BEIS has published three consultation papers setting out proposed reforms in relation to increasing the powers of Companies House, improving the financial information which is filed with Companies House and implementing a ban on corporate directors.
These consultations follow the Government’s consultation on options to enhance the role of Companies House and increase the transparency of UK corporate entities in 2019 (see our corporate update 2019/10) and the response it published in September 2020 (see our earlier blog post).
The consultations close on 3 February 2021. The Government says that it will confirm how it intends to proceed later in 2021 and notes that primary legislation will be required to implement most of the proposed changes.
Increasing the powers of Companies House
The Government is proposing a number of reforms to the powers of Companies House, which it says are designed to assist in its wider efforts to tackle economic crime and improve the integrity of information held at Companies House.
The proposals include:
- Power to query information – Companies House would have the power to query information provided to it where there is an identified error, inaccuracy or anomaly which appears to be fraudulent, suspicious or might impact significantly the integrity of the information at Companies House or the UK business environment. It is proposed that Companies House would be able to query information both prior to it accepting information for filing (in which case the document will be rejected) and following registration of a document (in which case, Companies House may remove information from the register if it does not receive a satisfactory response to its query). The consultation paper says that where a filing has legal effect (for example, company incorporations or change of registered office address), removal of that document from the register should be a matter for the court in the majority of cases.
- Company names – Companies House would have the power to query company names, both prior to and following registration of a company name. The consultation paper also discusses possible amendments to The Company, Limited Liability Partnership and Business Names (Sensitive Words and Expressions) Regulations 2014 to widen the list of sensitive words in order to close loopholes identified in the current regime.
- Power to remove information from the register – Companies House would have greater power to remove information from the register. Examples as to how this power may be used are given in relation to registered office changes and the removal of a director’s details.
- Company registers – In its September 2020 response paper, the Government stated that it intends to proceed with the proposal that identity verification must take place before a person can be validly appointed as a company director. In light of this, it is consulting on removing the requirement to keep a register of directors and on whether certain other statutory registers should be maintained.
Financial information filed at Companies House
The Government is proposing a number of measures to improve the quality and value of financial information which is filed at Companies House.
The proposals include:
- Timescale for filing accounts – The consultation paper seeks views on reducing the timescale for filing accounts at Companies House. The Government says that this will improve accuracy as financial information is often significantly out of date before it is filed with Companies House. Views are sought on the impact of shortening the filing deadlines to three months from financial year end for public companies and six months for private companies.
- Digital filing of accounts – Currently certain company accounts may be filed in paper form. The Government is proposing that all accounts should be filed digitally at Companies House.
- Tagging of financial information – The Government is proposing that financial information contained in accounts should be fully tagged, for example using extensible business reporting language (XBRL). As tagged information is computer readable, the Government says that the information can more easily be checked for accuracy and compared. It also says that tagging of accounts should not add significant burdens and notes that HMRC already requires accounts to be submitted to them fully tagged.
- “File once with Government” – The Government notes that many respondents to its 2019 consultation raised the issue of being able to file financial information once and in a way that could be used by multiple Government organisations (for example, HMRC). The consultation paper seeks further views on this.
Ban on corporate directors
The Government is proposing to introduce a ban on corporate directors. Currently only one director on a company’s board must be a real or “natural” person. Any others may be corporate directors, i.e. other companies or legal entities. The Government says that the use of corporate directors can provide a screen behind which to conduct illicit activity and weaken corporate governance by preventing individual accountability.
The power to ban on corporate directors is contained in the Small Business, Enterprise and Employment Act 2015 (see our corporate update 2015/7) but has never been brought into force. The Government is now proposing to use that power.
In the consultation the Government is seeking views on exceptions to the ban. It is proposing to create a principles-based exception to allow a company to be appointed as director if:
- all of its directors are natural persons; and
- those natural person directors are, prior to the corporate director appointment, subject to the Companies House identity verification process.
A company will be required to take all reasonable steps to assure itself that any corporate director has (and continues to have) no corporate directors and confirm this in its annual confirmation statement to Companies House.
The Government says it is also minded to apply the ban to general partners and members of limited partnerships and limited liability partnerships.