23: New corporate transparency and register reform consultations – impact on charities
As noted in last week’s blog, BEIS launched three consultations last month as the next stage in forthcoming significant reforms of the companies register and registrar’s powers.
The consultations are:
- Implementing the ban on corporate directors – seeking views on a new set of principles to limit corporate director appointments;
- Improving the quality and value of financial information on the UK companies register – seeking views on how to improve the quality and value of financial information available on the UK companies register; and
- Powers of the registrar – seeking views on new powers for Companies House to query, remove and amend information on the public register.
All three consultations contain proposals which will affect charities which are companies or which have companies within their structures. Any such charities should consider whether they wish to input in to the consultation process, either directly or via a wider sector response, to help ‘charity-proof’ the proposals. We will be submitting a response.
Implementing the ban on corporate directors
A proposal to ban corporate directors was made way back in 2014. It was put into law (in the Companies Act 2006) but has yet to be implemented. The government now proposes to do so as part of the overall company reforms.
Will any exception to the ban on corporate directors be allowed?
It is proposed that a ‘principles-based’ exception to the ban be allowed, so that a corporate director of a company may still be appointed if:
- all of its directors are natural persons (ie individuals); and
- those natural person directors are, prior to the corporate director appointment, subject to the new Companies House identity verification process which is to be introduced as part of the reforms.
Does this mean we’ll need to restructure?
It is important to note that, on current proposals, the exception to the ban on corporate directors will only apply to the appointment of a company as a corporate director, not other corporate forms.
The consultation does propose permitting equivalent overseas entities and considers the possibility of allowing the appointment of LLPs or LPs, in all cases subject to compliance with the principles above.
However, this means that other UK corporate entities, such as Royal Charter corporations, statutory corporations, local authorities, NHS Foundation trusts and CIOs, would no longer be permitted to be corporate directors.
The consultation (and accompanying Impact Assessment) appears to assume that restricting the exception to companies will cause no difficulties because of ‘the ease of company registration’. However, a quick search of the Companies House register readily produces results showing other corporate entities acting as company directors. If the ban goes through as currently proposed, any such arrangements will be required to restructure.
The consultation poses no question on this point, so it might easily be missed. It is important, therefore, for any charities (and indeed non-charities) which may be adversely affected by the proposal to input into the consultation process. It is also worth noting that the ban may be extended more widely, applying equivalent principles to LLPs and LPs.
Improving the quality and value of financial information on the UK companies register
This consultation makes proposals on how financial information is submitted to Companies House, when it is submitted, what information should be submitted and how the information should be displayed on the Companies House website.
Among the proposals are:
- to require digital submission of company accounts in a machine-readable format, with full i-XBRL tagging;
- to shorten the deadline for delivery of accounts to Companies House by three months;
- to consider requiring additional information to be filed; and
- to require the directors to certify the company’s eligibility for the form of accounts adopted and to disclose the relevant threshold conditions.
The consultation assumes that these changes should not impose any significant burden on the companies concerned.
The proposals aim to increase transparency and to enable more checks and analysis of company accounting information. They arise in part from concerns that some companies file dormant or micro-company accounts when they do not qualify to do so. Even where companies do qualify, the consultation raises questions over whether there is a minimum level of financial information which companies should be required to file and publish at Companies House in exchange for the protection of limited liability.
At the same time Companies House wants to enhance the user experience, making it easier for more key information to be gleaned from the company overview page, without needing to go into the full accounts. Of course, there can be pros and cons to such an approach – the information is readily obtainable but is seen out of context, which could be misleading.
Behind the moves is also an aim of greater efficiency, both for Companies House and for companies. With this in mind, some of the proposals are geared towards greater harmonising of filing processes across government, with a view to moving to a ‘file once with government’ approach. However, the consultation is upfront that any such full alignment ‘would require fundamental changes in tax and company legislation, the challenge of which should not be underestimated’. The initial proposals are aimed at gaining greater harmonisation with the submission of financial information to HMRC.
Powers of the registrar
As part of the reforms, the companies registrar will take on much more of a regulatory role. As such, it is proposed that the registrar will be given new and / or enhanced powers, some of which are considered in this third consultation.
New power to query information – before or after registration
The proposals include that the registrar be give a new power to query information, both pre-registration and information that is already registered, rather than being required to accept and register filings which are submitted validly.
The consultation proposes that a query raised on a document before registration will result in the rejection of the document. This could be important if a deadline is a looming.
Where the information is already registered, the query will mean that the document will be removed from the register if the registrar receives no response, or no satisfactory response, to the query within the set time period, which is proposed to be 14 days. There may also be a new offence of failure to respond to a registrar’s query.
The consultation does seek to offer reassurance, however, that the ‘vast majority of incorporations and filings will be unaffected’.
Power to query company names
The power would include raising queries on company names. Potentially, that could be useful – there have been cases where charities have had to apply to the Company Names Adjudicator to object where someone has registered a company using their name. That process can work successfully, but has some drawbacks. However, any effective transfer of some or all of that process to the registrar would need to have sufficient safeguards, and a proper process, in place.
Reforming existing registrar powers
It is also proposed to widen the registrar’s powers to remove information from the companies register. These proposals seem to be aimed at rectification to ensure an accurate register, but more details are to follow in a later consultation.
The consultation also proposes wider powers to rectify the registered office address.
Overall, there is a push towards electronic filing, so the registrar would be given power to mandate which filings must be made by electronic means.
Proposed changes to the statutory registers
Under the reform proposals, all directors (among others) will have to be verified through new processes to be introduced by Companies House. As a result, the public register will become the ‘single, verified source of information with respect to directors’ and the consultation proposes removing the requirement for companies to maintain a register of directors.
It also seeks views on the other statutory registers (Secretaries, Directors’ usual addresses, Members, PSCs, Charges).
Finally, it asks about the usefulness (or otherwise) of the election regime for registers, where a company can elect to hold information normally kept in the company’s statutory registers on the public register. This option was introduced with the intention of avoiding the duplication of maintaining both the company registers and the company’s entries on the public register. In practice, it has the drawback that information held in the statutory books which would not normally be published (such as a director’s full date of birth) appears on the public register.
The full reforms will require primary legislation, as well as confirmation of further central funding. These are likely to be forthcoming, but will take time, so are not imminent. However, in the meantime, the responses to these consultations will inform the design of the framework of the reforms.
Charities which may be affected by the proposals in any of the consultations should consider responding and/or feeding their comments through a sector response. As noted above, we will be responding to the consultations – please feel free to contact us (by 29 January 2021 please) with any comments or concerns which we can take into account in our response.