October 2019

Business Talk
COMPANIES HOUSE REFORMS –
WHAT YOU NEED TO KNOW...
Total Contractor takes a look at the recent reforms at Companies House and what they
mean for business owners.
The United Kingdom is thought of as being at
the vanguard of the rule of law, good
governance, and best business practice.
However, the registration and administration of
corporates within the UK is behind that of its
overseas rivals. Before the 1844 Joint Stock
Companies Act, companies could only form by
royal charter or act of parliament. However, the
1844 act provided 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.
Of course, being on a public register is one thing,
having recorded information fact checked is quite
another and it surprises 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!
But there’s a move to change this and a
consultation on the subject (just search for
Corporate Transparency and Register Reform on
gov.uk) closed on 5th August.
Government consults
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 and Duncan Swift,
president of insolvency and restructuring trade
body R3, is pleased that progress is being made.
He’s 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 25th April 2018 with measures around
digital tools for company law, including online
registers. As 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.”
It also helps that Companies House has
embarked on a large programme of change to
processing systems; it makes sense to change
things now.
But there is one more benefit, says Peter Windatt,
an accountant and licensed insolvency
practitioner at BRI Business Recovery and
Insolvency – “the government will get the ability
to cross check information across its
departments giving regulators [even] more
opportunity to ensure that data is accurate and
true.”
Systemic abuse
Companies House estimates that the accuracy of
its records is generally between 90% and 99%
accurate. 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.
But there are plenty of other areas ripe for abuse
says Swift and he points out a number: Directors
using multiple versions of their name and/or
different dates of birth to prevent a full picture of
their activities being captured. “This,” he says,
“makes it easier for bad actors and fraudsters to
avoid scrutiny, and to hoodwink other businesses
entering into contracts with them in good faith.”
Other examples he notes are 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 as directors,
and the widespread use of individuals ‘fronting’
for owners or controlling directors.
Windatt, from experience, has seen the same. He
knows that “there are no ‘fuzzy logic’ matching
techniques currently in use which means that
Jon, John, Jonathan, Jonathon, JG and J. G. Smith,
all the same people in reality, are treated as
unique individuals.”
For Richard Naish, a Partner in the Corporate
Department at law firm Walker Morris LLP, any
system that was developed nearly 200 years ago
will be open to abuse and reform is probably due:
“You could say that it has not managed to keep
up with the changes in the way businesses are
run and the complex ownership structures that
are in place.”
The main area to address is the reliability of the
information. Historically, Companies House
simply collates submitted forms and makes
available certain details as required by the
Companies Acts. But, as Naish explains, the
Companies Register is totally dependent on
Directors providing accurate information in the
first place. He says that “there is no way of
20 TC OCTOBER 2019