Riding the UK Economic Crime Rollercoaster - Companies House Reforms ahead

United KingdomScotland

The UK Government’s position on how it deals with economic crime has been on a rollercoaster journey over the last couple of months, navigating through a dramatic ministerial resignation, the National Crime Agency reportedly being overwhelmed by criminal outfits, and announcements that the Economic Crime Bill was off indefinitely and then back on again - but for the end of this year.

Now the speed of the escalation of the crisis in Ukraine has prompted the UK Government to respond with a variety of measures, including the publication of a white paper on corporate transparency on 28 February 2022 (the White Paper), which sets out reforms to the role of Companies House with the intention of setting a new global standard for corporate transparency.

In this Law-Now we summarise the key proposals and some practical issues for companies and their directors and advisers to consider.

Practical considerations

While the majority of persons doing business in the UK already do so legitimately and transparently, the new rules require proactive steps to be taken by most companies and will impact the structuring and/or timetable considerations in respect of future M&A and private equity transactions, amongst others.

Any person who is currently a director (or equivalent), a PSC or otherwise needs to make filings at Companies House would have to create a verified account with Companies House if and when these new measures were put in place. Given this will affect a large number of people already on the register or who file information at Companies House, it is possible there will be technical issues and/or delays when the system first comes into effect. However, we would think, in line with other new registration requirements introduced in the past, there is likely to be a window of time in which initial registrations can be made without incurring any penalties or being locked out of the system. Those who are not already on the system but who are contemplating being appointed as directors or PSCs in the future should consider creating a new account in advance of such appointment in readiness.

The proposals in the White Paper also suggest that in respect of any existing corporate directorships, the registers would need to be checked to ascertain whether: (a) they meet the new all-natural person board requirement, given that at present a registered entity may have a corporate director which is not a natural person as long as there is at least one other fellow director who is a natural person; and (b) they may need to be replaced if they are non-UK entities, such as those incorporated in the Channel Islands, etc. Private equity sponsors should be particularly aware of these developments, given the large number of companies they tend to control (including portfolio companies and companies embedded in ‘newco stacks’ for tax and finance structuring purposes). Private equity sponsors may need to make a large number of natural person director appointments depending on the extent of their use of corporate directors.

Persons who regularly make filings at Companies House and their advisers would also need to familiarise themselves, once it appears, with the new Companies House guidance on filings or information that may fall within the scope of challenge, types of evidence that would be accepted to clear any challenge and the relevant timeframes in which challenges must be cleared before penalties may kick in.

Businesses and their advisers would also need to factor into any deal or advisory timetables the timing and other practical issues (such as the availability of technology) necessary to (a) obtain a verified account with Companies House for any first time users; and (b) the potential for challenges to company filings, especially if they are time-sensitive in the context of a wider transaction.

Next Steps

The proposals in the White Paper are likely to be put forward later this year in a supplement or additional bill to the Economic Crime Bill, which was introduced to Parliament on an expedited basis on 1 March 2022.

If you would like to discuss any of the above, please contact Emma Clark or your regular CMS contact.