• Avinder Laroya

5 considerations for company directors...

5 considerations for company directors following the Consultation to reform the Companies Registry and enhance the transparency of corporate directors in the UK


Who is this article for?


In this article we shall address the 5 key proposed reforms and how these will affect your corporate directorship and future filing of company accounts.


This article provides an update on the UK government consultation to reform the Companies Registry and increase the level of trust and transparency of corporate directors in the UK. This article will be of interest to existing and new company directors, shareholders and persons of significant control.


A discussion paper was published by the UK government in 2013 which reviewed the transparency and trust issues of UK Company ownership. This topic was then revisited in 2019 when the government sought to consult about the reform of the Companies Registry and enhance the transparency of corporate directors to combat the increase of economic crime.


The consultations came to an end on 3 February 2021.


This article will focus on 5 key proposed reforms and how these will affect you in future;


1. Corporate Directors

2. Identity Verification

3. Filing of Accounts

4. Registrar’s Enhanced Powers

5. Dissolved Companies


1. Corporate Directors


The current legislation allows for companies to have any number of corporate directors provided at least one of the directors is a natural person. There are legitimate reasons as to why a company may appoint corporate directors for example to reduce administrative costs and to benefit from the magnitude of knowledge derived from having directors with different professions on the board. The issue is when some companies do so for illegitimate reasons for example to commit economic crime which accounts for almost a third of crime experienced by individuals in the UK. It was also highlighted in the government’s report that the obscurity created by corporate directorships hinders individual accountability hence weakening corporate governance.


The government recognises the benefits of corporate directorships such as the reduction of administration costs and the promotion of joint ventures. As such, instead of fully prohibiting corporate directors, the government seeks to take a more pragmatic approach by implementing legislation based on principle exceptions.


Companies will continue to be appointed as corporate directors if:


a) all their directors are natural persons; and

b) the individual directors behind a corporate directorship have complied with the Companies House identity verification process before any appointment.


Where the corporate director is a Limited Liability Partnership (LLP) or a Limited Partnership (LP), its general partner and designated members will also be subject to identity verification. To preserve the integrity of the legislation’s objectives, cross-border structures/overseas entities appointed as corporate directors to UK companies will also be subject to the same laws i.e. they must appoint natural persons as directors and comply with the Companies House ID verification process. Further information on the Companies House identity process is below.


2. Identity Verification


A digital identity verification process will be introduced early this year which will be integrated into the incorporation and filing procedures to improve the authenticity of information provided on the register and reassure the public that only verified individuals can be listed as company directors.


A director will not be validly appointed to the board unless he/she has undertaken the verification process. Individuals and Anti-Money Laundering entities will have an option to open a verified account with Companies House. If such an individual is then later appointed as a director, they will not be required to undergo an additional identity verification process to validate their appointment. Further information can be found here.


Identity verification of People with Significant Control (PSCs) and Presenters (individuals/firms responsible for filing information at Companies House) will also be mandatory. This verification process will additionally extend to already existing directors and PSCs.


3. Filing of Accounts


According to the Companies Act 2006, company directors are required to prepare and submit a copy of company accounts and reports to the Registrar of Companies each financial year. Public companies are given six months whereas private companies nine months from the end of their accounting reference period to file their accounts. This can either be done digitally or in paper form after which they are published for the public to view, subject to limited checks. These timescales are currently extended due to the current Covid-19 circumstances.


Given the value of the financial information contained in company accounts, the government seeks to improve its integrity and quality to support businesses, financial institutions, and other groups of people that rely on this information to conduct business transactions. The government will therefore be looking to;

a) improve the way information is filed;

b) which information is to be filed; and

c) expand the powers of the registrar


How information is to be filed


The current requirement to submit company accounts is costly to both businesses and to the government. The UK government is reviewing the process to align all systems and procedures to promote efficiency and reduce financial fraud. A centralised system will enable submitted accounts and reports to be shared with all government bodies hence avoiding duplication of efforts.


The government is also considering making Companies House a fully digitalised organisation such that all submissions will only be done online to improve efficiency and enable easy analysis of any submitted documents.


Although the extent to which the submission timescales above will be reduced is unknown, the government is seeking to do so in order to increase the value of the financial information to the people that rely on it and to boost the UK’s economy.


What information is to be filed at Companies House?


The current legislative framework requires company accounts to be filed within the prescribed timescales. In addition to this, the government would like directors to submit a signed declaration confirming that the company meets the legal threshold conditions (regarding turnover, balance sheets, and the number of employees) to file accounts in the regime used. Submission of a false declaration will result in a criminal offence.


4. Registrar’s Enhanced Powers


At present, the Registrar has limited powers to check filed financial information. The government is committed to expanding these powers to enable the Registrar to perform additional checks and remove or question the content of the financial information provided before it is published. The purpose of this is to ensure that published information is coherent, consistent with information submitted to other agencies, and complete in accordance with the legal requirements subject to the size and/or type of the company.


The Registrar will also have the power to share certain non-public information with other parts of the government such as the turnover figure of a small company. It is important to note that in such circumstances, the government will ensure that there are no data protection breaches.


5. Dissolved Companies


Information filed at the Companies House currently remains available to the public for up to six years after the dissolution of a company. To provide the public with a long term picture of the companies’ and directors’ activities, the government intends to extend this period to 20 years. This reform will also work retrospectively and therefore all dissolved records from 2010 will be made available early this year for free and any records dating before 2010 (up to 20 years) will be available at a fee.


Upon expiration of the 20 years, a small selection of records will be transferred to the National Archives as per the National Archives Operational Selection Policy. The Government recognises the importance of the protection of personal data and hence will soon introduce better measures, through the enactment of law, to better protect personal data on the register.


How does this impact you and your business?


The reforms are currently at preliminary stage. For most of the reforms to be implemented, the government will have to enact new legislation. The enactment of legislation is quite a lengthy process and as the government is dealing with the challenges and concerns of post Brexit changes and the Covid-19 impact on the economy, it is likely that the law regarding these reforms will not be passed very soon. Nonetheless, it is important for you to keep informed of the upcoming changes and prepare your company for these changes as the government has made it clear that it intends to implement these reforms sooner than later.


Summary


In order to improve the transparency of corporate directors and accuracy of information filed at Companies House, the government intends to implement new reforms to help combat economic crime and improve public confidence in the information filed at Companies House. Under the new reforms, a corporate company will only be validly appointed as a director if the company directors are all natural persons and the individual directors behind that company comply with the Companies House identity verification process.


Currently businesses have the option to submit company accounts and records to Companies House either digitally or manually. Under the new reform, you will only be permitted to do so online. In addition, company directors will have to provide a written and signed declaration to confirm that submitted accounts have been filed in a manner that meets the legal threshold conditions concerning turnover, the number of employees, and balance sheets. Failure to adhere to the legislative criteria will result in a criminal offence. It is important to remember that the Registrar’s powers will also be expanded to enable them to remove and/or query your company’s accounts before they are published. Dissolved company records will also be held at Companies House for twenty years unlike currently where they are made available to the public for only six years.



Who are Serenity Law LLP?


Serenity Law LLP was founded by Avinder Laroya and Stanley Beckett, to provide agile legal services to business clients . When working with corporate clients on advisory services, the team at Serenity Law aims to provide practical legal advice and guidance.


Contact a member of our team today to book a complimentary 15-minute consultation by clicking here.