What Changes Are The UK Government Making To Company Law

On 28th February 2022 the UK Government released its White Paper on corporate transparency aiming to prevent money laundering involving overseas countries and there are likely to be major changes.

So…What Are These Changes?

Once in force these reforms may have far-reaching impacts on registered companies in the United Kingdom meaning that companies should provide evidence if they have one or more ‘fully verified natural persons’ on their registers’. It also aims to prevent companies from publishing inconsistent variations of its internal affairs to HMRC and the Company Registrar. To achieve its aims, the Government propose data sharing across government and there is likely to be future clarificatory litigation on this point.

The contemplated reforms will also introduce a cultural change to the Registrar’s roles and responsibilities. They will herald in the most substantial transformation in the Registrar’s powers since the role was introduced in 1844. This apparent shift will involve moving from the current perception of the Registrar as a ‘passive administrator’ and towards a ‘more active gatekeeper’. The Registrar will be able to scrutinise suspicious appointments and filings. It will be able to request further information or reject a submission. The Registrar will also be allowed to disclose its data with interested governmental and private sector agencies. The Government is likely to require data regarding the financial position of companies to be held in the same format as the HMRC already require with a view to easily identifying inconsistencies between in the respective accounts.

The Consultation Document contains further eye-catching proposals such as giving greater powers for Companies House allowing ‘more extensive gateways’ to share data with police, private sector and government bodies. Another measure is the process for identifying phoenix companies as many companies have traded, had court proceedings issued against them and then suddenly disappear. This has been particularly prevalent in employment law claims and the new measures will attempt to make this sharp practice a thing of the past.

Why Are They Being Introduced?

The new measures are being brought into force primarily to avoid the situations as set out in the Government’s White Paper. The Government highlighted the Danske Bank case where the bank shone a spotlight on the part played by faceless registered companies in sending dirty money across the world and the extent of their involvement in illicitly laundering such money. Extraordinarily Danska Bank opened the eyes of the UK Government to the alarming statistic that in over 50 percent of its non-resident portfolio client files there was a strong suspicion of involvement in fraud. There have also been concerns regarding moneys being laundered from countries such as Russia, Azerbaijan, Moldova and Hong Kong.

The company accounts requirements are being introduced following a project involving numerous Government agencies in 2019 which discovered over £15 million worth of fraud by an extraordinary 32,000 companies. Lawyers need to advise companies to avoid committing fraud on the revenue, to take these new measures seriously and compile accurate company accounts. They should be warning clients to limit the number of account discrepancies and advise them that Companies House are searching for patterns indicating fraud and taking robust enforcement action.

The prospective new legislation will make it easier for HMRC to spot discrepancies and take action. Agencies will also be able to share data between themselves. It will be important to ensure that any sensitive commercial or personal data is redacted to ensure that it is outside the public domain. It will be harder for companies to continue acting complacently.

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This Article was Written Using the Following Sources

[1] Callanan, Lord – Corporate Transparency and Register Reform White Paper – February 2022 - Corporate transparency and register reform white paper (publishing.service.gov.uk)

[2] Cross, Michael – Companies to have power to investigate – 1 March 2022 - Companies House to have power to investigate | News | Law Gazette

[3] Companies Act 2006

[4] The United Kingdom’s measures to combat money laundering and terrorist financing – FATF - Documents - Financial Action Task Force (FATF) (fatf-gafi.org)

[5] Corporate Transparency & Register Reform: Government Response

[6] Corporate Transparency & Register Reform: the powers of the Registrar

[7] Corporate Transparency & Register Reform: Implementing the ban on corporate directors

[8] Corporate Transparency & Register Reform: improving the financial information on the register

[9] Economic Plan 2019 to 2022 - Economic Crime Plan, 2019 to 2022, accessible version - GOV.UK (www.gov.uk)

[10] Bruun & Hjeile – Report on the Non-Resident Portfolio at Danske Bank’s Estonian Branch - https://danskebank.com/-/media/danske-bank-com/file-cloud/2018/9/report-on-the-non-resident-portfolio-at-danske-banks-estonian-branch.pdf

[11] The Integrated Review 2021 - The Integrated Review 2021 - GOV.UK (www.gov.uk)

[12] Whewell, Tim – The Great Moldovan bank robbery – 18 June 2015 - The great Moldovan bank robbery - BBC News