EXECUTIVE REPORT
Greater transparency
The kind of information provided by Companies House might be changing to make it more reliable. Adam Bernstein reports.
Before the 1844 Joint Stock Companies Act, companies could only form by royal charter or act of parliament. However, the 1844 Act allowed for firms to be incorporated, so long as they were recorded on a public register - Companies House, where the public could understand the entities they were dealing with.
It may come as a surprise to many that Companies House is merely a repository for what is lodged with it. It only checks that returns are made on time and appropriate fees are paid. Other than that, to an extent, directors and companies can post whatever they like. And some do! However, there is a move to change this, and a consultation on the subject (just search for Corporate Transparency and Register Reform on
gov.uk) was held earlier this year.
Jason Piper, Policy Lead, Tax and Business Law at the ACCA, an accounting professional body, says that there is widespread concern about abuse of corporate structures, “whether through the kinds of wrongdoing highlighted by the Panama Papers, or in large scale money laundering operations.”
Accountancy is one side of the corporate story; insolvency is the other. Duncan Swift, President of the insolvency and restructuring trade body, R3, is pleased that progress is being made. He is bothered by the “difficulty of tracking beneficial ownership and money flows through opaque corporates.”
There is also pressure from Europe for change in the form of proposals in the EU Company Law Package of 25 April 2018, with measures concerning digital tools for company law, including online registers. As Jason Piper points out, “In other EU countries the registries only include checked and verified information which can be relied upon as a matter of law; this hasn’t been the case in the UK.”
Systemic abuse
Law enforcement and journalists have shown that certain structures are very attractive to criminals and are easy to abuse. Consider the example of John Vincent Cable Services Ltd, incorporated in 2013. It listed the then business secretary Vince Cable, former Liberal Democrat leader, as a director and shareholder - without his knowledge. Duncan Swift believes other areas are ripe for abuse: UK companies with only overseas registered corporates registered as directors; beneficial owners ‘parking’ unlawfully obtained personal assets into UK companies with friends or underage children named
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as directors; and the widespread use of individuals ‘fronting’ for owners or controlling directors.
Peter Windatt, an accountant and licensed insolvency practitioner at BRI Business Recovery and Insolvency, knows from experience that “there are no ‘fuzzy logic’ matching techniques currently in use, meaning that Jon, John, Jonathan, Jonathon, JG and J. G. Smith, all the same people in reality, are treated as unique individuals.”
Companies House helps people understand the entities they deal with.
Of all the proposals, the biggest relates to the identification and verification of directors and Persons of Significant Control (PSC) and of those filing information on their behalf. Richard Naish, a partner in the Corporate Department at law firm Walker Morris LLP, thinks that the proposal to extend the powers of Companies House to seek corroboration of data before it is entered on the register “is good and should give people looking at the information available greater comfort that it can be substantiated.”
Jason Piper believes that “the suite of measures in the consultation go a long way towards making it much harder for the criminals, without in most cases imposing a significant burden on directors, businesses or their agents.”
Similarly, Richard Naish believes that “any new requirements will quickly become the norm, just like the introduction of the confirmation statement and PSC register.” In the meantime, he advises users of Companies House to contact a company directly to check the accuracy of a filing.
Peter Windatt suggests that, if he were making background enquiries on a company, he would look at other material available, and “check that the names, postcodes, company numbers etc. were consistent.” He would like Companies House to use a unique director ID number so that “a director with many fingers in many pies can more easily be identified with a higher degree of confidence, along with a list of their many and various interests.”
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