COCOON TRADING LIMITED

Risk Rating: HIGH

Justification: The company operates with a critically thin equity cushion (shareholders' funds of £1,237 against total liabilities of £62,983), leaving it highly vulnerable to any financial shock. Its solvency is entirely dependent on the recoverability of a loan to its directors, the movement of which contains an unexplained arithmetic discrepancy in the latest filed accounts. The absence of any profit and loss data makes it impossible to confirm the underlying viability of the business model.

Key Concerns

1. Critically Low Solvency Margin: Shareholders' funds have remained below £2,000 for six of the last seven years. With net assets representing less than 2% of total assets, the company has virtually no buffer against a bad debt, a fall in asset value, or an unexpected liability.

2. Director's Loan Account Anomalies: The company's financial position is heavily concentrated in a loan to the directors (£7,955 at year-end 2025). The latest accounts present an arithmetic inconsistency: an opening balance of £10,952, plus advances of £41,671, minus repayments of £2,997 does not reconcile to the stated closing balance of £7,955. The accounts also disclose gross advances of over £41,000 in the year, a significant sum relative to the company's total asset base, which raises questions about cash flow management and governance.

3. Lack of Operational Transparency: As a micro-entity, the company is not required to file a profit and loss account. There is no available data on turnover, gross margin, or net profit. The company is classified as a manufacturer (SIC 14390) but reports zero employees, making it difficult to assess the operational model or cost base from the public record.

Positive Indicators

1. Long-Standing Operation: The company was incorporated in 1999 and has been actively trading for over 25 years, suggesting that a viable business has existed historically.
2. Filing Compliance: All accounts and confirmation statements are up to date, indicating a basic level of administrative and regulatory compliance.
3. Low Fixed Cost Base: With no employees, the company has minimal fixed payroll overheads, which can allow it to survive on low revenue levels.

Due Diligence Notes

• Reconcile Director's Loan Account: The arithmetic discrepancy in the directors' advances note for the year ending March 2025 must be fully explained. Confirm the actual balance, the nature of the advances and repayments, and the terms and security for the loan.
• Request Management Accounts and Tax Computations: Full profit and loss data is essential to assess whether the company is trading profitably or merely sustaining itself through director support.
• Clarify Operational Model: Investigate how a manufacturing business operates with zero employees. Determine whether the directors are the sole workforce or whether production is outsourced, and assess key-person dependency.
• Review Cash and Liquidity Position: Cash balances are not disclosed for the last two financial years. Request recent bank statements and cash flow forecasts to assess working capital adequacy.
• Clarify Shareholder Governance: Note that Xxxxxx Xxxxxxxxname shown to subscribers holds more than 75% of shares and voting rights, while Xxxxxx Xxxxxxxxname shown to subscribers holds between 25% and 50% of shares. Clarify the relationship and any governance arrangements between these significant controllers.

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