Audit and Technical Partner Leavitt Walmsley Associates Ltd
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Companies House reform: Powers of the registrar

This is the second of three articles examining proposals to reform Companies House to combat economic crime and make the register more useful. In this instalment, Steve Collings looks at the suggestions to reform the powers of the Registrar of Companies.

12th Jan 2021
Audit and Technical Partner Leavitt Walmsley Associates Ltd
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Companies House
Companies House

The government consultation on reforming the powers of the Registrar of Companies (“the registrar” confirms that it is considering amending the registrar’s powers so that the registrar is no longer obliged to accept documents where there is a reason to query any information contained in them.

The proposal cites an example of where the registrar has reason to believe that the use of a registered office may be fraudulent.

The proposals on the registrar’s powers are set out in three chapters:

This consultation is open until 3 February 2021 and details on how to respond to the proposals are contained at the end of this article.

New power to query information

Respondents to the 2019 consultation agreed that Companies House should have more discretion to query information before placing it on the register, and to ask for evidence where considered appropriate.

To this end, the government adopted two basic assumptions:

  • the registrar should have the power to query any information supplied, and any information held on the register; and
  • that it would be disproportionate to propose that the registrar queries every error, anomaly or inaccuracy that is brought to their attention.

The government intends to provide the registrar with a risk-based approach to queries. The sheer amount of information held makes it impossible for the registrar to act on every error, inaccuracy or anomaly.

The general principle proposed is that the registrar will use their querying power where they identify an error, inaccuracy or an anomaly which appears to be fraudulent, suspicious or may impact significantly on the integrity of the register and the UK’s business environment.

The government suggests that the use of a risk-based approach will ensure that resources are used in an efficient, targeted and proportionate way. Information which Companies House generates or receives will be assessed and those cases which, in the registrar’s view, present the biggest risks to the integrity of the register and the quality of information it holds will be prioritised.

The consultation clarifies that this risk-based approach will not just be confined to errors, anomalies or inaccuracies; rather, it will also include circumstances where there is evidence that the information on the register (or submitted to the registrar) may pose a risk to the UK’s reputation as a good place to do business, including the facilitation of crime.

The consultation provides the following example:

Information is received about two companies, ‘A’ and ‘B’, that suggests that both of their records contain inaccurate information. The registrar has received other information about company A that suggests it may be being used to commit fraud, and that this crime is being facilitated by the inaccurate information. There is no other information available about company B to use in a prioritisation decision. In this case, priority will be given to raising a query with company A because (a) there may be inaccurate information on its record and (b) there is evidence that this inaccurate information may lead to public harm.

There are a number of sources which may help Companies House inform querying decisions, including:

  • The registrar’s own knowledge, including information and intelligence derived from proactive analysis by Companies House to identify anomalies, patterns and trends in information
  • Anomalous information submitted to Companies House, such as those submitted under duties set out in the Fifth Money Laundering Directive
  • Information supplies by others including law enforcement, government partners and civil society
  • Data derived from data sharing with other government departments and agencies
  • Monitoring of current affairs
  • Information supplied via direct customer contact with Companies House.

Inevitably, if the registrar raises a query they will receive additional evidence to satisfy that query. The consultation proposes that this evidence will not be published on the public register, but will be held securely by Companies House in line with relevant data protection legislation. However, information may be made available in certain circumstances to law enforcement and other bodies through appropriate data gateways. Such sharing of data will be done in accordance with these gateways and with the relevant data protection legislation.

Reform of registrar’s existing powers

As things stand, the registrar has the power to remove limited categories of information from the register. Generally this data relates to officer appointments for which there is a formal process which the registrar must follow before information can be removed. The registrar cannot, however, remove false information about people with significant control - the individual needs to seek a court order to remove it. This narrow-scope power creates a lot of complaints from stakeholders, including members of the public.

The government proposes to extend the registrar’s powers to cover any non-legal effect document and some legal-effect filings. The process to be followed before information is removed should be reviewed and updated in order to make it more responsive to individual circumstances. The government is therefore seeking views on whether the registrar should have greater powers to remove information together with suggestions for other approaches they could take.

Registered office address

The registrar can, on application, change a company’s registered office address to a default address. There have been instances where a company then reverts to the previous address and current restrictions prevent the registrar from tackling such abuse (even though this sort of abuse is not considered to be widespread). The government proposes to allow the registrar to ask for appropriate evidence when a company subsequently seeks to change its registered office.

In addition, the registrar currently has no power to change an address to the default address without an application (even if the address supplied by the company does not exist). The government proposes to provide the registrar with the power to move a company to the default address where there is evidence that to do so is proportionate and appropriate. There is also a proposal for a 12-month timescale for which a company can remain at the Companies House default address. The government is also considering making it a criminal offence if a company (or other entity) remains at the Companies House default address for longer than 12 months (punishable by imprisonment and/or a fine, a civil penalty, or both).

Removal of director’s details

Sometimes directors have been appointed to companies fraudulently and the individuals have applied to Companies House to have their details removed – only to find that the offending company re-appoints them. The government intends to close this loophole so that if the company attempts to re-appoint the individual, the company will need to provide evidence that the person has consented to act in that capacity. This is also an example of a circumstance in which the registrar may share information with law enforcement.

Speeding up processes

The registrar’s current powers were created at a time when paper filing was primarily the only means by which information could be lodged at Companies House. At present, a company is given 28 days to raise an objection or provide evidence concerning an application for the removal of information. Stakeholders suggest this timescale is now too long and an individual’s details may still remain in the public domain until the 28-day timescale has elapsed. The government therefore proposes to reduce this to 14 days in light of the fact that most information is now provided electronically.

Delivery by electronic means

Section 1068 of Companies Act 2006 Registrar’s requirements as to form, authentication and manner of delivery enables the registrar to require delivery of some specific documents by electronic means only. The power to require documents to be delivered electronically only rests with the secretary of state and s1069 of Companies Act 2006 requires them to make regulations to enact the power.

The government intends to transfer the power to mandate electronic filing from the secretary of state to the registrar as currently the secretary of state is the only person who can draw up the relevant regulations. It is hoped that this change will lead to a proportionate approach in dealing with electronic filing and recognise how the registrar’s role is evolving in response to emerging trends.

Rules governing company registers

Companies are legally required to keep and maintain their own records of certain categories of information. For example:

  • Register of directors
  • Register of members
  • Register of secretaries
  • Register of People with Significant Control (PSC register)
  • Register of directors’ usual residential addresses
  • Register of charges (only those created prior to 6 April 2013).

Company law requires information to be entered into these registers within a set timeframe and then file a notification of a change at Companies House.

As noted in the first article outlining the proposed Companies House reforms, a director would become a director in law only when their identity has been verified and their information has been added on the register. If the reforms are actioned as proposed, the flow-through of the legislation - from the appointment as a director, entry into the company register and subsequent notification to Companies House - will be broken. The new arrangement is likely to propagate discrepancies between the company register and the information held at Companies House.

As a result the government intends to remove the requirement for companies to maintain a register of directors. This concession will save a burden on the company and reduce discrepancies between the register of directors and Companies House.

The register of directors can currently be inspected by members of the company (free of charge) or by the public (for a fee). The government is considering the impact on members’ rights to inspect information within the register of directors and will consider which information should be in the register of directors but not on the public record.

The government is also interested in hearing views on the requirement to keep:

  • Register of secretaries
  • Register of directors’ usual addresses
  • Register of members
  • Register of People with Significant Control
  • Register of charges

Consultation responses

Responses to this consultation are open until 3 February 2021. Responses can be made in three ways:

1. Online at: https://beisgovuk.citizenspace.com/business-frameworks/powers

2. Email to: [email protected]

3. Post to:
Analysis, Company Law and Corporate Transparency Team
Department for Business, Energy and Industrial Strategy
1st Floor, Victoria 1
1 Victoria Street
London
SW1H 0ET

 

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