I did a search of Companies House this morning. I found 100 companies with Covid in their name. The vast majority have been formed in the last month or so.
Let's be clear that all of these might be genuine businesses that are adopting what might be called an unusual marketing approach. Of course, I cannot know.
And there is good reason for that. We demand almost no information from those who are forming companies in the UK so that those who are managing them can be properly identified. Nor do we have any clue what these businesses actually intend to do. And we do not know when or if they trade. Whilst we also do not really know what resources they can command to ensure their viability of they do trade.
What is more we will learn very little more if and when they trade, because the accounts that a small company is required to file on public record are almost wholly meaningless - and include no profit or loss or tax paid data at all.
It is my suggestion that this is not good enough. It's a point I have been making for a long time. But I will reiterate what we need to address this issue. It is the following:
- All companies must disclose their entire beneficial ownership on public record, with this having been verified by Companies House;
- All directors of the company must have their details published and verified by Companies House;
- All companies must have a statement of purpose published on line, saying what their intended trade is;
- The place of trade must be published if not the registered office address;
- If the company has a website the details of this should be published;
- An email contact address must be supplied for all companies;
- When a company starts trading this must be notified on public record;
- The full accounts all companies - and not the abbreviated abominations now filed - must be available on public record, and those accounts must address issues including:
- Directors' pay;
- Taxes due and paid, including deferred tax;
- Trading with parties related to the company, its owners and directors;
- Its bank facilities;
- Its plan to be sustainable.
- All this data must be kept up to date as changes happened, whilst accounts should be filed within six and not ten months of the year-end date.
We cannot afford the uncertainties that current company law creates in the UK.
That is especially true now.
But what we also need is a regulator who enforces this law, and quite bizarrely there is none who has to do so in the UK right now, as it is not considered Companies House's job to do so.
The time for company law reform has arrived.
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Dear Richard,
Thank you for taking the time to share your insights.
You mention that there is “no regulator who enforces this law, and quite bizarrely there is none who has to do so in the UK right now” this is not entirely correct – I was in fact prosecuted by the Department for Business Innovation and Skills (DBIS) now part of Department for Business, Energy and Industrial Strategy (BEIS).
Kind regards,
Phil Martin
But that is almost unprecdented
Understood, so you are, in fact, arguing for increased enforcement from the regulator, rather than “there is no regulator”?
Department of Business, Energy and Industrial Strategy (BEIS) prosecute alongside the Insolvency Service as part of The Insolvency Service Criminal Enforcement Team (ISCET) typically for acting in the management of a company whilst bankrupt, fraudulent removal based on unlawful directorship, fraudulent trading based on insolvency.
CPS prosecute for a wide range of fraud offences associated with corporate entities, FCA prosecute for money laundering and breaches of financial regulations, HMRC prosecute for under-declarations of tax due, false accounts etc.
Together these agencies prosecute several thousand cases each year.
But hundreds of thousands of companies fail in their basic obligations each year and nothing is done about it
Why not?
You are referring to the tip of an iceberg
And 50% of prosecutions do not succeed, by the way, in the sense that they are pursued
“a statement of purpose published on line, saying what their intended trade is” – or indeed whether or not the company intends tp trade. Companies do not need to have a trade – for example, holding companies; investment companies.
“abbreviated accounts” were abolished in 2016. We have “abridged accounts” now, which are even more useless, one or two pages that tell you next to nothing.
The quality of information available from Companies House has reduced significantly in the last ten years or so. I’d suggest the first step would be to return to the position before the ridiculously contentless “confirmation statement” was introduced in 2016 and instead require a full annual return each year (with information about beneficial ownership as well as the legal shareholders), and as you suggest more informative annual accounts, not the “abridged” version. Neither is currently fit for its purpose, which is informing the public who owns a company and what it does. Reducing unnecessary “red tape” is one thing, but not all regulatory requirements are excessive burdens.
I trust you will be requiring every company’s full accounts to be audited, so the accountants should be pleased. We’ll need to find things for people to do in a post-coronavirus world.
The FCA seems to take a more-proactive approach to enforcing regulatory requirements: perhaps Companies House should come under its remit, with more staff and an increased budget. No doubt fees will have to increase too.
I wouldn’t require full audit for all – I am not convinced small companies require that
I do not agree with you that investment and holding companies are not trading – that’s a weasel-worded tax defintio0n that is, in any case, I think wrong
The annual return was certainly much better than the confirmation statement
Abridged accounts are only a variation on abbreviated accounts – and as with FRS102, a step in the wrong direction
Words have accepted meanings, and the tests of trading have been pretty clear since the Royal Commission identified the “badges of trade” in 1955. It sounds like you mean “intended business”. Having to say in advance what a company might do has a flavour of the old-style objects clause in a memorandum of association, setting out in exhaustive detail the different sorts of business a company might take up. Presumably you want something specific more than a “general commercial company”.
Where would you put the audit threshold? Currently it is the same as the threshold for “abridged” accounts: turnover up to £10.2 million / asset up to £5.1 million / up to 50 employees, which is I think the maximum level for a “small” undertaking permitted by the EU. That seems too high to me.
In case it was not clear, I was agreeing with your main point, that the current level of disclosure to Companies House is inadequate, and noting that it used to be better. That change was a deliberate (and in my view harmful) choice of the government to deregulate.
I think trade is pursuing any commercial activity……
Audit threshold? £1 million?
I had occasion recently to look up a certain care home company at Companies House. The company operates hundreds of care homes throughout the UK. The company has a parent, which I only discovered by perusing the filed accounts where the auditor noted a material uncertainty due to dependence on the parent for funding. As you know, filed accounts are only available in image form and can’t be searched, so this finding was fortuitous. The obvious question – why is the fact of having a parent company not reported up front? Likewise, the entry for the parent company does not disclose the fact of it being a parent, far less the identities of the offspring companies.
The parent has what seemed to me to be an unusual name, so I searched for that and found a web of over 20 companies with the same distinctive two-word phrase in the name. Also, a high degree of occurrence of the same director’s names – in at least one case being a director of the original care home company. The most disturbing fact about this web of companies was that many had an overseas address in the Cayman Islands.
I find this most disturbing but, having read many of your blogs on the deficiencies of the information recorded at Companies House, I’m not surprised.
It’s typical…
Private Eye tweet at 3:53pm (I didn’t tell them):-
“Care home giant HC-One throws itself on the government’s mercy to keep going during the Covid crisis – but it might have helped if the firm hadn’t funnelled off well over £50million to the Cayman Islands in the past three years. Full story in new Private Eye, out today.”
Quite so….
And they owned the home in Skye with the appalling death rate
Agreed!
To me it boils down to “who is doing who a favour?”
Is it…..
“I have built the company, I am the wealth creator, I am master of the universe…. and you should be jolly grateful for the crumbs that drop into your lap from my table”
Or…..
“Without the backdrop that the State and your fellow citizens provide you could do nothing. In particular the privilege to operate as a limited Liability Company is is given to you by the State and with it comes responsibility. If you don’t like that then go somewhere else.”
As in all things, there is a balance to be struck but we have a government that has capitulated to certain sections of the business community…. because it is run by a Political Party that exists to serve those interests.
That MUST change.
Indeed….
Yes, and I understand we actually invited a vacuum cleaner salesman to build ventilators, simply passing by the British ventilator industry in the process. Do we have a working vacuum cleaner sourced ventilator out of all that; the excitement seems to have faded?
I have to confess an interest. I have one of his vaccum cleaners. It sucks; very effectively.
Other Company Law changes: worth drawing out distinctions between shareholders and management the latter have most of the power in public companies but no liability and this should change. The second change I would suggest is strengthening the role of non executive directors who have little power and can easily be dispensed with. I think the law needs to distinguish between directors who are managers and directors who are non executive. Ideally the law should ensure corporate management cannot control who the non executives are or who they represent in a stakeholder sense. Stakeholders I have in mind include workers, members of local communities and relevant special interest groups e.g. Food Banks and grocery firms.
Good points
Thanks