Economic Crime and Corporate Transparency Bill: Companies House reform
According to Companies House, Adolf Tooth Fairy Hitler was apparently the Company Secretary of Spypriest Limited until he resigned on 31 December 2021 and Judas Superadio Iskariot, alongside James Bond, were directors of MI5ER Limited.
Our own forensic team has experience of the sometimes non-sensical information held at Companies House. In one of our cases, a company filed exactly the same accounts at Companies House for four years in a row and the amended accounts were only produced when the Claimant needed them to support a claim.
These situations arise because Companies House has no requirement to check the data it is given, its only job is to act as a repository. However, this is soon to change.
Economic Crime and Corporate Transparency Bill
On 13 October 2022 the Economic Crime and Corporate Transparency Bill (the Bill) received its second reading in the House of Commons. The Bill contains five substantive parts which will look to deliver:
- reforms to Companies House;
- reforms to prevent the abuse of limited partnerships;
- additional powers to seize and recover suspected criminal cryptoassets;
- reforms to give businesses more confidence to share information in order to tackle money laundering and other economic crime; and
- new intelligence gathering powers for law enforcement and removal of nugatory burdens on business.
The aim of the Bill is to continue to target those individuals who abuse the UK’s financial system, to drive out dirty money and strengthen the UK’s reputation as a place where legitimate business can thrive. The Bill follows on from the Economic Crime (Transparency and Enforcement) Act which was passed earlier this year.
Whilst it is not possible in this short article to consider all of the relevant parts of the Bill, we thought it would be useful to consider the suggested reforms to Companies House which Louise Smyth, Companies House Chief Executive, has described as “..the most significant and far-reaching changes to the UK’s companies register in over 170 years of history…” *
Companies House reforms
The reforms to Companies House in the Bill include:
- Introducing identify verification for all new and existing registered company directors, people with significant control (PSCs) and those delivering documents to the Registrar.
- Increasing the Registrar of Companies House’ powers so that the Registrar becomes an active gatekeeper over company creation and custodian of more reliable data. The new powers would include the ability to check, remove or decline information submitted to, or already on, the register.
- Improving the financial information on the register so that it is more reliable, complete and accurate.
- Providing Companies House with more effective investigation and enforcement powers and to allow better cross-checking of data with other public and private sector bodies.
We consider some of the above below.
Identify verification
The introduction of identity verification is a major change in approach. The Bill sets outs that there will be two options for identity verification which will be direct, via Companies House, or through an Authorised Corporate Service Provider (ACSP). The ACSPs would have to register with the Registrar and demonstrate that they are registered with a supervisory body for anti-money laundering purposes.
An individual would not be able to act as a director until their identity has been verified and the company must ensure this. If the identity of the director has not been verified and they act as a director, along with the company failing to ensure they have been verified, then they both will have committed an offence.
The identity verification requirement will also apply to all existing registered company directors, PSCs and those filing with the Registrar. However, there would be a transition period for this process to be undertaken.
It will be interesting to see how long the verification process will take and the potential impact this will have on the speed at which changes to companies can be made.
Company accounts
The Bill also sets out changes for the filing requirements for both small and micro-entity companies. Small companies will be required to file a profit and loss account and a directors’ report, and removes the option for these companies to file abridged accounts. Meanwhile, micro-entities will have to file a profit and loss account.
As a result of this change, it would therefore be possible to obtain key information, such as turnover and profits, for all companies that are listed on the register.
For those who regularly have to analyse publicly available financial statements, it will be useful to have access to further financial information for these companies.
Company ownership
The Bill will also look to improve the information held in regard of company ownership. This will be achieved by introducing:
- a requirement for companies to record the full names of shareholders in their registers; and
- a requirement for certain companies to provide a one-off full shareholder list which would allow Companies House to display shareholder information in a more user-friendly way.
The use of the term ‘full name’ means that if the shareholder was Jane Smith then this would need to be shown, rather than J Smith.
Summary
The changes proposed appear to be a step in the right direction and will certainly improve the quality of the information held by Companies House. Hopefully, this would mean that the same set of accounts could not be filed four years in a row.
The Bill still has a number of further stages to go through before the final wording is agreed and the Bill becomes an Act. It is anticipated that this will happen in spring of 2023. There will also be a need for further secondary legislation to be introduced by the government that various clauses in the Bill provide for.
So, whilst it is clear that change is coming, it is still at an early stage. It will be interesting to see how the Bill evolves in the coming months.
