Following on from commenting on developments regarding the Economic Crime Bill, Sophie Pilcher considers what further measures are being proposed and their likely impact on companies within the public sector.
Companies House have made it clear they are working to make sure the Register of Overseas Entities is implemented as soon as possible after Economic Crime Bill receives Royal Assent. On 15 March 2022 The Bill received Royal Assent to become the Economic Crime (Transparency and Enforcement) Act 2022 (the Act). Although now law, the Act is not yet in effect. The Government will need to make an order to bring its operative provisions into force. It is uncertain when this will be done as the regime cannot be implemented until Companies House has the new Register of Overseas Entities up and running.
The Register of Overseas Entities will apply retrospectively to property bought by overseas owners up to 20 years ago in England and Wales and since December 2014 in Scotland. The new register will be held by Companies House, with support from the UK’s Land Registries. Individual directors and people with significant control (PSCs) of companies, as well as those who present information for filing at Companies House, will have to verify their identities under UK government plans published on 28 February 2022.Verification Requirements
It is proposed that all entities registered at Companies House will need to have at least one fully verified natural person linked to them. The verification process would likely require a natural person to upload an identifying photograph, together with an identification document. A digital comparison would then verify a match between the photograph and the document and create a verified account. The verification process would only need to be completed once.
The requirement to create a verified account with Companies House would apply to any new or existing company director (or the equivalent in respect of any other registrable entities, such as members of a limited liability partnership (LLP) or the general partner of a limited partnership (LP)), persons with significant control (PSCs) and anyone who needed to be able to file information in respect of such entities at Companies House.
Directors (or their equivalents) must already be registered at Companies House within a certain time period following appointment. Under the proposals, the Registrar would be able to refuse to register them at all unless they had created a verified account. PSCs would also be asked to open a verified account, but Companies House will not refuse to register the PSC without a verified account, instead marking the PSC as “unverified”.
The White Paper indicates that certain restrictions and identity verification requirements would also be imposed on corporate directors, including a requirement that all directors of any corporate director must be natural persons, each of whom would also be subject to an appropriate identity verification process. Appointments of corporate directorships would also be restricted to entities registered in the UK.
For now, it is proposed that corporate members of LLPs and corporate general partners of LPs would simply need to provide details of their directors or nominate a managing officer whose identity must be verified. The White Paper says that further restrictions on the use of corporate members in these contexts may be imposed if necessary to “mitigate the risk of misuse without affecting the legitimate use of these structures”. However, it will be a requirement to have at least one designated member who is a natural person to successfully register an LLP.
Failure by directors (or their equivalents) or PSCs to comply with identity verification requirements within the requisite time would result in the relevant person having committed a criminal offence and potentially being liable to civil penalty. A company that is directed by an unverified director would also have committed an offence, although a defence would be available if the director was unable to verify their identity due to a technical failure at Companies House.Practical considerations and implications for public sector companies
Any person who is currently a director, 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. Companies owned by the public sector will also need to comply. 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. Corporate directorships are not common in local authority companies, but are sometimes utilised where a local authority is the sole trustee of a charitable company. Local authorities that adopt these arrangements therefore need to consider whether they will be affected.
Persons who regularly make filings at Companies House and their advisers would also need to familiarise themselves with the new Companies House guidance (once issued) 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 timetables the timing and other practical issues necessary to (a) obtain a verified account with Companies House for any first time users; and (b) the potential for challenges to company filings. Local Authorities could consider having a ‘point person’ who can familiarise themselves with the new filing requirements, understand timetables and file the necessary information to avoid unnecessary holdups or challenges when the Government orders the provisions into force.
Sophie Pilcher is a Solicitor at Sharpe Pritchard LLP.
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