In a continued bid by the UK government to foster transparency, combat economic crimes, and enhance corporate responsibility, the Economic Crime and Corporate Transparency Act (ECCTA) received Royal Assent in October 2023.
This landmark piece of legislation marks a significant step towards reshaping the UK’s corporate landscape by introducing several transformative changes for Companies House, a new failure to prevent fraud offence and a reformed test for corporate criminal liability.
In this article, we look at how the ECCTA will apply to UK organisations and what you can do to prepare as the key changes are implemented over the coming months.
Amendments to the Companies Act 2006 – To make the following administrative reforms for Companies House:
- Registrar’s Enhanced Powers
The ECCTA will enhance the powers of the UK companies registry, Companies House, to investigate, challenge and even remove information provided to it in relation to UK registered companies, their shareholders, and directors. Such powers are both prospective and retrospective, enabling the Registrar to step in on incorporation or in connection with information already maintained on the public register. These powers are aimed at improving the reliability of the data held and made available to the public.
- Stronger Checks on Company Names
Those setting up an organisation in the UK were already subject to restrictions with respect to company names, but the ECCTA expands those restrictions, with a particular focus on prohibiting names which could give a false or misleading impression to, or could harm, the public. These restrictions apply not only to new companies but also existing entities, which could be directed by the Secretary of State to change their name if it views it as falling foul of the ECCTA.
- New Rules for Registered Office Addresses
All companies will be required to have an “appropriate” registered office address. The key focus is on ensuring any correspondence or document sent to that address will come to the attention of a person acting on behalf of the Company, and that delivery can be acknowledged. Companies House specifically forbids the use of a PO Box for this purpose.
- New Requirement to supply a Registered Email Addresses
UK registered companies will also need to provide a registered email address to which Companies House can send communications. New companies must do this on incorporation and existing companies when they file their next annual confirmation statement.
- Statement of Lawful Purpose
When incorporating a new company, the subscribers will be obliged to confirm they are forming the company for a “lawful purpose”. Subsequently, during submission of the company’s annual confirmation statement, the company will be asked to re-confirm that its future activities will be lawful.
Undoubtedly the ECCTA imposes some of the biggest changes to company administration since the implementation of the Companies Act 2006. It is hoped that these changes increase public trust in the business environment, promoting accountability and transparency and safeguarding the interests of stakeholders. However, striking a balance between transparency and privacy will be crucial in a period when the UK is keen to continue to encourage overseas investment.
A New Failure to Prevent Fraud Offence (section 199 ECCTA)
Section 199 ECCTA provides that: “a relevant body which is a large organisation is guilty of an offence if, in a financial year of the body, an associate commits a fraud offence intending to benefit (whether directly or indirectly) the relevant body; or any person to whom or to whose subsidiary undertaking, the associate provides services on behalf of the relevant body.”
Key definitions:
- “Relevant body” – A body corporate or a partnership (wherever incorporated or formed).
- “Large organisation” – A body corporate or a partnership which satisfies two or more of the following conditions in the financial year of the body that precedes the year of the fraud offence: (i) has a turnover of more than £36 million; (ii) has total assets of more than £18 million; or (iii) has more than 250 employees.
- “Associate” – An employee; agent; subsidiary of the relevant body; or anyone who performs services for or on behalf of the relevant body.
- “Fraud offence” – Cheating the public revenue; false accounting; false statements by company directors; fraudulent trading; fraud; participating in fraudulent business carried on by a sole trader; obtaining services dishonestly; or aiding, abetting, counselling or procuring the commission of a listed offence.
The application of section 199 to corporates or partnerships that conduct business in the UK wherever they are incorporated (provided they are also categorised as a “large organisation”) gives it the potential to capture a large number of organisations around the globe and to be a significant move towards a more transparent corporate environment. However, international cooperation will remain paramount if it is to achieve its aim.
The section 199 offence specifically makes provision for a defence in the following circumstances: if “the relevant body [can] prove that, at the time the fraud offence was committed –
- the body had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have in place; or
- it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place.”
“Prevention procedures” mean procedures designed to prevent persons associated with the body from committing fraud offences. However, beyond this definition, we have limited knowledge of what these would entail.
| How to prepare An organisation convicted of the section 199 offence could incur an unlimited fine, so business owners should start making preparations, including conducting internal assessments of existing policies and procedures; identifying any areas of exposure and requiring improvement; ensuring that key employees are aware of and receive necessary training; establishing robust record-keeping processes to demonstrate compliance; and keeping abreast of the latest developments / guidance. |
A Reformed Test for Corporate Criminal Liability (section 196 ECCTA)
Section 196 ECCTA amends the current “identification doctrine” (which is the legal test for deciding whether the actions and mind of a natural person can be attributed to those of a corporate entity). The amendment is made such that “if a senior manager of a body corporate or partnership, acting with actual or apparent scope of their authority commits a relevant offence… the organisation is also guilty of the offence”.
Key definitions:
- “Senior manager” – An individual who plays a significant role in – (a) the making of decisions about how the whole or a substantial part of the organisation’s activities are to be managed or organised; or (b) the actual managing or organising of the whole or a substantial part of those activities.
- “Relevant offence” – An act which constitutes, but is not limited to, any of the following: cheating the public revenue; conspiracy to defraud; theft; false accounting; false statements by company directors; suppression of documents; dishonestly retaining a wrongful credit; offences in relation to exportation of prohibited or restricted goods; untrue declarations; fraudulent evasion of duty; forgery, counterfeiting and kindred offences; fraudulent evasion of VAT; contravention of prohibition on carrying on regulated activity unless authorised or exempt; contravention of restrictions on financial promotion; misleading the FCA or PRA; an attempt or conspiracy to commit a listed offence; aiding, abetting, counselling or procuring the commission of a listed offence.
| How to prepare The reformed test widens the scope of those persons whose actions may be attributed to the organisation and applies to all organisations regardless of size. We await further guidance on the who is intended to be captured by the term “senior manager”, but firms should start to consider who may be caught and the policies and training that should be rolled out to ensure all relevant individuals are aware of the changes and the effect their actions could have on their organisation. |
Other Reforms
Further reforms are expected to be introduced later on this year, including the removal of the requirement for companies to maintain internal registers in respect of their directors; directors’ residential addresses; secretaries; and persons of significant control (which will instead be maintained solely at Companies House), and enhanced identify verification measures for directors, persons with significant control and those making filings at Companies House on behalf of a company. We will provide more information once further guidance has been shared by the UK government.
Contact us
If you have any questions about these issues in relation to your own organisation, please contact a member of the professional services team or speak to your usual Fox Williams contact.
Authors
Follow us online
