In his latest Coffee Break Briefing webinar, Frettens’ own Insolvency Guru Malcolm Niekirk looked at the new Companies House Reforms and discussed how Insolvency Practitioners can prepare for them.
This is the summary of that briefing.
If you'd like to watch the webinar back, you can do so below, if not, read on for our summary...
Quick Links
- What are the reforms?
- The 'official email address'
- Authorised Corporate Service Providers (ACSPs)
- Statutory account changes
- Director records & appointments
- My Suggestions
What are the Companies House Reforms?
The Economic Crime and Corporate Transparency Act 2023 will make a lot of changes to the Companies Act 2006, particularly in the way that Companies House is regulated and run.
Some of the first changes came into force on 4th March 2024, with more minor changes being made on 1st May 2024. But the big changes are all yet to come and we don't have a timetable for them just yet.
These reforms are being brought in to improve the reliability of information at Companies House and make it harder for fraudsters to use companies registered at Companies House.
My Suggestions
I think insolvency firms should:
- Use a single ‘official’ email address for all companies you administer
- Decide if your firm should register as an ACSP (Authorised Corporate Service Provider)
- Set up procedures to verify ID when you need to when filing
Also watch out for:
- More informative accounts are being phased in
- The record of directors at Companies House will be definitive
- More restrictions on disqualified directors
- More business operating as sole traders and partnerships (perhaps?)
- How the ‘lawful purpose’ statement works
The official email address
Every company will now have to have one.
The registered email address is only for Companies House to use, you don't have to notify it to anybody else and it's probably best practice not to publicise it.
This is already being phased in from March. All new companies since then have had to give Companies House their official email address when they were formed.
Existing companies will have to do so when they file their next confirmation statement (annual return).
The need to change both the registered office of the company and the appropriate email address when you are appointed should be added to your appointment check list.
Procedures for updating the email address
You can update the email address on the Companies House website.
There are some decisions you’ll need to make about your procedures for updating the email address.
- It might be best to use one email address across all companies for which you are responsible (this is allowed).
- You will need to decide whether to use:
- A personal email address; or
- A generic email address (that could go to several people at your firm).
Authorised Corporate Service Providers (ACSPs)
This is not yet in force. ACSPs will effectively be gatekeepers to Companies House through whom companies will be able to file documents.
They are likely to be professional service firms already in the ‘regulated sector’ for anti-money laundering purposes. They will be registered with Companies House and authorised to verify IDs.
IP firms may have to register as an ACSP to continue to file appointment documents etc at Companies House. The detailed rules for that have not yet been published.
Under the new regime, somebody who needs to file at Companies House will have to verify their identity. They can do that directly through Companies House or through an ACSP. In either case they will need an identifying document and a photograph of the person’s face.
If you are registered as an ACSP it may be easier to file post-appointment documents at Companies House (even if it is not essential for you to register). It almost certainly will be easier pre-appointment.
ID verification
As with AML ID checks, you will have to set up procedures to verify ID when filing documents.
You will probably have to keep a record of who at your firm files documents, and their authority to do so.
Look out for more on this as it comes into force.
Changes to statutory accounts
The changes to statutory accounts are being made with the intention of improving the quality of accounting information that is on the Companies House record.
Small companies will have to file complete accounts, including a balance sheet, P&L account and directors’ report. Micro-entities will have to file all that, apart from the directors’ report (which will be optional).
Insolvency practitioners will have better information from the public register about the historic financial performance of the company. That may help you to assess what has gone wrong and why.
It might also help you assess whether there are claims against directors to hold them to account.
Directors’ Records
Every company will have to have at least one verified individual associated with them on the public register.
That person is likely to be a director. Individuals with significant control will also need to be verified.
It will be harder for companies to have corporate directors. Any corporate director must have a human director (i.e. the directors of a corporate director cannot themselves be companies). Corporate directors will have to be incorporated in the UK.
Director Appointments
Currently, a director is so from the moment they are appointed. However, this will change as, once someone is appointed director, they can’t act as one until they are registered. That requires verification of their identity.
Any actions a director takes before they are registered will still be valid. They themselves may be responsible as a de facto director, or a shadow director. That means they are legally responsible for anything they do before registration.
Disqualified Directors
Under the reforms, disqualified directors will be automatically removed rather than having to resign from office.
When a company is formed, the first directors will have to confirm to Companies House that:
- none of them are disqualified; and
- nobody with significant control of the company is disqualified.
Unverified directors are at risk of criminal proceedings and civil penalties. Companies House could refuse to accept documents sent for filing whilst there is an unverified director running the company. There may be consequence with third parties such as banks as they will have their own compliance issues if they do business with unverified companies.
Other ways of doing business
There is a possible unintended consequence of these changes. They might deter people from incorporating companies (or other entities, such as LLPs, to which these reforms will also apply).
Businesses could be deterred by:
- the more complex accounting requirements;
- the more complicated Companies House rules that they have to comply with; or
- the greater risk of fines and penalties that they could face from failing to comply.
As a result of the reforms, we may see more sole traders and unincorporated partnerships. So there might be an increase in trading IVAs, PVAs, partnership administrations, etc.
What is the new ‘lawful purpose’ rule?
When someone wants to form a company, they will have to state that they are forming the company for lawful purposes.
In addition, in every confirmation statement (annual return) the directors will have to say that the intended future activities of the company are lawful.
If a person states that their company exists for lawful purposes, yet they actually have an illicit purpose in mind, their misstatement will be classed as an aggravated offence, with more severe penalties. Also, Companies House will have the power to strike off that company and dissolve it.
My Suggestions
I think insolvency firms should:
- Use a single ‘official’ email address for all companies you administer
- Decide if your firm should register as an ACSP (Authorised Corporate Service Provider)
- Set up procedures to verify ID when you need to when filing
Also watch out for:
- More informative accounts are being phased in
- The record of directors at Companies House will be definitive
- More restrictions on disqualified directors
- More business operating as sole traders and partnerships (perhaps?)
- How the ‘lawful purpose’ statement works
Upcoming events
On 7th June 2024 I’ll be leaving the online space, temporarily, for our third annual Insolvency Conference.
The all-day event will be taking place at the brilliant Balmer Lawn Hotel in Brockenhurst, where I and my colleagues will be talking about ‘dealing with the unexpected’.
We’re set to cover the Companies House changes in more detail, look at businesses of national strategic performance, discuss trading businesses, sales and redundancies and much more.
In case you missed our invitation, you can sign up here.
Specialist Insolvency Solicitors
If you have any questions after reading this article, please don’t hesitate to get in touch with our bright and experienced team.
Call us on 01202 499255, or fill out the form at the top of this page, for a free initial chat.
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