UK company law exists to protect society and honest traders from fraudsters, but since no one has the job of properly enforcing that law, it might as well not exist. This failure represents a massive failure on the part of successive governments that needs to be addressed now.
The audit version of this video is here:
This is the transcript:
One of my favourite ever songs is Walk on the Wild Side by Lou Reed. I was a young man when it came out, and it left a lasting impression on all sorts of issues, which we don't need to go into now. But that phrase, ‘take a walk on the wild side', has remained with me ever since. And the trouble is, that the UK is still taking a walk on the wild side when it comes to company law.
Company law in the UK is out of control. I do know that there is new legislation now coming into force which Companies House is saying that it is going to use to try to impose greater penalties on those who do not comply with current legal requirements. for the registration of documents with Companies House, but this will make very little difference to the way in which company law is enforced in the UK and it will not stop us operating in what I think to be the ‘company law wild-west', which is where the UK is at present.
The simple fact is that companies are too easy to obtain in the UK at present. You can go online and buy a company almost instantly. You can go to Companies House and form a company in a matter of minutes. You don't even have to prove to Companies House who you are. You don't have to physically sign a form. There are no checks on anything. And for a sum of well under £50, a new company is yours.
It will, I admit, take you longer to prove to a bank that you want to open a bank account, or to PayPal are for the sake of getting payments that way. But company law is what I'm talking about. And company law is letting companies in this country be formed without almost any effective control being put in place to make sure that we know
- who is forming companies,
- who are the company directors,
- where are these companies really trading, or
- what are they doing, and
- are they fulfilling their legal obligations?
And that is crazy. And the reason why it's crazy is that, quite simply, a person may sign a piece of paper, call themselves a company, and thereafter, have a company with no apparent legal responsibility for the actions of the company that they have formed, which:
- may trade fraudulently,
- may leave a trail of creditors in its wake when it goes bust, or simply disappears, and
- may never pay any of the tax it owes.
And we do know that many of these companies do not pay tax. HM Revenue and Customs, our tax authority, admit that 30 percent of all the corporation tax owing by small companies in the UK is not paid. And that is quite extraordinary. Three in ten companies are not paying what they owe.
We do, therefore, have a rampant fraud going on inside the UK corporate world and apparently, the government is only increasing the penalties on the failure to file documents with Companies House, the annual accounts and the annual return or statement which is now required once a year
Nobody checks whether the accounts are correct or not.
Nobody checks whether they comply with UK company law or not.
Nobody does anything except to make sure that the page numbers are consecutive, because that's a terrible sin if they aren't; and that the correct date is on the top of each page. Oh, and the company number is on the front. Otherwise, they could be complete garbage, and having looked at a lot of them in my life, a lot of them are.
There can also be an almost total failure to disclose who the true directors are, and I know from personal experience that there are a lot of people with a lot of directorships whose filings are not linked to each other, so that one person can have a multitude of appointments, but it is very hard to prove that fact.
And indeed, if you search me on Companies House, you will find I appear to have several records as a director, for reasons that I simply cannot explain, because I would rather have one. I would prefer that people could track what I'm doing instead of not, but Companies House don't seem to be worried about it.
So, instead of having the corporate accountability and transparency that we need to hold people to account for the privilege of limited liability - the ability not to pay their debts that society grants to them - we do instead have a morass of opacity where it is incredibly difficult to find out who owns companies, if we can do so at all, let alone where they are really trading and what they're really doing.
This is the wild side that I'm talking about. And the consequence is ongoing legitimised, in the sense that the government allows it, identity theft by people who form companies knowing that they can use those companies as a front for their illegal activities on which they never intend to pay tax.
And they can get away with it.
As I say, this is madness.
It's crazy.
It's beyond comprehension that we should let this happen, and knowingly happen because the evidence that it is going on is all around us.
So, what should the government be doing? Well, those charges for forming a company should go up tenfold or more.
And the checks to make sure that a person is suitable to form a company should be in place.
Company directors should have to pass a company director's license exam. Why not? We need to pass an exam to drive a car. Why shouldn't we be asked to pass an exam to be a company director?
We need to have proper regulation of the accounts that are filed.
So, the annual filing fee for a company should not be 30 odd pounds, which it is now, but should be, maybe again, be three times that sum, so that Companies House would have the legal obligation to check that there was at least clear indication of compliance with UK accounting standards, with questions being raised by them if it was apparent that there were gaps in the data being filed.
And there should be a very strong Investigative branch of Companies House, which is actually going out into the community and checking rogue companies There should be encouragement, so that people should be told that they have the opportunity to report companies who they think are trading illegally and who they are dealing with online who appear not to be paying the proper taxes or whatever else it might be. There should be this opportunity to eliminate fraud from our economy.
And if we did, what would happen? The honest traders in our society would have a chance to flourish. The sort of people who put their own money into a business, who want to invest in it for the long term, who want to take on staff and offer them apprenticeships and training, who want to look at how they could develop the skill base of our economy. All the sorts of things that we want and which we would like to encourage would happen, if only the cheats who undermine the opportunities of honest business could be eliminated from our economy by an effective company regulator.
But we haven't got one.
Instead, we're still walking on the wild side. And Lou Reed, God bless you because you're no longer with us, but you phrased an appropriate line.
We really shouldn't be doing this. Walking on the wild side might be appropriate in some cases in life, but this is most definitely not one of them.
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It is even worse. Does anyone remember the Dagenham flats fire? It was not long ago. Nothing has been done by the property owner, or its agent (which appears to claim it is not its responsibility, but the freeholder’s). All the direct responsibility for helping the tenants has fallen on the local authority, and the tenants are living in budget hotels (with no idea about what will happen), presumably at public expense? Neither freeholder nor agent will even meet the tenants. Sky News cannot even contact the freeholder. This at least seems much like the fallout from the Grenfell calamity. Somehow the freeholders appear not to be responsible for doing anything. This is a completely one-sided arrangement; It is a different kettle of fish when there are rents or profits to be made from property.
The rights of property owners are the deepest, longest and strongest rights in the UK. There should be no ambiguities about clear responsibilities here. Somehow this is one large, sour stew of ambiguity. To say that this is not good enough is a gross understatement. It is a definition of the negligence of law and of Government taking responsibility, urgently for fixing this appalling situation (with thousands of households, typically long leaseholds currently living in fire hazard homes).
Let me guess where Labour and Conservative Parties will stand on this matter. Outraged inertia. Big talk. No action. Ever. Waffle. The waffle will be designed to make you think the Parties diverge. They are the same Single Transferable Party. Their solution for problems like this is exactly the same one. Here is how it works. Talk a lot about change: do precisely nothing, and if you are forced to legislate, make sure there are absolutely no resources to carry out the regulation, and freeholders are left free of ‘red tape’, because rentiers are heroic entrepreneurs, and must be protected.
As usual, much to agree with
It was pointed out to me many years ago and its an analogy worth making that a Company is in effect a person and can do almost anything a person can do apart from get married.
The law is allowing the creation of an abusive relationship. Richard and I could in effect create another person, lets call him John Murphy (or Richard Boxall) Ltd run up debt in his name – ie financial abuse and then scarper. Thats what abusive partners do.
In this case however it isnt a real person left carry the can its society as a whole.
I don’t want this abuse being tolerated and neither should anyone else
Agreed
I’m delighted to see your support for my view that we need a “company director’s license exam”. My brother and I (both experienced directors of more than a dozen SMEs) have encountered many tiny companies led by naïve people who have almost no idea of the duties and responsibilities they have taken on. We often try to help by educating them about their role; it is not unusual to see a shocked reaction when we do. Even a basic qualification requirement would avert a lot of heartache!
Thanks Richard; your Blog today reminded me that I have a couple of fines due to Companies House this month.
During Covid times, I’d twice failed to submit annual accounts for my Employee’s Share Ownership company. It’s bank account had been compromised due to suspected identity fraud and I’d been unable to access statements or even gain access to their HelpLines.
Despite a detailed appeal to Companies House, I’m informed that ‘the Registrar has only limited powers of discretion not to collect penalties’. Having had that appeal declined, I’ve no further recourse so won’t waste any more time on the matter. I’m just grateful that my ever vigilant Staff noticed that the company was about to be struck-off and that our Accountants pulled out all the stops to remedy my ommissions. ‘Long-suffering’ describes all who transact with me!
The current level of fines should be sufficient to deter anyone from late-filing on purpose (£375 & £750 in my case). I can’t fathom how increasing penalties will prevent all the other abuses that you describe.
You can only be fined if you file
If you never do you aren’t fined
Non-compliance is encouraged.
I’ve started doing some work that requires looking at companies house records. Some things have surprised me:
– The number of entries where the company name is literally just an address of some flats is huge, I guess these are landlords registering themselves as trading businesses. I’m guessing that’s not breaking any rules, but it did seem odd to me.
– I have also seen a large number of individuals appear with multiple different officer records, even though they are clearly the same individual. Again, I doubt any rules are being broken here, but that must make things harder to keep track of.
– I have come across companies listed on companies house which seem to have no other discernable web presence. Of course, there’s no requirement for them to have a website, but in 2024 it does seem odd to not even have a social media page.
The impression I get from the public companies house website is that the whole thing is a free-for-all.
The address ones are the companies created to own the freeholds of flats.
“for reasons that I simply cannot explain, because I would rather have one.”
@Richard
Do not understand this statement.
All I am saying is, inexplicably, that Companies House has several records for me, which makes no sense.
Under the Data Protection Act you can ask them to correct the records that they hold for you.
“Your right to rectification
You have the right to ask us to rectify information you think is inaccurate.”
It’s overtly obvious that it’s inaccurate to have on record that there are six or more of you.
If I had time to do that I might
I sometimes think there must be six of you for the remarkable amount of blogging you do!
I have also produced five other videos, written most of a book chapter and edited two by other people this week. Blogging is not the day job as yet.
This drives me mad. There is a lack of oversight in general in the UK and this is a prime example
Graham Barrow has posted a lot about the abuses: https://x.com/greybrow53
It is so obviously being used for abuse that it is unfathomable as to how it has been, and continues to be, permitted.
It is also unclear to me as to how we effect change.
Incidentally, I am occasionally the target of scam attempts. I was encouraged by the FSA to raise issues with Action Fraud despite hearing that they do nothing. So last December I duly reported two scams attempts. It is now nearly 10 months later and both reports are sitting “Not Reviewed”. Where is the oversight????? It drives me M.A.D.
An essential pillar of the neoliberal philosophy: create a basic framework for oversight – then simply underfund, understaff or ignore said framework.
Works every time!
When I was teachin EU law a couple of years ago, we would look into the major cases where companies were fined millions/billions of euro.
The students considered the sums breathtaking and a real deterrent.
Then asked them to google said companies’ turnover… and that calculations were that the anti-trust fines were estimated to represent no more than 15% of the profits being made through anti-trust activities.
You found the answer….
@John
“create a basic framework for oversight – then simply underfund, understaff or ignore said framework.”
This is exactly what happened with Grenfell fire debacle.
The important point to make is that the resources to implement or audit/regulate legislation is even more critical than the legislation itself. Governments legislate when under political pressure “to do something”. Legislation on the statute book gives the public confidence that something important has been done. Most legislation is of little functional value to anyone if the resources; money, manpower, authority to implement or enforce the legislation.
Often Governments do not want to legislate, or legislate for the wrong reason. They can undermine legislation through poor drafting (which happens a great deal more than people think – through error, incompetence or deliberately). Often the legislation itself is of small significance (much less than the public thinks). The Government’s best way of ruining legislation (their own, or their opponents legislation) they do not wish to work, is to deprive it of the resources or regulation (or regulators) required to ensure it functions. Neoliberalism detests ‘red tape’. Everything that protects humans from unsafe products or personal safety (like building regulations) requires some form of what the tabloids dismiss as “red tape”.
It is the lack of necessary red tape that causes disasters like Grenfell. It seems to me that all legislation should require before enactment (i.e., as a Bill), that there is a schedule attached to the Bill, providing the detailed provision of resources to enforce the legislation (signed off by the Treasury). Demonstrably insufficient resources in the Schedule to enforce the legislation should lead MPs to refuse to allow it to reach the statute book. There should be a legislation audit committee in Parliament, able to scrutinise annually the resources being made available to enforce legislation, compared to the Schedule, or any changing circumstances that affects the legislation and its enforcement.
They may usefully start with HMRC …………..
MPs could do a better, more effective and practical job pursuing these issues, rather than serving as backbench lobby fodder.
Agreed