director but resignations filed 2 weeks later

Market signals:

Founder job posting for "CEO role"—indicating search replacement
No public statement explaining founder departure

Outcome: Founder dispute, likely value destruction or forced acquisition.

Investor lesson: Sudden PSC changes indicate conflict, investigate immediately.

Tools for Monitoring Startup Risk

Free resources:

Companies House API: Set up alerts for filings, director changes
LinkedIn company tracking: Monitor team growth and hiring
Google Alerts: Track news and press mentions
Crunchbase: Cross-reference funding claims vs. filings

Investor syndicates should automate monitoring for portfolio companies to catch early warning signs.

Passing vs. Failing Pre-Investment Risk Screening

Pass (Low risk for due diligence):

All filings on time for 2+ years
Founder(s) remain directors with stable equity
Accounts show growth or disclosed funding path
Active team and positive market signals

Fail (Walk away):

Any late filings in past 18 months
Founder removed as director or PSC diluted unexpectedly
Accounts show declining revenue with no new funding
Multiple charges registered recently
Negative press about legal issues

Summary

Early-stage investors can assess UK startup risk by monitoring Companies House filings and market signals:

Filing compliance: Late or missing accounts are critical warning signs
Leadership stability: Unexpected director/PSC changes indicate disputes
Financial trajectory: Declining revenue without funding path leads to failure
Debt load: Undisclosed charges reduce equity value
Team momentum: Hiring freezes and founder disengagement precede collapse

These checks help angels and syndicates avoid obvious distressed situations before committing capital.

Ventur compiles filings, sentiment, and market data into a single, evidence-linked report for angels and syndicates. Request a free risk assessment.

Questions? Email hello@venturhq.co.uk