One of the key aims of the Economic Crime and Corporate Transparency Act 2023 (ECCT Act) is to reform Companies House so it becomes an “active gatekeeper” of the information that it receives and holds, with a new statutory objective to promote the integrity of the register. As detailed in our earlier article, some of these changes have already been introduced, including a new requirement for companies to provide a statement of lawful purposes.
To help deter financial crime, a new civil financial penalty regime has been introduced from 2 May 2024.
This includes new, stronger checks to be run on company names. We summarise the new civil financial penalty regime, and how Companies House will apply its new powers.
New power to impose civil financial penalties
New Regulations will allow Companies House to directly impose financial penalties of up to £10,000 for certain offences under the Companies Act 2006 (CA 2006). Currently, the only civil financial penalty regime available is the late filing penalty regime for overdue annual accounts (which remains unchanged).
The new civil penalty regime will sit alongside the current criminal sanctions. Companies House will have the discretion to choose either to impose a civil financial penalty or to pursue criminal prosecution. However, if Companies House imposes a financial penalty, it cannot then also pursue criminal sanctions for the same offence.
The new civil penalties regime is separate from the current financial penalties for the late filing of annual accounts, which remain unchanged.
Which offences will fall within the scope of the new civil financial penalty regime?
The scope of the new civil penalty regime is broad. Companies House may impose a financial penalty if it is satisfied, beyond reasonable doubt, that the person has engaged in conduct amounting to a “relevant offence” under CA 2006. The “relevant offence”, introduced by Section 1132A, refers to any offence under CA 2006, other than an offence under a provision contained in:
(a) Part 12 (company secretaries);
(b) Part 13 (resolutions and meetings); or
(c) Part 16 (audit).
Companies House is due to publish guidance on how they propose to exercise their new powers, and this will be published before any penalties are issued.
What are the benefits of the new civil financial penalty regime?
Civil financial penalties are a quicker and cheaper alternative to criminal prosecution.
The new regime should help Companies House meet its objective to maintain the integrity of the register and it is hoped that it will also deter misconduct, given the ease of imposing penalties.
The new financial penalty regime is a significant development to enable Companies House to strengthen its response to economic crime.
New power to challenge company names
Since 4 March 2024, companies are restricted from being registered with certain company names including those that, in the opinion of the Secretary of State:
are intended to facilitate an offence that involves dishonesty or deception;
suggest a false or misleading connection with a foreign government or authority; and/ or
consist of, or comprise of, computer code.
This is in addition to existing restrictions in relation to company names, including if a name is the “same as” or “too like” another registered company name.
As part of these new measures, Companies House has confirmed that it has started undertaking stronger checks on company names.
With these stronger checks, company names that do not conform to legislative requirements will not be able to slip through or remain on the register. This is another example of the drive to keep the information on the register accurate. The new powers relate to both to newly submitted information and information already on the register.
How will Companies House and the Secretary of State combat this offence?
The Secretary of State has broad powers to direct companies to change their names within 28 days of notice. Failing which, Companies House can remove a company’s name from the register and replace it. In the absence of an appropriate name, the company would be known only by their company number. Companies House can also suppress a name, including variants, from the register.
If a company ignores directions to change its name, the company, and all of its officers in default, could be guilty of an offence and liable to a fine.
What are the next steps?
These new powers significantly increase the powers of Companies House. They support the objectives of the ECCT Act, which are now in force, and promote the integrity of the register.
As detailed in our earlier briefing note, we expect further changes to be implemented, and we will continue to provide commentary and updates on the measures introduced by the ECCT Act.
In the meantime, if you have any questions in relation to the ECCT Act, please contact Partner George Frier or Trainee Solicitor Evie Dransfield.