Companies House Consultation to Clampdown on Chameleons
We don’t mean that delightful, colour-changing reptiles are taking business decisions in boardrooms (although we can all think of companies where they couldn’t do a worse job).
According to David Pope of Hooyu, an identity verification and investigation company, a Chameleon director is one who has already been disqualified but by slightly altering their name – from Edward to Ed, Edd or Eddy for example – or their date of birth, can change to having a clean directorship.
He said: “Because it’s a government database, too often trading standards or other officers just take it as a fact that Companies House is reliable. But Companies House has no mandate to cross-check data, confirm identities, etc. It’s a real bugbear for them and there’s no diligence.
“There’s a systemic fault in how Companies House was set up. It needs more resources and there needs to be a change in the legislation to stop this happening.”
Additionally out of the 6,700 currently disqualified directors, over 800 or one in eight, still appear to have an active directorship according to the Companies House database.
It’s for this reason and several others, that Companies House have launched a wide-reaching public consultation on corporate transparency and register reform.
The consultation, the most comprehensive since companies legally began registering in 1844, is open until 5 August 2019 and concentrates on four main areas:
- Knowing who’s setting up, managing and controlling companies
- Improving the accuracy and usability of data
- Protecting personal information
- Improving the detection of possible criminal behaviour
Louise Smyth, Chief Executive of Companies House, said: “This package of reforms represents a significant milestone for Companies House as they will enable us to play a greater part in tackling economic crime, protect directors from identity theft and fraud, and improve the accuracy of the register.”
Who goes there?
Identity checks are going to be a big part of the restructure. The consultation proposes “that directors, people with significant control and those filing information should have their identity verified. We’re also considering whether more information should be disclosed about shareholders.”
This is a serious change and it’s surprising that it doesn’t happen already. It means that if any prospective directors of a company are unable to satisfactorily verify their identity then Companies House will not incorporate the company. The small print of the consultation goes further and hints at changing the law so that if a registered company seeks to appoint a person whose identity hasn’t been verified then they will be committing a criminal offence!
The law regarding incorporation is slightly different as the appointment of a director doesn’t take legal effect until Companies House registers the incorporation documents.
Right now, Companies House accepts information and deals with any inaccuracies when they’re notified at a later date. A beefed-up and more aggressive regime will query information before submission and ask for additional evidence at the beginning of the process.
This puts the onus on the company to supply correct, verifiable information in advance rather than having to be chased up once incorporated or having other legal changes take effect.
They will also be able to take a more interventionist position regarding company names by proactively querying them and being able to reject them before they are registered.
They are also looking to work more closely with other government departments and databases including the HMRC to make automated cross referencing easier and improve joint statistical analysis. For instance they will scan company accounts submitted to HMRC and themselves for differences to highlight instances of fraud.
As Louise Smyth intimated, they will be more proactive in tackling other financial crimes such as money laundering. Businesses opening non-UK bank accounts will have to inform Companies House within 14 working days. There will also be a review of the misuse of corporate vehicles and structures.
One example being limited partnerships. Unlike limited companies or limited liability partnerships, limited partnerships can continue to exist even if the partners agree to dissolve it. It will be easier for courts to force them to cease business and shut down if it’s in the public interest to do so.
They will also be taking a closer interest at other possible abuses including the number of companies that can be registered at a single address and more significantly on the number of directorships an individual can hold at any one time with mention of a possible hard cap.
Finally improved methods of data protection and privacy will be considered including carefully managed access to the register with only identified or authorised people allowed to file information and better protection for sensitive information.
The consultation is the first stage in the transformation project which will take years to complete and, of course, their fees are also expected to rise although reassuringly the government insists they will remain very low by international standards.