In March this year, we reported on the Government White Paper that set out comprehensive Companies House reforms to deliver action against global economic crime and improve corporate transparency. These reforms have now created the Economic Crime and Corporate Transparency Bill that is currently making its way through Government and now at the public committee stage.
The key objectives of the Bill are to: strengthen the UK's response to economic crime; prevent abuse of UK companies and other corporate entities, such as limited partnerships; and to increase the reliability and accuracy of information held at Companies House.
In this article, we look at some of the key reforms that will impact Companies House operations and company administration.
Companies House to become an active gatekeeper of company information
The main focus of the Bill is on an overhaul of the powers and role of Companies House. It will be re-branded as an active corporate gatekeeper with powers to check, remove or decline information submitted to, or already on, the Companies House register with its role centred on four main objectives.
Delivering on these objectives will require the Registrar to: (i) ensure that all documents that are required to be delivered are properly delivered; (ii) ensure that the documents delivered contain all the information they are required to contain, and that the information is accurate; (iii) minimise the risk of information on the register creating a false or misleading impression to members of the public; and (iv) minimise the extent to which companies and other firms carry out unlawful activity or facilitate the carrying out by others of unlawful activities.
The Registrar will be given enhanced powers to query suspicious appointments or filings, and will be able to contact companies to request further information. The Registrar will also have powers to reject documents that are not consistent with information held by the Registrar, and documents refused in this way will not be treated as having been delivered.
In addition, the Registrar will have more powers to share and cross-check information with law enforcement and other government bodies for the purposes of preventing economic crime. Previously obligations of confidentiality in this regard would have prevented such actions.
Company names and addresses
The Registrar will have the right to reject the incorporation application of a company. This right applies if the company name could be used to facilitate an offence of dishonesty or deception (including outside the UK), if it suggests a non-existent connection with a foreign government or international institution, or if it contains computer code. The Registrar will also be able to direct a company to change its name if it is considered to fall foul of the above, or if it gives a misleading indication of the company's activities.
Companies will be obliged to ensure that their registered office is an "appropriate address", where it would be expected that any documents delivered would come to the attention of a person acting on behalf of the company and where the delivery is capable of being acknowledged and recorded. The Registrar will have the power to change the registered address if it is satisfied it is not appropriate. Similar obligations will apply to the need to have an "appropriate email address". An offence will be committed by the company and its directors if these obligations are not complied with.
The new Bill, when it comes into force, will oblige all new and existing company directors, persons with significant control (PSCs), members of LLPs and those delivering documents to the Registrar to have their identity verified by Companies House or an authorised corporate service provider.
Directors: A director will not be able to act as such unless and until their identity is verified, and a company will be obliged to ensure that a director does not act until the verification has been completed. All applications to form a company will have to include a statement that the proposed company's directors have verified their identity. If the application does not contain this statement it will be rejected. On appointment, new directors will also have to confirm that they are not disqualified from acting as directors.
Corporate directors must have directors who are all natural persons and their identity must be verified.
PSCs: PSCs will be required to verify their identity within 14 days of being appointed as such. RLEs (relevant legal entities) will have to provide identity verification on their relevant officer within 28 days of the appointed day, together with a statement by that individual confirming that they are the relevant officer. Companies have the option to provide this verification of the PSCs, along with the incorporation documentation, but they do not have to, which means the obligation then passes to the PSC to comply.
Individuals delivering documentation to Companies House: Individuals who deliver documents to the Registrar on their own behalf must have their identities verified. Individuals who deliver documents on behalf of another must have their identity verified. In such circumstances, the relevant document must be accompanied by a statement confirming the individual's verified status and that they have the other person's authority to deliver the document.
The exact process of verification has not yet been confirmed but the Government has issued a factsheet setting out an explanation of the two routes, being direct verification via Companies House or through an Authorised Corporate Service Provider (ASCP). If a person is verifying their identity directly with Companies House, they will take a photograph or scan of their face and of an identifying document, such as a driving licence or passport. The two will be compared, using likeness matching technology, and the identity verified. This process should take minutes to complete.
ASCPs will likely be intermediaries such as accountants, lawyers and company formation agents and must be registered with a supervisory body for anti-money laundering purposes. They will be expected to build on existing due diligence checks they already carry out on clients when carrying out the verification.
Private companies will no longer have the option of maintaining a register of members on the Companies House central register and all companies will have to maintain their own register of members. Companies will be required to register the full name of each of their members, rather than just using an initial letter for example, and further regulations may require all members to provide an address.
Changes being made will abolish the obligation on companies to maintain their own register of directors, directors' residential addresses or PSC register, and these registers will instead be held centrally at Companies House. Companies will be under an obligation to ensure that the information is kept up to date.
Membership information – confirmation statement
Companies will be required to provide a one-off confirmation statement on the first confirmation statement due date after the obligation to maintain a register of members with full names comes into force. For private and other non-traded companies, this confirmation statement must contain the names of each member and the number of shares of each class held by them. For traded companies, it must contain the name and address of each member who holds at least 5% of the issued shares of any class of the company.
Offences and enforcement
Currently it is an offence for a person to "knowingly or recklessly" deliver, or cause to be delivered, a document or statement to the Registrar that is false, deceptive or misleading in a material particular. The Bill will change the emphasis of this so that a false statement offence occurs when a person delivers a false, deceptive or misleading filing "without a reasonable excuse". Breach of this basic offence will lead to a fine. A new aggravated offence will be introduced where a person "knowingly" delivers a misleading, false or deceptive document; the breach of which could lead to a fine and/or imprisonment.
What will happen next?
These changes represent a significant change to the way Companies House operates and how companies will be administered. The commencement dates for these provisions have not yet been confirmed, but a recent blog post from Companies House indicated that the Bill is likely to achieve Royal Assent in the spring of 2023.
If you would like to discuss these changes and how they will impact your business please contact Jeremy Millington, Sharon Ayres or your usual Gowling WLG contact.