Companies House, the ECCTA 2023 and new criminal sanctions

In what is being described by Companies House CEO Louise Smyth as “the most significant change for Companies House in our 180-year history”, Monday 4 March 2024 saw the first measures under the Economic Crime and Corporate Transparency Act 2023 (ECCTA 2023) come into force.

The ECCTA 2023 introduces robust new laws to fight corruption, money laundering and fraud, and consequently boost confidence in the UK economy. Significantly, Registrars of Companies for England, Wales, Scotland and Northern Ireland now have a duty to promote new statutory objectives when performing their functions, including an objective to prevent companies from carrying out unlawful activities or facilitating others to carry out unlawful activities.

A priority is to crackdown on the misuse of the companies register, and make it quicker and easier to report and remove personal information that has been misused. Other new powers, such as identity verification and accounts reform, will be gradually phased in to minimise disruption for legitimate businesses.

Changes

The changes introduced so far include:

• greater power to scrutinise, challenge and reject information received (for example, by requesting supporting evidence) on incorporation and retrospectively;
• more stringent checks on company names;
• stricter rules for registered office addresses (for example, it will no longer be possible for a company to list a PO Box as their registered office address);
• a requirement for all companies to provide an appropriate email address;
• a requirement for subscribers to confirm that they are forming a company for a lawful purpose on incorporation;
• a requirement for a company to confirm its intended future activities will be lawful on its confirmation statement;
• greater power to remove factually inaccurate or misleading information; and
• the ability to share data with other government departments and law enforcement agencies, such as the police and the Serious Fraud Office.

Underlining these changes is a marked increase in enforcement powers and the introduction of new criminal offences.

Enforcement and updated criminal offences

The ECCTA 2023 introduces new criminal offences and expands and/or amends many existing requirements and sanctions.

For example, prior to the ECCTA 2023 coming into force, if a company was in default of its obligation to keep up to date a register of members (pursuant to Section 113 of the Companies Act 2006) then it (and every company officer in default) may be liable on summary conviction to a fine not exceeding level 3 (ie, £1,000). Since the ECCTA 2023 has come into force, the duties under Section 113 of the Companies Act have been expanded so that, among other things, any new member of a company is now required to provide certain, more detailed, information to the company, and within a time limit. Should a person, ‘without reasonable excuse’, fail to comply with these requirements, they may be found guilty of an offence and conviction on indictment, face imprisonment for a term of up to 2 years and a fine. If a company commits an offence, it is also committed by every officer of the firm in default.

Section 102 ECCTA 2023 provides that shareholders found guilty of new offences in respect of providing false statements to Companies House, without a reasonable excuse, face a fine. If done so knowingly, a person found guilty on indictment faces up to 2 years imprisonment and a fine. Similarly, the Act gives the Secretary of State future powers to require ‘corporate service providers’ to provide information to Companies House, and those who fail to respond to such requests face up to 2 years imprisonment and/or a fine.

Outside of the Companies Act, the ECCTA 2023 amends the Limited Partnerships Act 1907 (LPA 1907) to also grant powers to HM Revenue and Customs to give notice to members of an LLP to deliver up accounts. If partners fail to comply with such a notice, they may be guilty of an offence, and on conviction on indictment, face imprisonment for 2 years and a fine. Similarly, the ECCTA 2023 introduces a ‘false statements’ offence into the LPA 1907, whereby those convicted of the new aggravated offence (Section 35 of the LPA 1907) now face a custodial sentence of up to 2 years and a fine.

From May, the Registrar will have the power to directly impose financial penalties of up to £10,000 as an alternative to criminal sanctions, if satisfied beyond reasonable doubt that a person has engaged in conduct that amounts to an offence under the Companies Act 2006.

Finally, the ECCTA 2023 grants the Secretary of State powers to make further regulations to cover matters such as:

• the provision of information for verification of an individual’s identity; and
• imposing requirements on companies to obtain specific information about a customer (or prospective customer).

Defaults by companies or individuals under such regulations may be punishable by imprisonment for a term of 2 years and/or a fine.

Comment

One of the main intentions of the ECCTA 2023 is to fight economic crime. Major reform of Companies House is central to this intention.

It has long been known that Companies House has a significant weak spot in its limited power to scrutinise or verify the information it receives, causing it to be vulnerable to criminal activity. These changes mark a significant shift in the role of Companies House, from passive record keeper, to active gatekeeper with expansive oversight.

The scale of these changes means that it will likely take some time before the effects, which are likely to be substantial, are fully realised.