The Economic Crime and Corporate Transparency Bill (ECCT Bill) which contains, among other things, draft amendments to the Companies Act 2006 to facilitate the reform of Companies House, has reached the final stages of its progress through Parliament. It is next scheduled to be debated on 18 October 2023, and is expected to become law shortly thereafter.
The ECCT Bill follows an initial consultation in 2019, three follow-up consultations in 2020 and the white paper containing the Government's final plans for reform published in February this year (read more in our blog post here).
Even once it has received Royal Assent, most of the provisions of the ECCT Bill will not be brought into force immediately, as both Companies House and companies themselves will need time to prepare for the changes ahead.
The key areas of interest for corporates in the ECCT Bill, which covers a broad range of topics, are summarised below.
Enhanced role and greater powers for Companies House
The reforms will result in the biggest change in the role of Companies House since it was created in 1884, turning it from a largely passive recipient of information to a much more active gatekeeper. Under the draft Companies Act provisions in the ECCT Bill, Companies House will:
- Power to query information – be given the power to query any filings (including company names) that appear to be erroneous, anomalous or suspicious, and which may impact the integrity of the register or the wider business environment. It will also have the power to request further evidence and/or to reject filings;
- Power to remove information from the register – have power to remove material from the register more swiftly and in wider circumstances than is currently the case; and
- Digital filing of information – be able to require all information to be filed electronically.
A number of changes are also being made in relation to the administration of companies, such as company registers and how companies communicate with Companies House. An easy reference snapshot of the Companies House reform proposals can be found here.
Identity verification requirements will be introduced for all new and existing company directors (and equivalents for other entities), people with significant control (PSCs) and those filing information with Companies House. UK company formation agents that register with Companies House will be able to conduct these checks.
The ECCT Bill also contains provisions introducing registration and transparency requirements for limited partnerships. The proposals follow reforms proposed by the government to UK limited partnership law in April 2018 to strengthen the legal framework and limit the risk of limited partnerships being used for illicit activities (see our corporate update 2018/9).
Corporate criminal liability
The government is also using the ECCT Bill to significantly reform corporate criminal liability in two ways. It will:
- Identification principle – amend the "identification" principle for certain economic crimes. The government's intention is to make it easier to prosecute companies and partnerships for economic crime offences. Currently, a company may be criminally liable for the acts of its officers or employees. However, under the "identification" principle, for many offences – including fraud – that will only be the case if a prosecutor can identify an individual(s) whose conduct, and state of mind, can be attributed to the company, such that they represent the company's "directing mind and will". The ECCT Bill will impose criminal liability on body corporates and partnerships for economic crime offences committed by their "senior managers" (read more in our blog post here); and
- Failure to prevent fraud – introduce a new strict liability offence of failure to prevent fraud for large corporates, LLPs and partnerships (including those incorporated outside the UK). An organisation will be liable under the new provisions if a fraud offence is committed by an employee, agent or subsidiary and it did not have reasonable fraud prevention procedures in place (read more in our blog post here).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.