Apr 24

New compliance rules for business owners introduced from March 2024

Written by Jon Healey
Head of Corporate and Commercial

DDI: 01423 724606
M: 07892 792461
E: jon.healey@raworths.co.uk

Business directors and shareholders are being urged to review and, if necessary, modernise their corporate compliance as new far-reaching company legislation starts to take effect.

The new Economic Crime and Corporate Transparency Act 2023 (ECCT Act) aims to strengthen the UK’s response to economic crime and increase transparency, but it is already having sweeping effects on businesses across England and Wales.

Jon Healey, Head of Corporate and Commercial at Raworths based in Harrogate, says the ECCT Act will see the first of many new legal requirements come into force from 4 March 2024, including:

• A requirement for a company to always ensure that its registered office is an ‘appropriate address’ – which cannot be a PO Box.
• All companies need to supply a registered email address.
• All companies need to confirm the company is being formed for a lawful purpose on incorporation, and confirm its intended future activities will be lawful on each annual confirmation statement.
• Introducing or expanding a number of corporate offences (including delivering false statements, failure to prevent fraud and aggravated offences).
• Granting Companies House new powers to verify and decline information, and enhanced investigative and enforcement powers to enable cross-checking of data with other public and private sector bodies.

Other changes are set to follow later in 2024, including introducing identity verification for all new and existing company directors, PSC’s and those delivering documents to Companies House (including law firms and accountants). Stiff penalties await any business directors or shareholders who ignore the new directives as Companies House will be responsible for policing the new laws and its powers to investigate have been enhanced.

More information will be available as the various provisions of the ECCT Act come into force but we are already aware of the possible disqualification of directors on the grounds of persistent breaches of the legislation. Businesses and individuals could also face fines if they fail to notify changes in directors, secretaries or “Person with Significant Control” information to Companies House.

The Registrar will also have the power to strike off a company if it has reasonable cause to believe that any information contained in the incorporation application is materially misleading, false or deceptive.  And if a company fails to respond to a direction to change its company name, the company and its directors could face hefty fines, coupled with a daily default of up to one-tenth of the amount for as long as the contravention continues.

There are to be several new offences created by the ECCT Act, including:

• A general false statement offence – it will be an offence for a person to deliver a false, deceptive or misleading filing or statement to Companies House “without reasonable excuse”. When the offence is committed, every officer of the company which is in default also commits the offence. The penalty is an unlimited fine.
• An aggravated false statement offence – it will be a criminal offence for any person to knowingly deliver a false, deceptive or misleading filing or statement to Companies House. Again, every officer of the company in default is deemed accountable. The penalty is imprisonment of up to two years, a fine (or both).
• A failure to prevent fraud offence – this new corporate offence can only be committed by “large organisations”. Such organisations can fall foul of the law if a person associated with the business commits a fraud intending to benefit, directly or indirectly, the organisation. It will not be necessary to prove that a company’s management knew about or ordered the fraud, but there are some defences such as having reasonable “prevention procedures” in place. Any organisation found guilty faces an unlimited fine.

The ECCT Act will have a pretty significant impact on directors, shareholders and companies once its various provisions come into full force; it takes corporate compliance obligations to the next level, including the penalties.

Ultimately the ECCT Act will improve things but it does impose a further burden on businesses, and on the individuals involved with them. Directors, shareholders and company secretaries will be under a personal duty to notify any changes in their details to the company as soon as possible, so that Companies House can then be updated by the company within 14 days of the change occurring. A failure to meet this deadline without a reasonable excuse will mean an offence is committed by the company and every officer, punishable by a fine, and potentially annotated on the public register at Companies House.

All businesses will need to ensure they are compliant but another knock-on effect will be felt in the UK’s transactions’ market when buying or selling businesses.

Jon Healey explained: “When we are looking at buying a company on behalf of a client, we will be looking at its track record of compliance in line with the new laws and will have to be satisfied it is meeting the new standards. If it’s non-compliant then it is something we would be flagging as part of our due diligence and it could delay or even lead to deals falling through.”

“When undertaking due diligence we frequently find that Companies House has not been kept up to date and, in the worst cases, required filings simply don’t exist. This causes impediments to deals and incurs extra costs to get the company’s public register into shape. The new legislation is now the perfect time for companies to get their house in order, cure historic lapses and get to grips with the new regime before Companies House actively comes calling.”

You can find out more about the ECCT Act here

Jon Healey is the Head of Corporate and Commercial at Raworths in Harrogate, North Yorkshire and can be contacted at jon.healey@raworths.co.uk or by calling 01423 566 666.

Published on 2 April 2024