The reforms would see a complete overhaul of the register, the most ambitious since a register was first introduced in 1844, going to the core of the Companies Act 2006.

The aim of the wide-ranging proposals, set out in detail in an 80-page consultation document, is to limit the risk of fraud and misuse of information, by widening the information companies are required to disclose, increasing the checks on this information,  and introducing measures to improve the exchange of intelligence between Companies House, HMRC and UK law enforcement bodies.

The consultation seeks views on a series of reforms to limit the risk of misuse under four broad headings: increased information about who is setting up, managing and controlling companies; improving the accuracy and usability of data on the companies register; protecting personal information on the register; and ensuring compliance, sharing intelligence and other measures to deter abuse of corporate entities.

Identity checks

The government proposes that individuals who have a key role in companies should have their identity verified. This would apply to company officers (directors), people with significant control (PSCs) and those filing information.

The consultation also considers whether more information should be disclosed about shareholders, including possible identity verification. The government is seeking views on whether this should apply to all companies, or, as it proposes, that identity verification undertaken by third parties under customer due diligence obligations can be accepted without requiring a duplicate check.

However, the consultation proposes that if, on incorporation, any of the prospective directors of a company are unable to verify their identity then Companies House will not incorporate the company. For individuals looking to be appointed as a director to an existing company the government proposes to amend the law to make an appointment of a director conditional on the director being able to verify their identity, and is to consider how the proposals will extend to corporate directors.

To support the proposals to mandate identity checks for directors, the government proposes to amend the law so that when a registered company purports to appoint a person whose identity has not been verified, an offence will be committed. The situation at incorporation stage is different, as the appointment of the director is not given legal effect until Companies House registers the incorporation documents.

In the consultation, the government argues for extending the powers of Companies House, to better ensure the accuracy and reliability of information on the register. This would mean moving away from its traditional role of accepting information and dealing with inaccuracies when notified at a later date, towards a more proactive approach of querying information before it is registered.

Companies House would also have the power to ask for further evidence, where appropriate. Examples would include instances where a company files information that represents a significant change from its previous status, such as a significant increase in share capital, this may be queried;  where a company claims an exemption from filing full accounts, Companies House might request proof that the company is entitled to the exemption; and where a company uses a registered address, Companies House might seek confirmation of the right to use that address.

An increasing number of complaints are being made from third parties about inaccurate information which has been filed on the register by a company (for example, that a company has falsely claimed that their annual accounts had been audited by well-known audit firms and that individuals had been fraudulently appointed), and it is not always possible for Companies House to take effective action. 

The government intends that where an application to remove information is made by a third party in respect of information filed by a company, that company should have to provide some rationale and evidence to support any objection.

Annual accounts

The government proposes introducing a more uniform format for the submission of accounts to allow for automated checks and improved statistical analysis on accounts. This would include implementation of minimum iXBRL tagging standards to ensure that key financial information is easily identifiable.

The consultation also sets out actions designed to address a known issue that has been exploited to delay submission of accounts.

Section 392 of the Companies Act 2006 allows a company to change its accounting reference date, which it can do by giving notice to shorten its accounting reference period. When that period is shortened, section 442 then allows the company a further three months, from the date of the notice, to comply with its obligation under section 441 to deliver its accounts to the registrar.

The extended period to deliver copy accounts to Companies House was designed to prevent a situation where shortening an accounting reference period resulted in late delivery and the directors being in immediate default.

Companies House has identified that the shortening of accounting reference periods is being abused. Some companies are using these provisions multiple times, reducing their accounting period by one day, in order to gain additional time to file their accounts. Misuse of this mechanism results in no financial information being available for companies over an extended period. This may be an indication that a company is experiencing financial difficulties or has some other reason to conceal the extent of its assets and liabilities.

Companies House is currently undertaking an exercise with HMRC to explore the differences in company accounts that are submitted to each. This will evidence the extent to which the financial information published by Companies House presents an accurate picture of companies’ financial position. It may also identify instances of potentially fraudulent activity.

Additional measures

The government wants to see the exchange of intelligence made easier in order to enable greater sophistication in identifying possible criminal behaviour. This will lead to faster identification of anomalies between data at Companies House and elsewhere. It will deliver more effective linking between different company records on the register and provide people searching the register with faster access to better information.

In a bid to support efforts to tackle money laundering, among other concerns, the government is also considering whether there should be a new filing requirement for a UK company to notify Companies House within 14 days of a non-UK bank account being opened for the company.

The company would be required to give certain details about the relevant bank account: the name of the bank; the address of the branch (where applicable) and the account number. Full bank account information would not be made publicly available on the register, but these details would be available to law enforcement on request.

Another proposal is designed to strengthen existing measures to prevent the misuse of limited partnerships, by providing a new process through which the court can ensure a limited partnership no longer carries on business where it is in the public interest to do so.

Limited partnerships are fundamentally different to corporate structures including limited companies and limited liability partnerships. Limited partnerships can continue to exist once the partners have decided to dissolve the limited partnership, eg, the limited partnership may proceed to be wound-up.

Any new process would need to recognise these differences so that, where a court determines it is in the public interest to ensure a limited partnership no longer carries on business, this can be exercised in practice and the companies register (which holds information on UK limited partnerships) annotated accordingly, which might include being struck off the register.

In addition, the government is considering the introduction of a cap on the number of directorships that an individual may hold concurrently. As with the issue of multiple companies at a single address, an alternative solution is to link multiple directorships and flag this information to law enforcement partners.

The government has received some complaints that Companies House should do more to reject company names before they are registered. It is therefore considering a change of approach which would provide Companies House with further powers to query and possibly reject applications to use a company name in advance of registration.

Implementation

The consultation acknowledges that a new operating model will be needed to deliver these new responsibilities, requiring new digital technologies and process capabilities, and new skills requirements. The government acknowledges that current systems are not fit for purpose and a major upgrade of Companies House systems is needed as they have not been significantly redeveloped in the last 10 years.

Current systems are not fit for purpose and a major upgrade of Companies House systems is needed as they have not been significantly redeveloped in the last 10 years

As a result, Companies House will go through a major transformation in the next few years. This transformation programme will affect every aspect of Companies House’s work, covering both customer-facing and internal digital systems. The programme will entirely redesign its digital services and align its culture with new ways of working and new roles.

The consultation points out that this requirement, and the need for a programme of systems and staffing transformation at Companies House, will mean that any reforms will take some years to deliver, and will also require primary legislation to enact.

There will be an impact on the fees levied by Companies House, though the government says it fully expects them to remain very low by international standards.

Business minister Kelly Tolhurst said: ‘The reforms will support the fight against the use of dirty money in the UK and enhance the protections for entrepreneurs and directors from criminal activity.

‘Knowing that a company’s information is accurate and transparent is a fundamental part of a leading business environment – giving entrepreneurs and businesses the confidence they need to do business in the UK.’

Louise Smyth, chief executive of Companies House, said: ‘This package of reforms represents a significant milestone for Companies House as they will enable us to play a greater part in tackling economic crime, protect directors from identity theft and fraud, and improve the accuracy of the register.’

The consultation closes on 5 August 2019.

Companies House consultation: Corporate transparency and register reform

By Pat Sweet