Introduced in May 2024, the Economic Crime and Corporate Transparency Act (ECCTA) is designed to strengthen the UK's response to economic crime and prevent abuse of UK companies and other entities. Our earlier articles highlight the key reforms introduced under the ECCTA, including updates and additional guidance throughout its implementation. One measure that is now in force is the ability of the Registrar to impose significant fines. This new power supports one of the key aims of the ECCTA of ensuring that the public Registers are more reliable and accurate.
In this briefing, we highlight the changes being made - which underscore this commitment and greatly alter the Registrar's powers - and provide insight into the actions companies should take to ensure compliance.
Note that although we have referred to companies throughout this briefing, the points made are similarly applicable to LLPs.
What are the financial penalties?
Under the Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024 (the Regulations), which came into effect on 2 May this year, the Registrar now has the power to impose civil penalties for committing an offence under the Companies Act 2006 (the Act).
There are nearly 100 sections of the Act that create separate offences (see the guidance note issued by the Crown Prosecution Service for a complete list). The majority of these offences can be committed not only by the company itself but also by its directors and officers. Some of the offences are serious - fraudulent trading, for example - but many relate to administrative oversights such as: failure to keep various registers, or failure to notify the Registrar of changes, either to the company directors etc, or changes to the company's share capital. Until now, the risk of prosecution for these seemingly trivial offences has seemed remote, and the only penalties imposed have related to late filing of accounts.
Under the Regulations, in place of starting a criminal prosecution, the Registrar may impose a financial penalty on a person if satisfied beyond reasonable doubt that they have committed misconduct amounting to a relevant offence under the Act. Depending on the offence, that penalty can be a fixed penalty, a daily rate penalty or a combination of the two and will range from £250 up to a maximum of £10,000 for any offence.
Companies House has published guidance on its approach to enforcement and imposing financial penalties (the Guidance),confirming that it will calculate financial penalties based on the seriousness of the offence and whether there have been previous offences of the same type.
A warning notice must be sent out, giving the person 28 days to make representations and the opportunity to take appropriate action. If at the end of the 28-day period the Registrar is satisfied that a relevant offence has been committed, a penalty notice may be issued; setting out the amount of the penalty, the period for payment and the rights of appeal.
What offences are the penalties likely to apply to?
It is not entirely clear how Companies House will use its new powers, although the guidance does emphasise that Companies House will seek to encourage compliance using guidance and support before resorting to its enforcement powers. However, it certainly seems possible that offences such as late filing of the annual confirmation statement, which until now have gone unpunished, will be met with a standard penalty.
It is also possible that failure to meet other filing deadlines will be more strictly enforced once the requirement for companies to maintain certain statutory registers is replaced (with the exception of the register of members) by a "central" register at Companies House.
As the central register will be the only means of public scrutiny, timely and accurate filing will become of critical importance. Although the filing deadlines should remain the same, for example 14 days to give notice of the appointment or resignation of an officer or change in their details, Companies House will become stricter in its enforcement. There is currently no indication when this change will come into force.
Disqualification for persistent breaches
The increased importance of filing is emphasised by the inclusion of a new ground for disqualification as a director in the Company Directors Disqualification Act 1986. The court may now make a disqualification order where it appears that a person has been 'persistently in default' in relation to provisions of the companies legislation (including both the Act and the Insolvency Act 1986) requiring any return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the Registrar.
Being persistently in default for these purposes requires it to be proved that in the previous five-year period the person has been found guilty (whether or not on the same occasion) of three or more defaults in relation to those provisions.
Accuracy of information
As noted in our briefing last October, ECCTA will limit the range of people who will be able to file on behalf of a company. These changes, which we will report on in more detail in due course, are not expected to come fully into force until Spring 2026. However, it is important for whoever carries out the filing to be satisfied as to the accuracy of the information being filed.
The previous offence under the Act of "knowingly or recklessly" providing false, deceptive or misleading information to Companies House has now been expanded. So, as from 4 March this year, it is a criminal offence for a person to provide such information "without reasonable excuse", with a new aggravated offence of providing such information knowingly.
Additional powers for Companies House
Power to query information
Companies House now has greater powers to query information that appears to be incorrect or inconsistent, and the Registrar may compel the production of information to satisfy a query they have about information delivered to them - including information already on the register.
If a query is raised pre-registration, the filing will be rejected with a reason provided. The company will be able to re-submit the filing, ensuring the query has been addressed and any information required has been supplied.
As regards information that has already been delivered, if there are any discrepancies or the Registrar has cause to question information, then a notice may be sent to a person requiring information, with a time limit within which the company must respond and provide the information requested. If the case escalates to a formal "query" for information and the company does not respond within a 14-day period, this will be a criminal offence with consequences including financial penalty or prosecution.
In theory, this power extends to any discrepancy, however minor, at any time since the company's incorporation. The extent to which Companies House will use this power in practice is not yet clear, although it has confirmed that the power is designed to be used, in particular, where information is identified as potentially fraudulent, suspicious, or might otherwise impact on the integrity of the register or wider business environment.
Power to remove information from the register
In taking steps to clean up the register, Companies House will begin using data matching to identify and remove inaccurate information. When it identifies false, misleading or incorrect information, it will also be able to remove it from the register more quickly than it can currently. This may avoid the need for companies to apply to court for orders to remove duplicated or erroneous material from the register.
Key steps to help aid compliance with the changes
- Make sure there is a process in place for ensuring that information filed at Companies House is accurate and that the individuals responsible for filings are aware of filing requirements and comply with relevant deadlines.
- As formal communications from Companies House will now come via the company's registered email address, the email account must be properly monitored, and there should be a process in place for notifying the appropriate person to deal with any communication.
- Be prepared to respond quickly to requests for additional information from Companies House.
Ensuring companies have a full understanding of the ECCTA and all updates made since its introduction will be key to effectively managing compliance and avoiding penalties in the future. Small mistakes and oversights can lead to potentially costly fines and prosecution, so it's important to identify any areas for further improvement now in order to prevent exposure to risk.
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