Committee (1st Day)
Relevant document: 27th Report from the Delegated Powers Committee. Scottish, Welsh, and Northern Ireland Legislative Consent sought.
Clause 1: The registrar’s objectives
1: Clause 1, page 2, line 2, leave out from “that” to end of line 3 and insert “information contained in the register is accurate and that the register contains everything it ought to contain.”
Member’s explanatory statement
Objective 2 currently focuses on the accuracy and completeness of documents delivered to the registrar. The amendment would expand it to refer to the accuracy and completeness of the register more generally. This would, for example, be relevant not only to the acceptance of documents for registration but also to their removal.
My Lords, I draw the Committee’s attention to my interests as set out in the register, including as a director and person with significant control of AMP Ventures Ltd and as a person with significant control and shareholder of several other companies. I do not believe that any of these is prejudicial to my role in today’s debate. If anything, they increase my passion for the important objectives of this Bill: strengthening the UK’s business environment for the law-abiding majority while closing the doors to rogue actors.
This Bill will deliver significant reforms to the role of Companies House, making the biggest change to our system of registering companies in over 170 years. It makes significant amendments to the Companies Act 2006, the largest single Act on the statute book. It will affect the more than 500,000 companies established every year in the UK and the 5 million companies currently on the register, which have grown from 3.5 million since the last major company transparency reforms in 2015. That is quite a significant amount and no doubt bears the attention deserved in this debate.
It is therefore vital that these reforms are designed and implemented properly, both so that law enforcement can undertake its responsibilities effectively and to ensure that they benefit business and that any burdens are proportionate. I am confident that the Bill will achieve this balance and set a sensible framework that works for the benefit of businesses while bearing down on those who seek to abuse our open economy.
If noble Lords will allow, I will express my gratitude to Members in the other place, who greatly contributed to the scrutiny and improvement of this Bill as it passed through their House, not least the honourable Members for Feltham and Heston, for Aberavon and for Glasgow Central, the right honourable Member for Barking and my honourable friends the Members for Barrow and Furness and for Weston-super-Mare.
I am also grateful to Members of this House for their invaluable contributions at Second Reading and for the further views that many of them have provided since to me and my noble friend Lord Sharpe. I see that several of them will speak to amendments today. I am also grateful for the constructive engagement of Members on the Opposition Front Bench throughout and look forward to continuing to work with them. It strikes me that all the amendments proposed today and all the work we have done across this House have the same intentions. That is important. We are working together to create a better company system in this country. My thanks also go to my noble friend Lord Callanan for all his past work on these reforms as the previous Minister for this Bill, to Minister Hollinrake, my colleague at the Department for Business and Trade, and to the Security Minister for bringing this Bill through the other place so effectively.
I very much look forward to the constructive debate that we will have over the coming weeks. I am sure that all noble Lords are as keen as I am to get this important legislation on to the statute book, including delivering the long-awaited reforms to Companies House that we will discuss today. As I set out at Second Reading, I hope that all noble Lords are fully aware of the opportunity before us to make a hugely meaningful difference to businesses, law enforcement and our citizens. I trust that we can count on the continued support of the House to deliver this.
I am delighted to be starting Committee by talking to government Amendments 1, 3 and 56, which amend Clauses 1 and 81. I will start with Amendments 1 and 3. The new registrar objectives introduced by Clause 1 are a key aspect of this Bill. They are designed to empower the registrar and the activities of Companies House, acting as a clear and purposeful signal of the manner in which new and existing powers under the Companies Act will be exercised. They will embolden Companies House to be the proactive gatekeeper that many have long wished it to become.
Government amendments 1 and 3 are designed to expand the scope and reach of one of the objectives. Amendment 1 should be warmly welcomed by those who have criticised Companies House as merely the repository of an accumulation of inaccurate, misleading and potentially fraudulent information. While powers in the Bill allow the registrar to revisit and, where appropriate, remove information that ought never to have found its way on to the register that she holds, this amendment will make it absolutely clear that she must endeavour to address that historical legacy.
Amendment 3 recognises and addresses the fact that the registrar is the custodian of registers other than the register of companies. Objective 2 already puts a duty on the registrar to seek to promote the accuracy of information that is already on, or delivered with a view to being put on, the register and to seek to ensure that the register contains everything that it ought to contain. This amendment makes it explicitly clear that this applies to all the registers that she keeps, such as the register of persons of significant control and the register of overseas entities.
Government amendment 56 expands on the registrar’s new ability, introduced by Clause 81, to require information to be provided to her in order for her to determine certain matters. Importantly, it will allow the registrar to require information to determine not only whether the documents delivered to her meet the “proper delivery” requirements in respect of such things as content, form, authentication and manner of delivery but whether the underlying trigger event for the filing has really happened. For example, this amendment will ensure that the registrar can compel the production of information to determine whether a form sent in to report the appointment of a director was genuinely triggered by a real appointment and was not simply a fraudulent attempt to dupe the registrar into recording an appointment that never happened. I beg to move Amendment 1 and hope that noble Lords will support Amendments 3 and 56.
My Lords, before opening this debate, I advise the Grand Committee that, if Amendment 1 is agreed to, I will not be able to call Amendment 2, due to pre-emption.
My Lords, I again welcome this Bill, as I set out at Second Reading. My noble friend is right: it has all-party support and is sorely needed. Likewise, it is reassuring to see the large number of amendments tabled by the Government, reflecting, no doubt, the views that your Lordships expressed at Second Reading and possibly some of those from the other House earlier.
My noble friend says that the aim is to improve the system through the legislation and I believe that my Amendment 2, supported by Amendments 55, 57 and 58, goes some way to help that. Likewise, I declare a conflict of interest, in that I am a shareholder and a director of a number of small private companies. One large company might be in the book, but they are mostly SMEs. Therefore, my relationship with Companies House is, like that of every director of every company, important. In my day-to-day activity as an investment banker, I frequently look to accounts in Companies House for information. It is an invaluable tool; compared to arrangements in other countries, particularly the United States, it is a real asset for information flow about businesses.
My amendment seeks to ensure accuracy, specifically in respect of tagging. As I explained at Second Reading, this is key. Company accounts used to be provided on paper or on a PDF, which is essentially paper form, and they are now filed using digital formats that tag each item with a label so that it can be recognised by downstream processing systems. Unfortunately, as I read it, there is no requirement in the Bill for internal consistencies, so tagging errors will not be picked up. That is needed to ensure that none of the data is self-contradictory and that it matches other data in the previous year’s accounts or tags internally to the document. I note that my noble friend’s amendment is a sweep-all amendment, covering wider matters, but the amendment that I am proposing is specific.
Perhaps it will help if I give an example. Imagine that an oligarch is a director of a company and his name, quite correctly, appears on the accounts, but the name has not been tagged or has been tagged as something other than his correct name. When a smart fraud detection mechanism is used by way of a search, that name will not emerge. Accountants will argue that the accounts are complete as the name is there, but if that name has not been tagged correctly, the filing will be of no use electronically, and therefore it is essential that the accounts are consistent internally. At the moment, the registrar can refuse to accept accounts only where they are inconsistent with outside information, so my amendment seeks to close what I see as that loophole.
I welcome the amendment to this clause tabled by the noble Lord, Lord Coaker, but I do not believe it covers my point. Likewise, I particularly welcome my noble friend Lord Agnew’s amendment, which sets the tone but, again, does not cover this point.
My Lords, I have tabled Amendment 63 to Clause 90. I refer to my interests as set out in the register. I am a director of several companies and a person with significant control of an LLP, so I have had a lot of interaction with Companies House over the years.
My amendment might sound rather anodyne, but the amendments I have tabled to the Bill are the first building blocks of the transformational change that will be needed in Companies House once this Bill has been passed. We are taking an organisation that ever since its creation has simply been a passive receiver of data and has never had any cultural inclination to challenge it. This Bill changes that, which we welcome, and I am most grateful to my noble friend the Minister for all his positive engagement so far. What I am asking for here is a direct and specific requirement for the registrar to construct a process that will enable her essentially to triage the cases that are coming through the system. As my noble friend the Minister said, there are 5 million companies on the register and some 300,000 to 400,000 new companies are created annually.
When the Bill is passed we will have a problem with what I call stock and flow—in other words, a huge cleaning-up operation of the 5 million companies that are already there will be needed, and that will take some time. We also need to ensure, as quickly as possible after the Bill has passed, that the new registrations coming through are of the highest standard possible. Essentially, I am asking for the registrar to be required to make a risk assessment of new companies being created. One example that is well known in the financial word is that of Danske Bank in Denmark, which was the largest ever anti-money laundering fraud case in Europe, worth some €200 billion. Much of that started here through our LLP and LP structures. It would not have been difficult to have seen that there were trends among a lot of the LLPs that were being created. Many of them were coming from the same registration agent and with similar, often the same, addresses. That would have been a serious red flag that could have been investigated.
I am trying not to the rewrite the past but to set the tone for the future. It will not be realistic for the registrar to go into enormous detail on every registration, but if she builds a triaging system at the beginning, with a series of red flags, in aggregate the ones with the most red flags will be the ones that need priority. When I was the Minister for Grants, I discovered that we were doling out £30 billion a year in grants, but we had no system to assess the validity of the people receiving the grants. We put in place one very simple piece of software called Quantexa which shows immediately all the connections of the person making the grant to other people who are not necessarily good actors in the system. It cost £1 or £2 a go, or maybe £5 a go, but it had a dramatic impact very quickly. It is those sorts of tools that Companies House in its new format will need to use. I am not specifying an app, but I am most anxious that the Minister considers my amendment and includes it as one of his own.
My Lords, I thank the noble Lord, Lord Johnson, for his introduction today, and I acknowledge the work of the noble Lord, Lord Callanan, on the previous Bill and in the run-up to today. I am very sorry that my noble friend Lord Fox is unable to be here to help kick off proceedings. I am merely his understudy today—but he will, I am assured, be back with a vengeance after Easter.
Much was promised in the first economic crime Bill, as the price for our passing it at speed, and not all these promises are met in the Bill as it now is. That is particularly the case as regards enablers, SLAPPs, whistleblowing and asset seizure, and that is where my noble friend Lord Fox, and my other noble friends in due course, will focus as the Committee progresses. But we welcome the Bill as far as it goes, and in particular Part 1, which expands the role and powers of the registrar and improves the integrity of the registers held at Companies House. We support the noble Lord, Lord Leigh, who is very good at finding practical ways to make company-facing legislation work, as we have seen on previous Bills.
On these Benches we support the Government’s amendments and the other amendments proposed, but I qualify any support by saying that the culture of Companies House needs to change as well as its powers and duties. That was a point extremely well made by the noble Lord, Lord Eatwell, when we discussed the last economic crime Bill. That means, I believe, the introduction of a risk assessment and enforcement culture, which the noble Lords, Lord Agnew and Lord Vaux, and other noble Lords have highlighted throughout.
As the noble Lord, Lord Agnew, says, Companies House was previously a passive receiver of data. That is why, among the other amendments in this group—although they are welcome—Amendment 63 to Clause 90 is so important. It predicates a much more proactive and inquiring approach by the registrar, which has not been part of Companies House culture to date. That is very strongly supported by Transparency International and UK Finance, which says that there is a need for Companies House to become a “proactive gatekeeper”—a very useful phrase.
The amendments in this group would be greatly enhanced by supporting that amendment from the noble Lord, Lord Agnew, as well as the other amendments in his name, as we go forward to the next groups.
My Lords, I start by thanking the Minister and his colleagues for their approach to the Bill and for his remarks at the beginning, which were very welcome. We all have an interest in trying to ensure that the Bill works, so I thank the Minister for his comments about that—and I can reciprocate with regard to how the Government have approached this in trying to enhance and improve the Bill. I appreciate what the Minister said about the amendments in this group, and all the various amendments that have been introduced, as we have heard, in a positive way, in seeking to improve the Bill.
I do not intend to speak at great length about the various amendments. I start by thanking the noble Lord, Lord Leigh, for his support of my Amendment 4 and by saying that I very much agree with much of what the noble Lord, Lord Agnew, said on his Amendment 63. Essentially, what we are saying here is that the Bill has a lot within it that we appreciate, accept and think are important steps forward—but alongside that, most of us want to see the Bill having some teeth and the Government explaining to us how the various details are laid out, how the measures will be enforced and how we will see the change of culture that we have just heard about.
I will speak specifically to my Amendment 4. Noble Lords will see that, in essence, we are probing what the Government’s intentions are. Clause 1 has four objectives for the registrar. The amendment in my name and those of my noble friends Lord Ponsonby and Lady Blake seeks to understand whether anything could be gained by inserting a new objective 5. No doubt the Minister will say that objective 4 means the same, which may be why the amendment in the name of the noble Lord, Lord Agnew, is not needed. We are suggesting that there needs to be a more proactive statement in the Bill about what the Government are seeking in terms of the information that the registrar collects and how it is then assessed to see whether it should be shared more widely, particularly with the various enforcement bodies.
The objective I am proposing—I will not read it all out—includes in paragraph (b)
“sharing information about any issues of concern regarding companies with relevant public bodies and law enforcement agencies.”
Why would the Government not put that in the Bill? I suspect they will say that objective 4 deals with that, but I think there is a difference between acting proactively and what the Government have in objective 4, which is
“to minimise the extent to which companies and others … carry out unlawful activities”.
I suggest that is not quite strong enough. It is not about minimising the extent; it is about wherever information comes to light with the registrar that something untoward is happening. Surely there should be an obligation on the registrar to share that with the relevant law enforcement bodies. Minimising the extent is not sufficient; we do not do that with any other law—we do not minimise the extent to which violence takes place, for example. That may be the aim, but overall the intention of the law is to stop it. So I suggest that objective 4 could be strengthened.
On Amendment 63 in the name of the noble Lord, Lord Agnew, the noble Lord can and did speak for himself, but in his proposed new subsection (1B)(b) he is getting at that very point in stating that the registrar must
“share any evidence of unlawful activity it identifies with the relevant law enforcement agency”.
That is exactly the same point I am trying to address in my amendment. It is not about minimising the extent to which it takes place; it is saying that the information should always be shared. Can the Minister outline the Government’s thinking? Is their objective with the registrar that all information that may be of concern should be shared with the relevant law enforcement agencies?
Without wishing to be pedantic about this, can I ask: what is the relevant law enforcement agency with which the registrar should share the information? There is the Serious Fraud Office; there is the City of London Police; there are local police forces; there is HMRC and all sorts of other enforcement bodies. The Government will have given thought to this, but can the Minister explain to the Committee where that information should go and who is responsible for enforcing it? Is there any report back to the registrar? Once the information has been shared, is it then just a matter for the law enforcement body, or does the registrar have an obligation to see where that has got to and what has happened to it? We all know that an issue that frustrates people is not knowing what happens when things are reported and where they have got to. Alongside that, given the significant numbers that the Minister quoted of those that have to register, what are the resource implications for those other bodies in taking that up?
My final point may seem a bit obscure. I am not a great expert on this, but I know from one limited case that I had some experience of that one of the problems was a lack of forensic accountants and the ability to understand what was going on within various company accounts. I was told it was a skill area that is never really talked about. I wonder whether the Government, given their intentions, have given any thought to how they ensure that the necessary skill base is there within police forces and the Serious Fraud Office for crimes that are referred to them to be properly understood and investigated. I am sure that some people are experts in company law and all this, but the problem is that when people say “Follow the money”, sometimes it is pretty difficult to do that. I wonder whether the Minister might say something about how he sees that.
In general, we welcome the Bill and the government amendments before us. I think the amendments that the noble Lords, Lord Leigh and Lord Agnew, have tabled make some very important points. I hope that my Amendment 4 also helps the Government explain to the Committee what their intentions are. If the Bill is to mean anything, it has to be properly enforced.
I had not intended to speak on this group, but my noble friend Lord Coaker has drawn my attention to the active verbs in the subsections of Clause 1. I am at a loss to understand why they are used. Why is objective 3
“to minimise the risk of records kept by the registrar creating a false or misleading impression to members of the public”
and not “to prevent companies and others carrying out unlawful activities or facilitating the carrying out of unlawful activities”? It seems odd that the objective is not the complete protection of people who may be duped or defrauded or have their money stolen from them by the devices created here. I appreciate that one cannot guarantee perfection, but it seems to me that by legislating in this fashion we recognise that there will be an element of that, since the objective we set the registrar is only to minimise, not to prevent it altogether.
My Lords, I support the amendment in the name of the noble Lord, Lord Agnew. I declare my interest as chairman of C Hoare and Co. I apologise for not being here at Second Reading. I had a good excuse: a very bad dose of flu.
I have two brief points. First, legislation on its own does not change an institution—I worked in the Treasury for 30 years and saw many institutions come and go—but it can be really helpful in supporting the leadership of that institution to change its character and the way in which it works. I believe the amendment in the name of the noble Lord, Lord Agnew, would support the leadership in bringing that about.
My second point draws on my experience of seeing through a lot of reform to financial services regulation. I think it is fair to say that the lesson of the 2000s was that tick-box regulation really does not take you very far; a proportionate, risk-based approach is the answer. I believe that the amendment in the name of the noble Lord, Lord Agnew, very much goes with the flow of better regulation.
I really thank noble Lords for their contributions. Not for the first time in this House I am surrounded by people who know far more than I do about the subject, with business gurus such as my noble friend Lord Leigh, who gave us the benefit of his many decades of wisdom. It is extremely helpful. As I say, everything that has been said today is mirrored in the emphasis of the Government’s broad objectives, so we are working collaboratively here. I hope your Lordships do not mind me going through each different point—I hope I can answer them all.
To have the noble Lord, Lord Macpherson, a former Permanent Secretary to the Treasury, commenting on this is indeed a great honour for me. He is absolutely right that we do not want to achieve tick-boxing. I hope that as I go through my following comments, he will see that we are trying to introduce a flexible system that encourages true judgment in terms of the registrar’s obligations. Frankly, that is far more relevant than any form of specific strictures or overly burdensome frameworks that we can place on Companies House. I think the noble Lord, Lord Agnew, mentioned the Danske Bank scandal; again, anyone who was able to spend even 30 seconds looking at that situation would very quickly have come to the conclusion that something was amiss.
The point is that up until the Bill comes into force, the registrar of Companies House is not even tasked with those challenges. The registrar is simply a facilitator or administrator for people’s input. As we discussed at Second Reading, you could claim to be whoever you liked—in fact, you could claim to be other people—and there is nothing that the registrar can do; it requires complicated court processes to change the integrity of the register. The essence of the Bill as it is drafted enables us to have the sort of flexibility and pragmatism that we so desperately need in today’s modern and complex economy.
On my noble friend Lord Leigh’s Amendment 2, there are already requirements in the Bill to clearly state that electronic delivery must be consistent and meet content requirements. Before this debate I had the good fortune to speak with my noble friend and the technical adviser team he has brought with him, and it is very clear and absolutely right that electronic data is coherent and consistent. The Bill certainly places that obligation upon the registrar, and it is also a practical obligation that simply must be placed upon the ordered systems of the registrar. I am certainly happy to commit to ensuring that more details are provided at the appropriate juncture. That is a well-heard amendment; we would not accept it because we believe that the drafting of the Bill as it stands is pretty clear on this matter, but we totally support the essence behind it and it would seem bizarre, frankly, if the electronic data that was not entered was not coherent. The whole point of these reforms is to enable one to tag the individual and track them throughout their entire history of activity with Companies House—to ensure a coherence of that information.
My noble friend Lord Agnew, another titan of industry, has brought his many years of experience to bear and in his amendment raises a point about the risk assessment of new companies. I have great sympathy with wanting to be specific about this. However, as I said in my introduction, it is important that there is an element of pragmatism and that we give as much flexibility as possible to the registrar. If we were to conduct a full risk assessment on every company that was registering on the Companies House database, all the worst fears of the noble Lord, Lord Macpherson, would be realised, as every company would have to go through a complex, box-checking exercise that would not achieve the desired outcome. We are talking about half a million companies a year, of which 99.9% are legitimate and about 95% are very small businesses, so it would seem unfair and burdensome to move away from a system that is currently and will remain extremely affordable, very fast and highly practical.
Having said that, it is absolutely clear in the Clause 1 objectives that the registrar has to use her judgment to ensure the integrity of the information on the system. I am very interested to hear about the system that the noble Lord brought to bear in his own experience in the Treasury and the Cabinet Office. I will be very comfortable to feed that information in, but it strikes me as logical that the registrar and Companies House will use algorithms and other systems, and a certain sum of money—I think it is more than £10 million—has been allocated specifically for the systems. A question was raised about the resourcing; I believe that either £61 million or £63 million—I may be corrected—has been allocated for this entire transformation process. We very much expect the systems to come into play to enable us to track the activities.
Some very high-quality points were raised by the noble Lord, Lord Coaker, about his amendment, which I also ask him not to press. Having said that, to cover his points, the demand and need for the right type of qualifications and skill sets is absolutely apparent. I am interested in his comments about forensic accountants. A number of different law enforcement bodies are associated with Companies House and this work. Specifically outlining who Companies House should liaise with seems to me slightly impractical. It will depend on the judgment of Companies House to ensure it passes the information to the right organisation. Organisations include the National Crime Agency, the City of London Police and HMRC, as listed, and the Insolvency Service, which is also a very important investigative component and to some extent sits alongside Companies House, doing the actual investigations in many of the relevant areas.
As we expand our legislation and continue as a Government to crack down on illicit financial activity, it is highly likely that new organisations with new skill sets and further investment will be placed at the disposal of Companies House. While I do not have the figures to hand—I am happy to clarify them in a later debate—tens of millions of pounds, if not hundreds of millions, have been allocated over the past two years to ensure that we reduce the high levels of illicit activity in our country.
I just interrupt the Minister before he goes much further. I have been listening very carefully to what he has to say, but he seemed to imply that a risk-based approach could lead to box-ticking. Surely, a risk-based approach is the very antithesis of box-ticking.
I appreciate that intervention. Our view is that if we legislate specifically for a risk-based approach, on top of what we believe is already a risk-based approach, we are not achieving our goals. The concern from the Government’s point of view—and mine, as someone who has registered companies with Companies House—is that you end up box-checking. The Bill is designed to ensure that the registrar is responsible for ensuring the integrity of the register and minimising criminal activity. In my view, those are the core functions of the registrar and the activity of Companies House, so we already have what one would describe as a risk-based approach built in. We feel very comfortable that this ambition, which is what this is all about, is well built into the legislation and will be the core function of the registrar—this is the essence of it—and we believe this to be well represented. Clearly, the ambition of the registrar will be to take a risk-based approach to her activities. We may be arguing over the same point, but I take it very seriously and am happy to consider it with more thought. As I said, this has been drafted effectively to encompass the concepts and points raised by noble Lords.
I believe I have covered most of the points raised. My last point was raised by the noble Lord, Lord Clement-Jones: we are trying to create the registrar as a proactive gatekeeper. That is at the core of the Bill’s ambition. We welcome input on how we can ensure this is done more specifically.
My Lords, if my noble friend wants my amendment not to be moved, would it be possible for the registrar to write to us to explain her philosophy and how she is going to make this huge change to delivering a risk-based approach? I am very reassured by his comments, but having been in the trenches of government for 12 years, I just know that the reality is a long way from wise words in a process such as this. A simple letter to us saying, “This is my philosophy, what I am doing and how I am training people to cope with this enormous change”, would be very reassuring.
I thank my noble friend for that comment, and I entirely agree that it would be extremely useful to have such a letter from the registrar. I take very seriously the comments about a cultural change at Companies House. We should be aware of where we are coming from. Not to repeat or labour the point, but Companies House is today simply a repository for information; it could practically be a static website. Having said that, in the conversations that I have had with Companies House, I have been very impressed by the tone of the officials I have spoken to there in terms of their determination to crack down on criminal activity around companies and Companies House. They currently make referrals to law enforcement agencies; they are not blind to the issues that present themselves, but they do not have the powers to do what we want them to do.
This Bill gives the registrar and her agents the concomitant powers to execute exactly on this mission that we wish. They talk boldly of a cultural change in Companies House, which we expect, as well as a technological change and a significant resource improvement—and under other amendments we will discuss the resourcing of Companies House. I feel confident that we are going to see a magnitudinous alteration in the relationship between the number of companies and number of directors performing their functions appropriately and providing relevant information to boost the economy, as soon as, or soon after, this Act is enabled—if I have got my terminology right.
I would be grateful for a clarification. Can the Minister say something about the language being used? My noble friend Lord Browne also picked up on this point. It is not that it is wrong, but why in Clause 1 do objectives 3 and 4, for example, talk about minimising risks or the extent? What I suggest in my amendment is acting proactively to prevent. It is about that sense of purpose and that cultural change, whereby the registrar actively seeks out unlawful activity and actively seeks to inform law enforcement to do something about it. It is not a clash of view but, in talking about cultural change, would not a language change help the Government in delivering what they want?
I thank the noble Lord for his comments. I do not want noble Lords at any point to think that I am being defensive in any way, as we are having a collaborative debate around the objectives of trying to improve company law and registration of companies and the integrity of the information stored at Companies House.
Objective 1 is pretty clear in referring to
“any person who is required to deliver a document to the registrar does so”,
and objective 2 is very clear and specific in saying
“to ensure that documents delivered to the registrar are complete and contain accurate information”.
They are unambiguous points—that is very clear. There is no question about there being some grey area around that. But with regard to objective 3 and
“creating a false or misleading impression to members of the public”,
clearly that is relatively subjective statement. It is clear that we have made efforts in this Bill to ensure that company names, for example, cannot be used to be misleading, and additional powers have been placed with the Secretary of State to ensure that companies have to change their names—but there is an element of subjectivity around a company name. To some extent, it is not totally prescriptive. Objective 4 then says,
“to minimise the extent to which companies and others … carry out unlawful activities, or … facilitate the carrying out by others of unlawful activities”.
These are complicated areas, in which, as the noble Lord, Lord Coaker, said, issues around forensic accounting, and so on, have been raised. Nothing is necessarily as straightforward as it seems. The principle here is to try to reduce the crime clearly to zero—so if the registrar reduced levels of criminal activity to a certain percentage, which they felt were somehow in a target range and then stopped their work, we would consider that to be entirely inappropriate. At the same time, they have a very clear objective, which is to minimise financial misconduct and criminality. That flexibility enables the registrar to perform her functions appropriately.
I do not want to prolong this debate because, although it is fascinating, it is something that can be dealt with in the period between now and Report. Perhaps my noble friend could, with his officials, run through the dictionary to find a slightly punchier verb. We all know what “minimise” means—to reduce to a minimum. I take the point that the noble Lord, Lord Coaker, is making. A slightly more aggressive approach to criminal activity or people’s misconduct in using the Companies House system is probably required. It is just a tweak in the language; we are not going to World War III over this—it is just a question of going back, having a look at a dictionary and seeing if they can find a slightly more aggressive word.
So that the Minister does not have to answer questions seriatim, as it were, I endorse that. I am not sure that I have heard persuasive objections to the amendment tabled by the noble Lord, Lord Coaker. I understand what he says about risk-based, but sharing information with relevant public bodies and law enforcement agencies surely does not tie the registrar’s hand in any way. It must be remembered that while we can all applaud what has happened in Companies House and the change in culture that will follow, this is really a second attempt to tie things up. We should not forget that there was the first economic crime Bill, before the Minister came to his post, where much was promised, so this is the final word on it and the time to crystallise where we are on those things. Objective 5 is another step. If the Minister is saying that Companies House is coming a long way and it is further step to ask it to do this, that is an answer, but I do not think it is an answer that satisfies the Committee.
I appreciate my noble friend’s comments. I do not believe that I suggested at any point that this was not baked into the cake of what Companies House is expected to deliver. I would be delighted to have further dialogue with Members around this but, in my humble opinion, the entire Bill is designed to ensure that the registrar takes a risk-based approach to ensuring the integrity of the information at Companies House. I am very comfortable on that, and the Government are very clear on it. We are wary of having duplicative statements in the Bill because that causes more complications when we are trying to create the enforcement regime and the integrity regime that we want to bring to bear.
On the key clauses and the language therein, I am certainly happy to consult my dictionary as noble Lords suggest. I am sorry that I was unable to bring one with me. It would be unusual for us to be quite so prescriptive in part 3 of the four objectives. I am delighted to have further conversations if noble Lords feel that that would be more helpful in setting the right cultural change at Companies House, but I am wary of being too prescriptive. I hope this is not misunderstood by Members of this Committee, but we want to avoid a box-ticking exercise because that is exactly what criminals like, as they can then navigate the system. We want to allow the registrar and her officers to use their judgment because that will lead to far better outcomes when it comes to achieving the mission that all of us are embarking on together.
On a plain reading of this clause, the registrar is being required to promote these objectives, but in objective 4 she is being required not to prevent but
“to minimise the extent to which”
crimes can be committed. What is the problem about setting an objective that she is to prevent, and Parliament is telling her that is the objective we want her to have but recognising of course that perfection is very seldom found in these situations? Why do we set an objective that is less than what we really want? There is no question that Parliament wants these crimes prevented, not minimised.
I appreciate the noble Lord’s comment. We have discussed this at some length. I am personally very comfortable defining further the usage of “minimise”, but the intention is very clear. This is not about “minimising” criminal activity to a so-called acceptable percentage; it is ultimately to eradicate it entirely. I am sure there are good reasons why this language has been used, in order to enable an element of flexibility and facilitation for this Bill to operate effectively. I am sure noble Lords will sympathise with me when it comes to legal drafting of text, but the assurances around this Bill are that it should do exactly what we want it to do. I ask noble Lords not to press their amendments and I commend Amendment 1.
Amendment 1 agreed.
Amendment 2 not moved.
3: Clause 1, page 2, line 10, at end insert—
“(2) In Objective 2 the reference to “the register” includes any records kept by the registrar under any enactment.”Member’s explanatory statement
This amendment ensures that Objective 2 as amended applies not only in relation to the register of companies but also in relation to any other registers and documents kept by the registrar under legislation.
Amendment 3 agreed.
Amendment 4 not moved.
Clause 1, as amended, agreed.
Clause 2: Memorandum of association: names to be included
5: Clause 2, page 2, line 15, at end insert—
“(2A) After subsection 1, insert—“(1A) The memorandum must also state—(a) the nationality of the each subscriber, and(b) the country in which each subscriber is ordinarily resident.””Member’s explanatory statement
The amendment would require a memorandum of association on the formation of a company to include the nationality and country of ordinary residence of each initial shareholder alongside their name.
My Lords, this is a wide-ranging group of amendments which focuses mostly on the amount of information given about subscribers, founding shareholders and limited companies when registering a company and ongoing shareholders. The amendments in the names of the noble Lords, Lord Vaux and Lord Agnew, are aimed at making it transparent whether subscribers and shareholders are holding shares on their own behalf or on behalf of others.
Currently, information about subscribers is very limited. The amendment in my noble friend’s name, and other Back-Bench amendments, are aimed at helping provide more information. The amendment would require the nationality and country of residence of subscribers. There has been a huge increase in the number of shell companies with directors based abroad. This is one step we can take to increase transparency and fight against the UK’s reputation for tolerating dirty money. The theme of this group as a whole is increasing transparency; there are various specific amendments with that aim in mind. I beg to move.
I am grateful to the noble Lord for accommodating this intervention. I thought it would aid noble Lords in having a productive debate if I set out up front the intention of the government amendments in this group, given that it contains a significant number and, as I understand it, the amendments in the name of the noble Lord, Lord Vaux of Harrowden, seek to build on them.
The government amendments seek to further strengthen transparency of shareholder data on the company register. I hope they will reassure noble Lords that the Government take this topic very seriously. A core purpose of the register of companies is to provide details of company ownership. However, users of the register have reported some problems with the way in which company ownership data is recorded. That is why the Bill contains measures to increase the usefulness of the information held on the shareholders, subscribers and guarantors—also known as members—of companies.
The Government appreciate the concerns expressed during the passage of the Bill by expert witnesses and parliamentarians about member information. However, I stress that we are also mindful of stakeholder concerns about imposing disproportionate burdens on businesses. The 2019 corporate transparency and register reform consultation proposed that non-traded companies, such as companies that are not listed on any regulated market, be required to collect the usual residential address and date of birth of their members. Consultation responses were mixed, and the Government concluded that the case had not adequately been made for the collection of the information, given the potential burden on businesses.
The Government consider that the approach taken with these amendments balances competing stakeholder concerns proportionately. The amendments will help to ensure that the policy intent of provisions in the Bill and the Companies Act 2006 are met without imposing undue burdens on business before further consultation is carried out.
Amendment 31 inserts a new clause into the Bill, which will amend the Companies Act 2006 to create an express requirement that old information must be retained where it changes. So, if a member’s name, address or shareholding changes, that old information must be retained for as long as the Companies Act 2006 allows. That is currently implied by other sections of the Companies Act 2006, but the law is unclear. For example, Section 121 states that an “entry” relating to a former member of a company may be removed from the register after the expiration of 10 years from the date on which he ceased to be a member. The retention of old information should already be current practice as it is in a company’s own interests to retain such information for audit purposes. Retrospective disputes relating to votes, dividends, and tax could all hinge on who owned shares at a point in time.
The new clause inserted into the Bill by Amendment 31 will also amend the Companies Act 2006 to provide powers to companies to ensure that member information is provided and kept up to date. The amendments also provide duties for members to provide their information and keep it up to date. There are offences for companies and members failing to comply with the new requirements without a reasonable excuse. That will ensure that the requirements are taken seriously by both companies and members and will enable more effective enforcement activity.
Amendments 6, 31, 34, 59 and 66 restructure existing provisions in the Bill that in turn amend the Companies Act 2006. They also provide powers to strengthen the regime by regulations. The powers allow regulations to require more information to be provided and to ensure that any new personal information is protected as appropriate. That would allow the Government to act swiftly to require more information to be provided if it is deemed proportionate to do so—again, following further consultation. Equally, law enforcement agencies may identify additional types of information that the registrar could require the collection of, which would help them in the prevention and detection of crime.
If new information is later required, it may not be appropriate for it to be made available for public inspection or disclosed except in specified circumstances—for example, if regulations later require a person’s personal email address to be provided, as that could have unintended consequences with spam mail and so on. These amendments ensure that personal information can be protected where appropriate, applying the principles from similar provisions in the Companies Act 2006 and this Bill to these measures.
I want to highlight that the power in new Section 113C could be used to limit any additional information requirements to companies that are not traded on any listed market, as those companies are already subject to similar disclosure requirements. That would reduce the burden on business, in line with the proposals in the 2019 consultation.
These amendments set up the framework for the policy intent to be met and leave the heavy lifting to regulations, once consultation has been carried out. The Government consider that to be an appropriate balance, as all regulations will be subject to the affirmative resolution procedure such that Parliament will have its say when those regulations are made.
The Government intends to remove Clauses 2, 4, 46 and 47 from the Bill because the provisions of those clauses are amended and/ or incorporated into the new clauses that I have described. Amendments 35 to 38, 60 to 62 and 67 allow the provisions to be sequenced more coherently and make consequential drafting tweaks.
I hope that noble Lords will support the amendments, and I look forward to the rest of this debate.
My Lords, I shall speak to Amendments 7, 8, 32 and 33 in my name. Before I start, I hope the Committee will not mind if I point out that my name is pronounced “Vawks”. It is astonishing how many different pronunciations of a four-letter word it is possible to come up with. I should also remind the Committee of my interest in the register as a non-practising chartered accountant.
I thank the Minister for arranging to meet me to discuss the various amendments that I have tabled and for his engagement so far. Like, I think, everyone in the Room, I support everything that the Government are trying to achieve with this Bill. My amendments to the Companies House section try to make it more effective in achieving the Government’s stated aim, which the Minister explained at Second Reading is to
“bear down even further on kleptocrats, criminals and terrorists who abuse our open economy, and it will strengthen the UK’s reputation as a place where legitimate business can thrive, while ensuring that dirty money has no place to hide”.
He went on to say that:
“The use of anonymous or fraudulent shell companies and partnerships provides criminals with a veneer of legitimacy and undermines the UK’s reputation as a sound place to do business.”
I think we all agree with that, but the Bill remains weak in improving transparency.
At Second Reading the noble Lord also said that the Bill would be
“helping to ensure that we know the real people acting for, and benefiting from, companies.”
The Bill makes some improvements in that respect, but it is pretty thin gruel and is not likely to make any real practical difference unless it is strengthened. That is what I am trying to do with these amendments, which I have tabled as amendments to the government amendments.
I point out in passing that one does not often see in a single group four objections by the Government to clauses in their own Bill standing part; that might say something, but I am not quite sure what.
My amendments are effectively two pairs that do the same thing: Amendments 7 and 8 relate to the information that is provided in respect of initial company subscribers, and Amendments 32 and 33 do the same thing in relation to shareholders thereafter. In each case there are two elements to the amendments. In hindsight, it might have been better if I had split the two elements into different amendments—the second part might have been better debated alongside Amendments 39 and 43 tabled by the noble Lord, Lord Agnew—but I would be grateful if the Minister could address both parts of the amendments separately in his response rather than trying to lump them together, as they are different things.
First, the amendments try to solve the issue of the easiest and most common way to hide the real ownership of a company. That is to hide behind some kind of nominee or shadow trust arrangement: someone else says that they own the shares and nothing public says otherwise, but someone behind it is controlling or has the beneficial ownership. The recent allegations of the use of a UK company by Graham Bonham-Carter, acting for Oleg Deripaska, to hide the ownership of properties and artworks is an alleged example, but there are numerous cases of straw men enabling kleptocrats to hide their ownership. We need to find a way to make those who are prepared to act as nominee shareholders in this way think very hard before they do it.
These amendments require that, in addition to the name and a service address of the subscriber or shareholder, which the noble Lord’s amendments say they must provide, there must also be a statement as to whether the subscriber or shareholder is subscribing for or holding the shares on their own behalf. If not, they must provide the details of the person or company on whose behalf or at whose direction they are subscribing for or holding the shares. This would effectively create an offence if this information was not provided or was incorrect; an obligation to keep this information up to date is already inherent in the noble Lord’s amendment. Having to make a clear statement in this way would at least make those who are prepared to act as a nominee think very seriously about who they are acting for. Would Mr Bonham-Carter have behaved as he allegedly did if he had been required to lie in public to do so? Having to lie in public is very different from just keeping quiet.
Amendment 44 in the name of the noble Lord, Lord Agnew, tries to do something very similar. Given his huge experience, it is very likely that he has hit on a better way to ensure that nominee holdings are notified. His amendment requires a nominee to disclose that fact, but there is a subtle difference between this and my amendments in that my amendments require all subscribers or shareholders to state whether or not they are a nominee; it requires a statement of the negative, whereas the noble Lord’s amendment requires only a positive statement. The difference, therefore, is that if someone is a nominee but does not disclose it, in the noble Lord’s amendment that person is guilty of an omission, whereas under my amendment he has positively lied, which may concentrate minds to a greater degree. In addition, if someone is holding as a nominee, the identity of the beneficial holder should be stated, and I am not sure that is clear from the noble Lord’s Amendment 44. But clearly we are trying to achieve the same thing.
The Minister will no doubt suggest that this is not necessary because we already have the persons with significant control, or PSC, regime. But that regime applies only to parties that control 25% or more and, if we are honest, has not yet worked well. It would not be difficult to have two nominees who hold 24.9% each, for example, and we know that sanctioned oligarchs have found ways to reduce apparent ownership to below sanction thresholds while retaining actual control. Public companies have to disclose shareholdings of 3%, so 25% is a very high threshold by comparison. If we are serious about wanting to know who actually stands behind our companies, as the noble Lord said at Second Reading, this really needs to be addressed urgently.
I know the Minister feels very strongly that we must avoid creating a regime that is overly burdensome for legitimate small businesses—he has repeated that today—and I agree with him, up to a point. It is at least arguable that it is currently too easy and too cheap to create a company, which is why so many companies exist that appear in reality to do very little. Significant benefits arise from a company structure, and with that must come some responsibilities. The so-called “veil of incorporation” relates to the separation of the rights, duties and liabilities of the company from its shareholders; it is not meant to reduce transparency and should not be allowed to remain a way of disguising real beneficial ownership.
A requirement for a subscriber or shareholder simply to state whether they are holding the shares on behalf of or under the direction of another person is not an onerous burden by any definition. In any event, it is hard to imagine any legitimate reason why a legitimate small business would need such a structure, so it really is not a burden on small businesses to make such a statement. I see no reason why all shareholders should not have to make this simple statement if they wish to enjoy the privileges of a company structure.
I move on to the second part of these amendments, which, as I say, might have been better placed and discussed alongside Amendments 39 and 43, which we are coming to later. These amendments would introduce a provision such that the identity of any subscriber or shareholder, or person on whose behalf the shares are being subscribed for or held, should be verified, in the same way as directors and PSCs under the Bill as it stands. I included this element as a way of probing where the level of identity verification should lie. At present, the Bill creates the requirement that only directors and persons with significant control should have to verify their identity—that means only people controlling 25% or more, which is a very high level.
Obviously, identity verification introduces some element of burden, although I suggest that providing a passport and utility bill, as we all have to do when opening bank accounts, checking in for flights or similar, is not in reality that onerous. Let us be clear that that information would not be made public, just the fact that the name and service address have been verified—we will come to that question in a later group. At least the identity of all subscribers at the time of company formation should be verified. I can see no argument against that, but I can understand arguments that my proposal that all shareholders need to be verified may be too rigorous. Amendment 39 in the name of the noble Lord, Lord Agnew, which we will discuss in a later group, proposes a 5% threshold, which I think would be acceptable. I lean more towards 3%, which would be consistent with the public company disclosure requirements. Whatever we do, it needs to be a lot lower than 25% before identity needs to be verified, as we really need to understand who owns and controls our companies.
As I said at the start, there are two distinct elements to my amendments, and I hope that the Minister will address those separately. I am not precious about the wording; there may be different ways to achieve this aim, and the amendment proposed by the noble Lord, Lord Agnew, may be the way to go. I hope that the Minister will address the issues and principles, rather than the precise wording of the amendments. If the Minister is serious about what he said at Second Reading, about ensuring
“that we know the real people acting for, and benefiting from, companies”,—[Official Report, 8/2/23; cols. 1250-51.]
I suggest that these amendments, or something like them, would provide a relatively simple way of achieving that without being any real burden on legitimate businesses. I urge him to consider them seriously.
As a fellow chartered accountant, can I ask the noble Lord how his amendment would work in respect of trust? Does it mean that trustees are disclosed or that beneficiaries are disclosed? Clearly, one would want to have beneficiaries disclosed, and I am not sure that this achieves that.
The noble Lord is quite right. What we are really trying to get to here is the ultimate beneficial owner, which is a problem that sits throughout this and the overseas property register. Neither of them really gets to that point. The wording requires refinement, but that is what I was trying to get to—that the ultimate beneficial owner, the directing mind behind the shareholding, is disclosed.
Does the noble Lord think this goes far enough? I chaired the Joint Committee on the Draft Registration of Overseas Entities Bill, and one of our recommendations was that there should be improved verification procedures for Companies House. We also thought it was well worth considering ensuring that regulated professionals acting should also provide statements, which would concentrate the minds of those advising who are responsible for providing this information.
I made exactly the same argument during the passage of what we used to call ECB 1—the first economic crime Bill. I entirely agree, and noble Lords will see that I have a number of later amendments dealing with those issues of the verification statements and the authorised corporate service providers being named publicly as opposed to—as is proposed at the moment—not being named on the register. That is really important. I agree that this probably does not go far enough. I am mindful of the Minister’s comments about not making this overly burdensome—if we do, it will not work—but we need to find a way to make sure that we understand who owns the shares.
My Lords, I am here as an international policy wonk, and I am very conscious that, in economic crime, a great deal goes on cross-border and outside the jurisdiction of the UK. I have therefore tabled two later amendments: one concerns the Crown dependencies and the overseas territories and the other concerns the levels of international co-operation that will be desirable and necessary if we are to crack some of these problems.
I strongly support what the noble Lord, Lord Faulks, has said about the requirements for those agents—or enablers, if you like—in setting up what are very often cascades of companies that disappear outside the jurisdiction of the United Kingdom to our various overseas territories or beyond. The question, therefore, is how we ensure the maximum amount of transparency and make the risk of crime as minimal as possible by putting heavily on those who are engaged in setting up these trust companies and further arrangements the responsibility of declaring clearly that these are legitimate and sound.
My Lords, I apologise for not being able to be present at Second Reading. In support of the noble Lords, Lord Faulks and Lord Vaux, I simply say that I really could not count the number of criminal cases in which I have been involved where it is precisely the concealment of beneficial ownership that is the driving force of the strategy behind the crime. This happens repeatedly. Anything that can be done to strengthen the Bill in this area—I am particularly attracted by the suggestions of the noble Lord, Lord Vaux—should be entertained seriously by the Government.
My Lords, if we achieve nothing else today, it will be getting the name of the noble Lord, Lord Vaux, right in future—you take what victories you can. One amends government amendments at one’s peril, as I am sure the noble Lord recognises, but this Bill is about transparency, so I speak in support of his Amendments 7 and 32. Amendment 7 is about who a person is really subscribing for and Amendment 32 is about who they are really holding for. Those surely play directly into the objectives that we were discussing a few minutes ago regarding complete and accurate records and not giving a misleading impression. They could be tied to objective 4 as well. These are not onerous requirements. I note the challenges put down by the noble Lord, Lord Leigh, and others, but they are not onerous; they are a basic feature of transparency. I therefore hope that the Minister will get behind these two amendments.
My Lords, I will speak to my amendment. The noble Lord, Lord Vaux, has done a lot of the heavy lifting, so I will not repeat all his arguments. I take some comfort that he makes me look moderate in my requests for further transparency—that is not how I am normally referred to by noble friends and Ministers. The title of the Bill specifies “Corporate Transparency” and, as the noble Lord, Lord Cromwell, has just said, it is not an onerous requirement to state whether the shares are owned by the individual or somebody else. The suggestion by the noble Lord, Lord Vaux, of a simple affirmation statement is even more powerful, so that the enabler who is setting up the entity simply has to answer “yes” or “no” to whether the shares are for the beneficial ownership of the name on the share register. My noble friend now has a choice of routes down which he could go if he is minded to take on board either of our amendments.
My Lords, I think I need to say very little given the barrage we have heard. These Benches firmly support the amendments of the noble Lord, Lord Vaux, and congratulate him on putting up with the mispronunciation of his name on such a consistent basis. I expect that the noble Lord, Lord Faulks, has exactly the same problem, so there is a commonality across the Benches here. The noble Lord, Lord Agnew, talked about “heavy lifting” and others have talked about “very light requirements”. Those who have argued for the amendments have made a very strong case, not least my noble friend Lord Wallace of Saltaire on the implications for overseas territories and revealing beneficiaries there. Transparency is the essence of what we are trying to achieve here.
I think we all agree that one of the core competencies of Companies House needs to be expertise in verifying the identity of applicants, whether subscribers or members, and so on. Identity verification, which we will discuss throughout Part 1, will be a vital tool in the policing of the sector if it is to be successful and should be a core competence of what we might call the new model of Companies House. There is some doubt about how far this is being, in a sense, outsourced to others. These amendments make it absolutely clear, particularly as regards nominees, that it should be the applicant and Companies House which make sure that we know who we are dealing with here. It has several distinct advantages and, as everyone has emphasised in this debate, is not an onerous requirement.
I thank noble Lords for their amendments. The Government appreciate their intent but consider that we already have the powers we need in the Bill to address the substance of these concerns. Following on from comments from my noble friend Lord Faulks and the noble Lord, Lord Clement-Jones, we are not discussing the verification of corporate providers. I think there is a significant amount of discussion to be had on that a bit later.
I totally agree about the importance of the transparency of the records and understanding who the beneficial owners of companies are—that is the whole point of much of the work we are undertaking today. On the comments of the noble Lord, Lord Vaux, about the ownership level of 25%, in a private company you have to have your identity verified if you are a director, own 25% or more of the company or are a person with significant control. To clarify, the 25% level does not denote a person with significant control. Somebody who has one share can be a person with significant control, and it is the company’s duty to report who they are. It is extremely important to make that clear in this discussion.
I was not in this great House for the previous piece of legislation, the debate on which has resulted in this new piece of legislation, but I am very aware of the importance of understanding who stands behind the companies—as has rightly been said, to quote myself, the people acting for and benefiting from companies. The 25% level does not denote a person with significant control, and companies suffer significant penalties—the penalty regime, which I am happy to share with noble Lords, is substantial and at the very core of this process.
The noble Lord is quite right: there is the question of being able to influence or control the company other than through shareholdings, but he referred to penalties and so on. How many times has anyone been penalised for failing to provide information about being a person with significant control when they did not hold 25%?
That is exactly the sort of question that should be asked; I look forward to returning to this Committee with the answer, as I unfortunately do not have it at my fingertips. However, I know that Companies House continues to do a great deal of investigation into these matters, even before this Act has come into place.
The noble Lord, Lord Vaux, also raised an important point in saying that it is too easy and cheap to create a company and that the 1855 principles around the corporate veil are a privilege. At the time, they were considered a great risk to the economy, abrogating people of their personal responsibilities and liabilities to the debts of their businesses. It caused great debate, as noble Lords may remember—looking around the Room, not all noble Lords will, but some may. It is important to understand that it comes with privileges and obligations.
Having done a great deal of investigation into this Act, of the 4.8 million companies on the register, I would have thought that many should not be limited companies; it is not necessary for a sole trader or a small partnership to have a company, so I have a degree of sympathy for upgrading the entire concept of what a limited company is and what sort of information should be provided. It may be important, philosophically, to look at it in that way, rather than simply saying, “Here are a very large number of companies; if we impose undue obligations on them, that will be unfair or overly burdensome to businesses.” It is not unreasonable to look at the picture in the round.
Having said that, we undertook a variety of consultations and feel that the way this Bill has been drafted gives us the security to understand who the beneficiaries of companies are and the requirements of companies to record that information and link those individuals across the information processes and systems in Companies House to ensure that we have integrity of data. To require all shareholders to verify their identity would be unnecessarily burdensome for many thousands of companies and, potentially, millions of small shareholders who are simply passive holders of a business.
I would not like my comments to be taken in the wrong way—perhaps in the way that “minimise” has been taken—but we are making a significant change to the way that companies are established in this country and to the sorts of information levels that we require from businesses to ensure the integrity of data at Companies House, in what both individual directors, persons with significant control or corporate service providers and companies have to provide. It is very important that we do not lose sight of the fact that this country is one of the easiest places to do business in the world. Our wealth comes from our entrepreneurial nature and the importance of having a company structure, system and process that does not place unnecessary burdens where they will not necessarily add value.
I am, however, very open to further conversations to ensure that the philosophy presented here matches our ambition, which is to ensure that we understand who benefits from companies and who is behind them.
The noble Lord has explained the onerous nature of verifying the identity of every shareholder, which I accepted in part when I spoke. We will come back to that issue on Amendments 39 and 43. However, he has not talked about whether and why a shareholder making a simple statement as to whether they are holding the shares on their own behalf—and if they are not, on whose behalf they are—is particularly onerous. I am afraid that I do not see why it should be.
The company is obliged to register if there is a person with significant control or someone with more than 25%. If it is not truthful in that registration, it will be committing an offence.
But that is different from any shareholder having to make the positive statement: “I am”—or “I am not”—“holding the shares on my own behalf”. It is very different from, “I’ve got 25% and therefore I have to make some disclosures”. Why is it a problem for an individual shareholder to say, “I’m holding these shares on my own behalf”, or “I’m holding them on behalf of somebody else”? I am sorry, but I really do not see why that is difficult or onerous. It is a very different thing from the 25% threshold that the Minister just mentioned.
I appreciate the noble Lord’s intervention. I expect some of this comes down to nominee companies and the roles that they perform on shareholder registers, but I am happy to look in more detail at this point. We had the good fortune to have a conversation about this some days ago and came to the conclusion that it was certainly worth further investigation to ensure that anyone who puts information on to the Companies House website has to ascertain whether they are acting on behalf of other people. However, I believe, and very much hope, that the answer will lie in the depths of the legislation.
My noble friend Lord Agnew’s amendment is very similar. I hope I have covered this point, particularly in relation to the PSC framework already in place.
I turn to Amendment 5, and thank the noble Lord, Lord Ponsonby, for his helpful replacement of the noble Lord, Lord Coaker, in speaking to it. The amendment would require a memorandum of association to include the nationality and country of ordinary residence of each subscriber. A memorandum of association is a memorandum stating that the subscribers wish to form a company, and they agree to become members of that company. Their names are then entered into the company’s register of members.
This amendment, if I may be so bold, would not require the same information to be provided by persons who later become members. Frankly, it is considered that that would create inconsistency between the information requirements of members who were subscribers and other members. The Government consider that any new information requirements should be consistent between the two.
The Government appreciate the intent behind the amendment, but we consider that this would be better addressed by consulting stakeholders about what additional information, if any, it would be proportionate to require every company to provide about all its members, rather than just subscribers who are individuals. To reinforce that point, we would look to consult stakeholders about what additional information it would be proportionate to require.
This Bill, and government amendments to it, provide the powers to require additional information to be provided via regulations. This discussion can happen on an ongoing basis, and we welcome that. The government amendments that I outlined earlier signal our willingness to review the position on this issue, albeit having first consulted stakeholders, given the potential burdens involved. I know we all agree about the importance of keeping the legislation sensible so that it does not impinge on our entrepreneurial spirit and the creation of companies in this country. That is absolutely right, and noble Lords would expect the Government to consult in ensuring that we get the right information registered in the right way. I hope this reassures the noble Lord and that he will withdraw his amendment.
My Lords, I thank all noble Lords who have spoken in this relatively short but important debate. I make it clear to the Minister that I do not think anyone contributing to this discussion was questioning the underlying philosophy of the Bill. Indeed, we were trying to enhance its underlying philosophy, which is to provide greater transparency about who the ultimate beneficial owners of all these companies are.
The Minister’s response to the various amendments was about disproportionality. He said that they would put disproportional burdens on smaller companies, that personal information may be made available, and that people should be protected from spam, promoters and so on. I do not think anyone is questioning that. Various amendments put forward by various noble Lords try to increase transparency and to stop people being able to hide behind layers and layers of nominee companies.
I was drawn to what the noble Lord, Lord Vaux, said: “Having to lie in public is very different from just keeping quiet”. That is a very sound principle to operate on. He also made the point that identifying shareholders should be the same as identifying directors or people with significant control. That is a second principle behind his amendments.
Nevertheless, there are a variety of amendments here, and it will be interesting to see between now and Report which the Committee decides it wants to focus on. I strongly suspect that this will be an issue that we will want to return to at Report. There are different ways of doing it. I am grateful for the Minister’s offer of further discussions on the broad reach of these amendments, but I certainly get the impression that there is an appetite to test this matter further at the next stage. For now, I beg leave to withdraw Amendment 5.
Amendment 5 withdrawn.
Clause 2 disagreed.
Clause 3 agreed.
Clause 4 disagreed.
6: After Clause 4, insert the following new Clause—
“Information about subscribers
(1) The Companies Act 2006 is amended as follows.(2) In section 9 (registration documents)—(a) after subsection (3) insert—“(3A) The application must contain—(a) a statement of the required information about each of the subscribers to the memorandum of association (see section 9A),(b) a statement that none of the subscribers to the memorandum of association is disqualified under the directors disqualification legislation (see section 159A(2)),(c) if any of them would be so disqualified but for the permission of a court to act, a statement to that effect, in respect of each of them, specifying—(i) the subscriber’s name,(ii) the court by which permission was given, and(iii) the date on which permission was given, and(d) if any of them would be disqualified under the directors disqualification legislation by virtue of section 11A of the Company Directors Disqualification Act 1986 or Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002 (designated persons under sanctions legislation) but for the authority of a licence of the kind mentioned in that section or Article, a statement to that effect, in respect of each of them, specifying—(i) the subscriber’s name, and(ii) the date on which it was issued and by whom it was issued.”;(b) after subsection (6) insert—“(7) In subsection (3A)(c) “permission of a court to act” means permission of a court under a provision mentioned in column 2 of the table in section 159A(2).”.(3) After section 9 insert—“9A Required information about the subscribers(1) The required information about a subscriber who is an individual is—(a) name;(b) a service address.(2) The required information about a subscriber that is a body corporate, or a firm that is a legal person under the law by which it is governed, is—(a) corporate or firm name;(b) a service address.(3) In subsection (1) “name” means the individual’s forename and surname.(4) Where a subscriber is a peer or an individual usually known by a title, that title may be stated in the application for the registration of the company instead of the subscriber’s forename and surname.(5) The Secretary of State may by regulations—(a) amend this section so as to change the required information about a subscriber; (b) repeal subsection (4).(5) Regulations under this section are subject to affirmative resolution procedure.”.(4) In subsection 10 (statement of capital and initial shareholdings), omit subsection (3).(5) In subsection 11 (statement of guarantee), omit subsection (2).”Member’s explanatory statement
This expands the information that an application for the formation of a company must include about the subscribers and confers a power to amend that information (similar powers currently exist in sections 10(3) and 11(2) of the Companies Act 2006). The clause also incorporates material from Clauses 2 and 4.
Amendments 7 and 8 (to Amendment 6) not moved.
Amendment 6 agreed.
Clause 5 agreed.
Clause 6: Proposed officers: disqualification
9: Clause 6, page 4, line 8, after second “permission” insert “of a court”
Member’s explanatory statement
This amendment is consequential on the amendments to Clause 40 that appear in the Minister’s name.
My Lords, I begin by apologising for my lack of fluidity in the procedures of Committee stage—I have not taken such a complex and important Bill through before, so I am grateful for noble Lords’ indulgence and apologise for any confusion caused.
I speak now to the set of government amendments in this group: Amendments 9 to 12, 25 to 30, 40 and 41. These will replace existing Clauses 36 and 38. They create a completely new type of sanctions measure in the Sanctions and Anti-Money Laundering Act 2018 called “director disqualification sanctions”. It will be unlawful for a designated person subject to this new measure to act as a director of a company. These amendments improve and extend the existing clauses, which prohibit individuals who are subject to the asset freeze sanctions measure from acting as directors of companies. Instead of automatically applying director disqualification status to individuals who are subject to an asset freeze only, this amendment allows Ministers to apply the new measure on a case-by-case basis using the existing designation procedure within the Sanctions and Anti-Money Laundering Act 2018. That will ensure that the measure can be better targeted at those designated persons who are acting, or could act, as directors. It provides the Foreign, Commonwealth and Development Office with flexibility as to when to apply it and does not limit it in applying it only to people subject to an asset freeze. That is standard practice for our other designation-based sanctions measures, such as asset freezes and travel bans.
It will be for the Foreign Secretary to decide when and how to deploy the measure, alongside the full suite of other sanctions measures. For instance, this measure could be applied on its own or alongside an asset freeze, travel ban or other measures. While other countries may be able to prevent designated persons from acting as company directors through the effect of other prohibitions, we will be the first country to introduce this as a specific type of sanctions measure.
The amendment will utilise the procedures set out in the Company Directors Disqualification Act 1986 to disqualify the designated person from directorship of UK companies. An individual subject to this new measure will commit an offence if they act as a director of a company or take part in the management, formation or promotion of a company.
As with existing sanctions measures, the relevant authority will be able to issue a licence to an individual to allow them to undertake activity that is otherwise prohibited. This may be necessary, for instance, where the individual needs to continue to act as a director for a short period of time in order to wind down the company. Additionally, the Secretary of State can by regulations create exceptions to provide more general carve-outs from the sanction.
Information about individuals who are subject to this new sanction, and any relevant licences, will be published on the director disqualification register maintained by Companies House, as well as on the UK sanctions list. This will ensure that the use of the sanction is transparent. It will also make the information more easily accessible. Members of the public will be able to find all the relevant information on the existing register, and will not have to search unfamiliar sources to access information on disqualified directors.
Introducing this new director disqualification sanctions measure will be an important addition to the UK’s sanctions armoury. I beg to move Amendment 9 and very much hope that noble Lords will support the other government amendments in this group.
My Lords, I shall speak to my amendment on designated persons. The Minister is already dealing with this issue in some of his own amendments, but I stress that mine would be a slight tweak to the system that would have enormous power over the very few people who would be impacted. Last year only 1,200 people were designated for the Russian activities—across the whole world, not just by us—so we are talking about low numbers of thousands of people relative to the 5 million on the register. We also know that some of these bad actors got wind of their designation before it happened and were able to reorganise their financial affairs, so the horse had well and truly bolted by the time we rumbled into action. This slight amendment would give much more transparency into what these people were doing and allow the enforcement agencies to act accordingly.
My Lords, I note that these various amendments cover England and Wales, Scotland and Northern Ireland, but the UK financial system very much includes Jersey and Guernsey for a great many company formations and associated company forms. I wonder whether at this stage the Minister could explain whether or not the disqualification of persons from being directors within the UK will in time apply to the Crown dependencies, or whether one will still be able to act as a director for companies formed in the Crowd dependencies while disqualified within the UK.
I appreciate the noble Lord’s comment about the Crown dependencies. I am happy to confirm that this debate develops the specific answer to his question. My assumption would be that they fall under the register of overseas entities and the requirements placed around them, but I will confirm that. The noble Lord makes a very valid point. It would be peculiar if we did not include the Crown dependencies of Jersey and Guernsey in our legislation. My assumption is that they are well covered, and I hope that is the case.
I thank my noble friend Lord Agnew of Oulton for his Amendment 24. I assure him that I do not think it is necessary to achieve his intentions. Provisions in the Bill already allow Companies House proactively to share data more widely for purposes connected with its functions. Data sharing will also be permitted to assist public authorities with exercising their own functions. This will include government bodies such as OFSI, which is part of His Majesty’s Treasury, the National Crime Agency and so on. Examples of data sharing could be for the purpose of confirming the accuracy of data provided to the registrar to ensure the register is kept up to date or for passing on intelligence to law enforcement agencies to minimise criminal activity.
Companies House will operate a risk-based approach targeting its efforts primarily in those areas where information and intelligence gleaned through new data-sharing powers and through Companies House’s own systems and processes suggest that particular scrutiny is warranted. The Government believe that this amendment, while well intentioned, is overly prescriptive and would lead to Companies House having to share potentially irrelevant and unnecessary information with OFSI and NCA. This would be an inefficient use of government resources and could lead to more serious intelligence that needs to be shared being missed. Although Companies House already works very closely with government departments, including HM Treasury’s OFSI and law enforcement agencies, this Bill will strengthen these existing relationships through enhanced data-sharing provisions.
This amendment seeks to impose a duty on the registrar only with regard to material information, which it leaves undefined. The imposition of such a vague duty could lead to confused and ineffective results and underlines the importance of the registrar being able to share data using a risk-based approach. Furthermore, information about individuals who are subject to this new sanction and any relevant licences will be published on the director disqualification register maintained by Companies House as well as on the UK sanctions list to ensure that the use of the sanctions measure is transparent. Discussions about implementing the new sanctions measure, including data sharing between Companies House, the Department for Business and Trade and the Foreign, Commonwealth and Development Office, are already under way to ensure that the new measure is effective. For the reasons set out above, I ask my noble friend not to move his amendment.
Amendment 9 agreed.
10: Clause 6, page 4, line 9, at end insert—
“(7) Where any of the persons named as directors would be disqualified under the directors disqualification legislation by virtue of section 11A of the Company Directors Disqualification Act 1986 or Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002 (designated persons under sanctions legislation) but for the authority of a licence of the kind mentioned in that section or Article, the statement must also include a statement to that effect, in respect of each of them, specifying—(a) the person’s name, and(b) the date on which the licence was issued and by whom it was issued.”Member’s explanatory statement
This amendment is consequential on new clauses (Power to impose director disqualification sanctions), (Disqualification of persons designated under sanctions legislation: GB) and (Disqualification of persons designated under sanctions legislation: NI)(which are inserted after Clauses 36 and 38).
Amendment 10 agreed.
Clause 6, as amended, agreed.
Clause 7: Persons with initial significant control: disqualification
Amendments 11 and 12
11: Clause 7, page 4, line 26, at end insert “, and
(c) if any of them would be so disqualified by virtue of section 11A of the Company Directors Disqualification Act 1986 or Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002 (designated persons under sanctions legislation) but for the authority of a licence of the kind mentioned in that section or Article, a statement to that effect, in respect of each of them, specifying—(i) the person’s name, and(ii) the date on which the licence was issued and by whom it was issued.”Member’s explanatory statement
This amendment is consequential on new Clauses (Power to impose director disqualification sanctions), (Disqualification of persons designated under sanctions legislation: GB) and (Disqualification of persons designated under sanctions legislation: NI)(which are inserted after Clauses 36 and 38).
12: Clause 7, page 4, line 29, after second “permission” insert “of a court”
Member’s explanatory statement
This amendment is consequential on the amendments to Clause 40 that appear in the Minister’s name.
Amendments 11 and 12 agreed.
Clause 7, as amended, agreed.
Clauses 8 to 13 agreed.
Clause 14: Directions to change name: period for compliance
13: Clause 14, page 8, line 8, after “days” insert “and no more than 90 days”
Member’s explanatory statement
This amendment, along with other amendments, would require that, when a when a company is ordered to change its name under the provisions of this Bill (including in cases where the name is considered misleading or it may facilitate criminal activity), the company must comply with the order with between 28 and 90 days.
My Lords, Amendment 13 is tabled in my name and those of my noble friends Lord Coaker and Lord Ponsonby. I thank the Minister and his team for all the briefings we have had and for their openness and support in getting us this far, and all noble Lords in the Room for all the information we are gleaning on almost every group that comes before us.
Amendment 13 is part of a group of amendments we have put down that are all connected. The substance of the discussion refers to the fact that when a company has been ordered to change name—including where it could be considered to be misleading or to facilitate economic crime—currently the Bill allows the Secretary of State to order it to complete this within any number of days greater than 28. We have put down this amendment partly as a result of the lengthy discussion in the other place, where there seemed to be some confusion about whether this would be no more than 28 days or whether, as the Minister stated, “at least 28 days” represented the limit. Our amendment seeking clarification on this issue states that the Secretary of State can order the company to change the name within a period of no fewer than 28 days and no more than 90 days. There may well be provision for discretion in other parts of the Bill, but we believe that the clarification should be here.
The other aspect, and the reason for this amendment, is that while the Bill currently reads, as I said, that the Secretary of State must give a company at least 28 days to comply with an order to change its name, we think it unfortunate that it does not give a maximum number of days that a company can be given to change its name. The amendments in this group therefore seek to add
“no more than 90 days”
to ensure that the Secretary of State has to give a company a fixed period of time to change its name.
Does the Minister have a clear understanding of what was put before the Commons and what was discussed? Our very point here is that this needs clarification, and I believe that lack of clarity is unhelpful. With that, I beg to move Amendment 13.
I greatly thank the noble Baroness, Lady Blake, for speaking in this debate and for tabling Amendment 13, to which I will now respond. All these amendments are concerned with directions issued to a company by the Secretary of State requiring it to change its name under provisions already in the Companies Act 2006 and added to that Act by virtue of the Bill.
I am very sympathetic to some of the background comments relating to this amendment, but we feel that it is better to allow an element of flexibility around the time it takes a company to change its name. There is already a 28-day target point, and it is right that the Secretary of State has the opportunity to extend that.
Noble Lords in the Committee who have been involved in company management will know that sometimes, in order to have a formal resolution, there are certain requirements of notice periods for boards, which can be 30 days. For the businesses I have been involved in, that tended to be common practice; you can have a special resolution, but it is more important that the change happens and that we do not necessarily set arbitrary timelines, which could cause other issues at a later date.
I am very comfortable with having a further discussion with the noble Baroness and her colleagues about this in case something has been missed in the debate. Ultimately, I believe that we have set the right level of activity requirements and that allowing the Secretary of State to have the flexibility would be more appropriate given the ambitions we are trying to achieve.
The second element of the amendments—I am not sure whether they were spoken to, but they were certainly proposed so it is worth covering them briefly because they are part of the debate—is the requirement for the Secretary of State to publish details of any directions. Directions are issued to companies by the Secretary of State rather than the registrar so they do not form part of the company register, which is a record of information provided to the registrar by companies and material issued to companies by the registrar. We do not believe it would be appropriate to depart from that principle. However, to repeat commitments made at earlier stages of the Bill, we would be happy to examine on a case-by-case basis the appropriateness of annotating the register where name change directions have been issued. I therefore ask the noble Baroness to withdraw her amendment.
I thank the Minister. I was indeed referring to all the amendments in the group. I note his offer of further conversations to make sure that we have absolutely nailed down the clarification that we are seeking and beg leave to withdraw the amendment.
Amendment 13 withdrawn.
Amendments 14 to 18 not moved.
Clause 14 agreed.
Clauses 15 to 17 agreed.
Clause 18: Direction to change name used for criminal purposes
Amendments 19 and 20 not moved.
Clause 18 agreed.
Clause 19: Direction to change name wrongly registered
Amendments 21 and 22 not moved.
Clause 19 agreed.
Clauses 20 to 28 agreed.
Clause 29: Registered office: appropriate address
23: Clause 29, page 17, line 32, at end insert—
“(2A) An address is not an “appropriate address” if—(a) it is not a place where the business of the company is regularly carried out,(b) the registrar, following appropriate investigation, has reasonable grounds to suspect that the company does not have permission to use the address, or(c) it is a PO Box address.(2B) The Secretary of State may by regulations make provision—(a) for exceptions to subsection (2A), and(b) for the registrar to exercise discretion to disapply subsection (2A) in exceptional cases.”Member’s explanatory statement
This amendment seeks to clarify the Bill’s definition of an “appropriate address” for a company’s registration.
My Lords, Amendment 23 is tabled in the name of my noble friend Lord Coaker, which my noble friend Lord Ponsonby and I have signed in support. The amendment does not form part of a group. It seeks to clarify the Bill’s definition of an appropriate address for company registration. It is aimed in particular at trying to stop the terrible practice—which is widespread, as we heard at Second Reading—of companies using false addresses. Although Clause 28 defines an appropriate address, our amendment goes further in defining what is not an appropriate address, including a Post Office box.
In terms of public awareness of the debate that we are having as the Bill goes through, the use of false addresses is one of the most publicly well-known issues with Companies House, and we really should be putting all our efforts in to try to prevent it. People trying to prove that companies are registering falsely at their address often have to go to far greater lengths to prove that they are the proper residents of the said address than the person setting up the company. I hope that this amendment provides an opportunity to talk about the use of false addresses and, therefore, the impact that it has on the public. It is one of the most visible parts of the current failure of Companies House. As things stand, Companies House does not do any detailed check on an address where a company is registered, particularly if it uses the basic criteria laid down by Companies House.
I am sure that I am not alone in having listened to many of the different programmes in the media, particularly on the radio but on other outlets as well, which have had this vexed issue as their subject. You hear about the absolute distress caused to people, who are completely innocent in the process, who come home and find letters sent to their address and many other factors which lead them to understand that someone has falsely set up a company using their name or address—and on this occasion we are talking about their address. The most important issue to recognise here is that this can take years to disentangle, and it can cause distress and untold misery, and we have a collective responsibility, with the passage of this Bill, to make sure that Companies House does all the work that it can to help.
The important issue to bear in mind is that the onus should be on the businesses to prove that they are legitimate rather than it being on individuals to prove it is a scam and their innocence. I hope that other noble Lords will comment on this amendment, and I hope that collectively we can work together to make sure that innocent members of the public are given the full protection possible by the new legislation. I beg to move.
I take up the noble Baroness’s invitation to comment on this amendment, although I have just received a text from my mother who says that, having been called a business guru by the Minister, I should keep quiet and not say any more. However, this is a very important issue on which I spoke at some length at Second Reading, and quoted an article in the Times highlighting the problem. The noble Baroness is quite right that it blights people’s houses when they find it to be a registered office, which they had not intended it to be and, of course, the information does not go to the right person.
Nevertheless, I am very concerned by this amendment as worded, because it says:
“An address is not an “appropriate address” if … it is not a place where the business of the company is regularly carried out”.
I assume that paragraphs (a), (b) and (c) in the amendment would be separated by an “or”, because many companies choose as their registered office their solicitor or accountant, with good reason, particularly in these days of working from home, start-ups and virtual companies, where they do not have a single office space but move around the place. The main place of business may be an apartment where they happen to live, so it is convenient and sensible to choose a solicitor’s or accountant’s office as their base. Indeed, when I worked as a chartered account in a large accountancy firm some 35 years ago, that was very common.
Sadly, I do not think the amendment as worded achieves what the noble Baroness seeks, but neither does the Bill: with the greatest respect to the Minister,
“would be expected to come to the attention of a person acting on behalf of the company”
is a bit convoluted for what we know we want to achieve. Although I cannot support this amendment at this time, I very much hope that before the next stage, we might come up with some wording that achieves where we all want to go.
My Lords, I have two very short points on this. First, I agree with the noble Lord, Lord Leigh of Hurley. I do not think paragraph (a) in the amendment works: the registered address does not have to be the place of business, it often is not and there are often perfectly good reasons for that; but paragraph (b) is incredibly important, concerning this use of people’s addresses for, effectively, fraudulent purposes. Often, the first thing the person whose address it is knows about it is a letter from HMRC with a massive VAT demand: this is particularly used for VAT fraud. It is really important that Companies House works closely—a point discussed on a previous group—with other agencies, particularly HMRC, to make sure that this sort of thing is knocked on the head.
My Lords, the Companies Act says at Section 9(5) that an application
“must contain a statement of the intended address of the company’s registered office”.
That is all on registration. That opens up the sort of abuses that we have heard from the noble Baroness and the two noble Lords who have already spoken. I tend to agree with the two noble Lords, having been a solicitor myself, that it is perfectly responsible for a solicitor’s or accountant’s office to be used as a registered office, but nevertheless, the way in which the Government have attacked it does not cover the whole ground. It is very sensible, in addition to the way the Government have put it, to define an appropriate office in the negative sense. That would not include the solicitor’s or accountant’s office, for the reasons given.
My Lords, I have very little to add to what my noble friend said. This is clearly a bit of a curate’s egg and Amendment 23 is a good start, but there are objections to it, which were very well set out by the noble Lords, Lord Leigh and Lord Vaux. As my noble friend said, it is quite usual to use professional offices as a registered office. I hope the Minister will acknowledge that new subsection (2) in Clause 29(3) is not as good as it should be and that he will take on board some of the points made about Amendment 23. Then, we would be in a much better place.
I thank the noble Lords, Lord Vaux and Lord Leigh, the noble Baroness, Lady Blake, and the noble Lords, Lord Thomas and Lord Clement-Jones, for their contribution to the debate on this issue.
The Government’s view is that Clause 29 already introduces a revised Section 86 to the Companies Act 2006 in an effort to introduce a definition of what constitutes an acceptable and effective address for a company’s registered office. The amendment seeks to define the opposite: what would not represent an appropriate address. I hope your Lordships will agree with the following argument for why that is unnecessary.
I begin with the suggestion that PO box addresses be explicitly forbidden. We do not believe there is a need for this. A PO box address cannot be an address at which deliveries can be acknowledged, nor an address to which a sender can be assured that what is sent will find its way to the hands of a company representative. It is therefore clearly not an appropriate address—we very much agree with the noble Baroness on that.
I turn to the “reasonable suspicion” element of the amendment. Where the registrar has reasonable grounds to suspect that the company does not have permission to use an address, she will almost inevitably conclude that the conditions that I have just mentioned will not be capable of being met and, again, she will be within her rights to reject or force the company to change it as appropriate.
The other element of the amendment would prevent companies having their registered office address anywhere other than their main place of business. There are, frankly, many reasons why a company may choose to separate the two, so this could be problematic for many companies. That includes, for example, particularly small enterprises that carry out businesses from home but choose to register the company at the premises of their accountant in order to protect their residential address details, which I think we would agree is perfectly reasonable. We have been at pains elsewhere in the Bill to introduce measures to extend, where appropriate, the ability to suppress addresses that the public have access to which might jeopardise the safety or security of individuals. There are elements of the amendment that we believe would run contrary to those aims.
I hope the Committee will be reassured that new Section 86 will be an effective means by which to monitor and police the accuracy of company address information and that the noble Baroness will feel able to withdraw her amendment. As a final point, I personally have great sympathy with the ambitions of the amendment to make sure that the right address is being provided for the company register, but I hope I have laid out the reasons why the processes that the Government have put in the legislation should be sufficient to ensure that real addresses are given and other protections are employed.
Personally, I am convinced by what the Minister has said about the substitute for Section 86. I just have one query. It creates an offence whereby a person is guilty on summary conviction. The offence appears to be committed by a company and
“every officer of the company who is in default.”
Could the Minister help with who the statute envisages will be an officer of the company who is in default?
I appreciate that comment. I will come back to the noble Lord with more detail, if that is possible.
I thank noble Lords for their comments, and I thank the Minister for his explanation. We will of course take those comments away and consider them, but at the moment I feel that there is still room to explore this issue and perhaps come up with another form of wording to take forward at a future stage. As I said earlier, the emphasis on reflecting the fact that the onus is on a business to prove that it is legitimate will need to run through all this. With those comments, and in anticipation of future discussions, I beg leave to withdraw the amendment.
Amendment 23 withdrawn.
Clause 29 agreed.
Clauses 30 to 35 agreed.
Clause 36: Disqualification of persons designated under sanctions legislation: GB
Amendment 24 not moved.
Clause 36 disagreed.
Amendments 25 and 26
25: After Clause 36, insert the following new Clause—
“Power to impose director disqualification sanctions
(1) The Sanctions and Anti-Money Laundering Act 2018 is amended as follows.(2) In section 1 (power to make sanctions regulations), in subsection (5), after paragraph (a) insert—“(ab) impose director disqualification sanctions (see section 3A);”.(3) After section 3 insert—“3A Director disqualification sanctions(1) For the purposes of section 1(5)(ab) regulations “impose director disqualification sanctions” if they provide for designated persons (see section 9) to be persons subject to director disqualification sanctions for the purposes of—(a) section 11A of the Company Directors Disqualification Act 1986, and(b) Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.(2) As to the effect of such provision, see—(a) section 11A of the Company Directors Disqualification Act 1986, and(b) Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.”(4) In section 9 (“designated persons”)—(a) in subsection (1), for “3 and 4” substitute “3 to 4”;(b) in subsection (3), after “3,” insert “3A,”.(5) In section 15 (exceptions and licences), after subsection (3) insert—“(3A) Where regulations provide for designated persons to be persons subject to director disqualification sanctions for the purposes of section 11A of the Company Directors Disqualification Act 1986 and Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002, the regulations may—(a) create exceptions from subsection (1) of that section or paragraph (1) of that Article;(b) confer power on an appropriate Minister to issue a licence to authorise a designated person to do anything that would otherwise be prohibited by subsection (1) of that section or paragraph (1) of that Article.(3B) Regulations may, as respects any licences provided for under subsection (3A), make any provision mentioned (in relation to licences) in subsection (3).””Member’s explanatory statement
This Clause would allow an appropriate Minister to designate a person as subject to “director disqualification sanctions” for the purposes of section 11A of the Company Directors Disqualification Act 1986 and Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.
26: After Clause 36, insert the following new Clause—
“Disqualification of persons designated under sanctions legislation: GB
(1) The Company Directors Disqualification Act 1986 is amended as follows.(2) After section 11 insert—“11A Designated persons under sanctions legislation(1) It is an offence for a person who is subject to director disqualification sanctions to act as a director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company (but see subsection (2)).(2) Subsection (1) does not apply—(a) to the extent that an exception from subsection (1) has been created by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018, or(b) to anything done under the authority of a licence issued by virtue of section 15(3A) of that Act.(3) It is a defence for a person charged with an offence under this section to prove that they did not know and could not reasonably have been expected to know that they were subject to director disqualification sanctions at the time at which they engaged in that conduct.(4) In this section “person who is subject to director disqualification sanctions” means a person who under regulations under section 1 of the Sanctions and Anti-Money Laundering Act 2018 is a person subject to director disqualification sanctions for the purposes of this section (see section 3A of that Act).”(3) In section 13 (criminal penalties), after “section 11” insert “or 11A ”.(4) In section 14 (offences by body corporate), for subsection (1) substitute—“(1) Where—(a) a body corporate is—(i) guilty of an offence of acting in contravention of a disqualification order or disqualification undertaking or in contravention of section 12A or 12B, or(ii) guilty of an offence under section 11A, and(b) it is proved that the offence occurred with the consent or connivance of, or was attributable to any neglect on the part of any director, manager, secretary or other similar officer of the body corporate, or any person who was purporting to act in any such capacity,the person, as well as the body corporate, is guilty of the offence and liable to be proceeded against and punished accordingly.”(5) In section 15 (personal liability for company’s debts where person acts while disqualified)—(a) in subsection (1)(a), after “section 11” insert “, 11A”;(b) omit the “or” at the end of subsection (1)(a);(c) after subsection (1)(b) insert “, or(c) as a person who is involved in the management of the company, they act or are willing to act on instructions given in contravention of section 11A or Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.”;(d) after subsection (1) insert—“(1A) A person who is subject to director disqualification sanctions (within the meaning of section 11A) and is involved in the management of a company is not personally responsible under subsection (1)(a) for all of the relevant debts of a company if the person proves that they did not know and could not reasonably have been expected to know that they were subject to director disqualification sanctions at the time at which they were so involved.”;(e) in subsection (3)(b), after “(b)” insert “or (c)”.(6) In section 18 (register of disqualification orders and undertakings), in subsection (2A), after paragraph (c) insert—“(d) persons who are subject to director disqualification sanctions within the meaning of section 11A;(e) any licences issued by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018.” (7) In section 21 (interaction with Insolvency Act), in subsection (4), after “section 11” insert “, 11A”.”Member’s explanatory statement
This Clause provides that any person who has been designated as being subject to director disqualification sanctions will be committing an offence if they act as a director etc. in GB, unless they have been issued with a licence or unless an exception applies.
Amendments 25 and 26 agreed.
Clause 37 agreed.
Clause 38 disagreed.
27: After Clause 38, insert the following new Clause—
“Disqualification of persons designated under sanctions legislation: NI
(1) The Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4)) is amended as follows.(2) After Article 15 insert—“15A Designated persons under sanctions legislation(1) It is an offence for a person who is subject to director disqualification sanctions to act as a director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company (but see paragraph (2)).(2) Paragraph (1) does not apply—(a) to the extent that an exception from paragraph (1) has been created by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018, or(b) to anything done under the authority of a licence issued by virtue of section 15(3A) of that Act.(3) It is a defence for a person charged with an offence under this Article to prove that they did not know and could not reasonably have been expected to know that they were subject to director disqualification sanctions at the time at which they engaged in that conduct.(4) In this Article “person who is subject to director disqualification sanctions” means a person who under regulations under section 1 of the Sanctions and Anti-Money Laundering Act 2018 is a person subject to director disqualification sanctions for the purposes of this Article (see section 3A of that Act).”(3) In Article 18 (criminal penalties)—(a) omit “15,”;(b) for “and” substitute “; and any person guilty of an offence under this Article or Article 15 or 15A”.(4) In Article 19 (personal liability for company’s debts where person acts while disqualified)— (a) in paragraph (1)(a), after “Article 15” insert “, 15A”;(b) omit the “or” at the end of paragraph (1)(a);(c) after paragraph (1)(b) insert “, or(c) as a person who is involved in the management of the company, they act or are willing to act on instructions given in contravention of Article 15A or section 11A of the Company Directors Disqualification Act 1986.”;(d) after paragraph (1) insert—“(1A) A person who is subject to director disqualification sanctions (within the meaning of Article 15A) and is involved in the management of a company is not personally responsible under paragraph (1)(a) for all of the relevant debts of a company if the person proves that they did not know and could not reasonably have been expected to know that they were subject to director disqualification sanctions at the time at which they were so involved.”;(e) in paragraph (3)(b), after “(1)(b)” insert “or (c)”.”Member’s explanatory statement
This Clause provides that any person who has been designated as being subject to director disqualification sanctions will be committing an offence if they act as a director etc. in NI, unless they have been issued with a licence or unless an exception applies.
Amendment 27 agreed.
Clause 39 agreed.
Clause 40: Disqualified directors
Amendments 28 to 30
28: Clause 40, page 27, line 5, column 2, after “court” insert “or the authority of a licence, or in respect of which an exception applies,”
Member’s explanatory statement
This amendment is consequential on new Clauses (Power to impose director disqualification sanctions), (Disqualification of persons designated under sanctions legislation: GB) and (Disqualification of persons designated under sanctions legislation: NI)(which are inserted after Clauses 36 and 38).
29: Page 27, leave out lines 14 to 17 and insert—
“P is subject to director disqualification sanctions within the meaning of section 11A of the Company Directors Disqualification Act 1986. Section 15(3A) of the Sanctions and Anti- Money Laundering Act 2018 (exceptions and licences).”
“P is subject to director disqualification sanctions within the meaning of section 11A of the Company Directors Disqualification Act 1986.
Section 15(3A) of the Sanctions and Anti- Money Laundering Act 2018 (exceptions and licences).”
This amendment is consequential on new clauses (Power to impose director disqualification sanctions) and (Disqualification of persons designated under sanctions legislation: GB) (which are inserted after Clause 36).
30: Page 28, leave out lines 11 to 15 and insert—
“P is subject to director disqualification sanctions within the meaning of Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002. Section 15(3A) of the Sanctions and Anti- Money Laundering Act 2018 (exceptions and licences).”
“P is subject to director disqualification sanctions within the meaning of Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.
Section 15(3A) of the Sanctions and Anti- Money Laundering Act 2018 (exceptions and licences).”
This amendment is consequential on new Clauses (Power to impose director disqualification sanctions) and (Disqualification of persons designated under sanctions legislation: NI) (which are inserted after Clauses 36 and 38)
Amendments 28 to 30 agreed.
Clause 40, as amended, agreed.
Clauses 41 to 45 agreed.
Clause 46 disagreed.
31: After Clause 46, insert the following new Clause—
“Register of members: information to be included and powers to obtain it
(1) The Companies Act 2006 is amended as follows.(2) In section 112 (the members of a company), at the end insert—“(4) Where an individual’s name is entered in a company’s register of members but is not in the form required by section 113A, that does not affect the person becoming a member of the company by virtue of subsection (2).”(3) For the italic heading “General” at the beginning of Chapter 2 of Part 8 substitute “Duty to keep register”.(4) In section 113 (register of members)—(a) for subsection (2) substitute—“(2) There must be entered in the register, in respect of each person who is a member—(a) the required information (see sections 113A and 113B), and(b) the date on which the person was registered as a member.(2A) Where a person ceases to be a member there must be entered in the register the date at which the person’s membership ceased.”;(b) in subsection (3), omit “, with the names and addresses of the members,”;(c) in subsection (5), after “show a single” insert “service”;(d) in subsection (6), omit “, with the names and addresses of the members,”;(e) after subsection (6) insert—“(6A) Where any of the information required to be entered in a company’s register of members changes—(a) that does not relieve the company from the obligation to include the old information in the register if it has not already done so,(b) the old information must be retained in the register until its removal is authorised by section 121 or by court order under section 125, and(c) a note must be included in the register recording the date on which the information changed and the date on which the change was entered in the register.”;(f) in subsection (7), after “If” insert “, without reasonable excuse,”.(5) After section 113 insert—“113A Required information about members: individuals(1) The required information about a member who is an individual is—(a) name;(b) a service address. (2) In this section “name” means forename and surname.(3) Where a member is a peer or an individual usually known by a title—(a) any requirement imposed by section 113D or 113E, or by a notice under section 113F, to provide their name may be satisfied by providing their title instead;(b) the title may be entered in the register of members instead of their forename and surname (and references in any enactment to the name of a person entered in a company’s register of members are to be construed accordingly).113B Required information about members: corporate members and firmsThe required information about a member that is a body corporate, or a firm that is a legal person under the law by which it is governed, is—(a) corporate or firm name;(b) a service address.113C Power to amend the required information(1) The Secretary of State may by regulations—(a) make provision changing the required information about a member for the purposes of this Chapter;(b) repeal section 113A(3).(2) The provision that may be made in regulations under subsection (1)(a) includes provision amending this Chapter.(3) The consequential provision that may be made in regulations under subsection (1)(a) by virtue of section 1292(1) also includes provision amending section 51 of the Economic Crime and Corporate Transparency Act 2023.(4) Regulations under subsection (1) are subject to affirmative resolution procedure.113D Duty on new members to notify required information(1) A person who becomes a member of a company must provide the company with the required information about the member (see sections 113A and 113B).(2) Subsection (1) does not apply if or to the extent that—(a) the person has already provided the information to the company, or(b) the person becomes a member of the company on its incorporation and the information is contained in the application for the registration of the company.(3) A person must comply with this section within the period of two months beginning with the date on which the person became a member.113E Duty on member to notify changes to required information(1) A person who is a member of a company must give notice to the company of any change in the required information about the member (see sections 113A and 113B).(2) The notice must specify the date on which the change occurred.(3) A person must comply with this section within the period of two months beginning with the date on which the change occurred.113F Power for company to require information from members(1) A company may, for the purposes of ensuring that its register of members includes the information that it is required to include, require a member or former member of the company to provide any of the required information about the member or former member (see sections 113A and 113B). (2) The notice must require the recipient to comply with it within the period of one month beginning with the date on which the notice is given.113G Failure to comply with section 113D , 113E or 113F(1) A person who, without reasonable excuse, fails to comply with section 113D or 113E commits an offence.(2) A person who, without reasonable excuse, fails to comply with a notice under section 113F commits an offence.(3) Where an offence under subsection (1) or (2) is committed by a firm, the offence is also committed by every officer of the firm who is in default.(4) A person guilty of an offence under this section is liable—(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);(b) on summary conviction—(i) in England and Wales, to imprisonment for a term not exceeding the general limit in a magistrates’ court or a fine (or both);(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum (or both) and, for continued contravention, a daily default fine not exceeding one-fifth of the statutory maximum;(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum (or both) and, for continued contravention, a daily default fine not exceeding one-fifth of the statutory maximum.113H Basic false statement offences in connection with sections 113D to 113F(1) A person commits an offence if, in purported compliance with section 113D or 113E and without reasonable excuse, the person makes a statement that is misleading, false or deceptive in a material particular.(2) A person commits an offence if, in purported compliance with a notice under section 113F and without reasonable excuse, the person makes a statement that is misleading, false or deceptive in a material particular.(3) Where an offence under subsection (1) or (2) is committed by a firm, the offence is also committed by every officer of the firm who is in default.(4) A person guilty of an offence under this section is liable—(a) on summary conviction in England and Wales, to a fine;(b) on summary conviction in Scotland, to a fine not exceeding level 5 on the standard scale;(c) on summary conviction in Northern Ireland, to a fine not exceeding level 5 on the standard scale.113I Aggravated false statement offences in connection with sections 113D to 113F(1) A person commits an offence if, in purported compliance with section 113D or 113E, the person makes a statement that the person knows to be misleading, false or deceptive in a material particular.(2) A person commits an offence if, in purported compliance with a notice under section 113F, the person makes a statement that the person knows to be misleading, false or deceptive in a material particular. (3) Where an offence under subsection (1) or (2) is committed by a firm, the offence is also committed by every officer of the firm who is in default.(4) A person guilty of an offence under this section is liable—(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);(b) on summary conviction—(i) in England and Wales, to imprisonment for a term not exceeding the general limit in a magistrates’ court or a fine (or both);(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum (or both) and, for continued contravention, a daily default fine not exceeding one-fifth of the statutory maximum;(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum (or both) and, for continued contravention, a daily default fine not exceeding one-fifth of the statutory maximum.Duty to keep index of members”.(6) Section 115 (index of members)—(a) is moved to after the italic heading “Duty to keep index of members” inserted by subsection (5) of this section, and(b) is renumbered section 113J.(7) In that section as renumbered—(a) in subsection (1), for “names of the members of the company” substitute “names or titles of the members of the company (to be known as “the index of members’ names”)”;(b) for subsection (3) substitute—“(3) The index must include the same details of a person’s name or title as are entered in the register of members.”(8) Before section 114 insert—“Inspection etc of register and index of members”.(9) Before section 121 insert—“Removal of entries from register of members”.(10) In section 123 (single member companies)—(a) in subsection (1), omit “, with the name and address of the sole member,”;(b) in subsection (2), omit “, with the name and address of the sole member”;(c) in subsection (3), omit “, with the name and address of the person who was formerly the sole member”.(11) In section 771 (procedure on transfer being lodged), after subsection (1) insert—“(1A) The company may not register the transfer under subsection (1)(a) unless satisfied that it has the information that it is required to enter in its register of members in relation to the transferee.””Member’s explanatory statement
This Clause confers a power to amend the information that must be kept in a company’s register of members. It also creates an express duty for companies to retain old information about members (eg former address information).
Amendments 32 and 33 (to Amendment 31) not moved.
Amendment 31 agreed.
Clause 47 disagreed.
Clause 48 agreed.
Clause 49: Register of members: protecting information
Amendments 34 and 35
34: Clause 49, page 33, leave out lines 19 to 33 and insert—
“(1) The Secretary of State may by regulations—(a) require a company to refrain from using, or refrain from disclosing, individual membership information except in circumstances specified in the regulations;(b) confer power on the registrar, on application, to make an order requiring a company to refrain from using, or refrain from disclosing, individual membership information except in circumstances specified in the regulations.”Member’s explanatory statement
This allows the Secretary of State to make regulations requiring a company to refrain from using or disclosing membership information, whether or not a member applies for protection.
35: Clause 49, page 33, line 39, leave out “this section” and insert “subsection (1)(b)”
Member’s explanatory statement
This is consequential on the other amendment to Clause 49 that appears in the Minister’s name.
Amendments 34 and 35 agreed.
Clause 49, as amended, agreed.
Clause 50 agreed.
Schedule 1 agreed.
Clause 51: Membership information: one-off confirmation statement
Amendments 36 to 38
36: Clause 51, page 35, line 16, leave out “section 46(3) comes fully into force” and insert “the appointed day”
Member’s explanatory statement
This severs the link between the operation of Clause 51 and the commencement of Clause 46. The appointed day could be later than the commencement of Clause 46, allowing a company more time to obtain the information it has to provide to the registrar.
37: Clause 51, page 35, line 19, leave out “the day on which section 46(3) comes fully into force” and insert “the appointed day”
Member’s explanatory statement
This amendment is consequential on the amendment to Clause 51, page 35, line 16, which is tabled in the Minister’s name.
38: Clause 51, page 35, line 44, at end insert—
““the appointed day” means such day as the Secretary of State may by regulations appoint for the purposes of this section;”Member’s explanatory statement
This amendment is consequential on the amendment to Clause 51, page 35, line 16, which is tabled in the Minister’s name.
Amendments 36 to 38 agreed.
Clause 51, as amended, agreed.
39: After Clause 51, insert the following new Clause—
“Disclosure of control of 5% or more of shares in a private or public company
(1) A person who controls 5% or more of the shares in a company must declare that fact to the registrar.(2) The duty in subsection (1) applies whether the person controls the shares directly or indirectly.(3) The registrar may impose a penalty on any person who fails to comply with the duty in subsection (1).(4) Subsection (5) applies where—(a) a person has made a declaration under subsection (1), and(b) the registrar has identified a matter of concern under subsection 1062A(1A) of the Companies Act 2006 in relation to the person or the declaration.(5) The registrar must—(a) verify the identity of the person, and(b) verify the number of shares the person claims to control.”Member’s explanatory statement
This creates a duty of disclosure on shareholders holding more than 5% of shares in a company. Non-compliance may incur a penalty. The registrar must verify the declarant’s identity, and the number of shares they control by cross referencing against other documents, such as company records. The reference to 1062A(1A) relates to the amendment tabled by Lord Agnew to Clause 90, page 69, line 27.
My Lords, this amendment builds on my opening comments in relation to Amendment 44 and goes to the core of the Bill and transparency. It asks that shareholders with more than a 5% shareholding are disclosed on the register. I am conscious of burdens that that might impose on businesses, but the reality is that it is a maximum of 20 entities per company and, in reality, it would be far less than that. Any business in operation maintains its own cap table—the “cap” is the capitalisation of the company—so my proposal is that that is made available on public records. I do not see why we cannot have this. I am sure that my noble friend will ask me to withdraw the amendment, and I simply ask him to explain how we are going to have a comparable level of transparency if this sort of mechanism is not available. So much of the trouble is lurking in the undergrowth in my experience. This is a one-off opportunity to surface this sort of information to help us track bad actors.
Amendment 43 has a similar theme about persons of significant control. It is part of the replumbing of Companies House, which needs to carry out some analysis of the identity of people who are claiming significant control to make sure they are people whose identity, and the connections they have to other entities, is known and on the register. I return to my earlier comment that, if my noble friend does not want to do this, what is the strategy for this kind of understanding of the behaviour of these sorts of organisations? If we are not going to have the amendment that I am proposing, what is the alternative? What are the mechanisms that are going to give us some reassurance that we have control and understanding of the people on the Companies House register? I beg to move.
When my noble friend the Minister replies to this debate, I wonder whether he would consider accepting the amendment in due course with a de minimis size qualification. This would be quite onerous for a large number of private companies, such as family businesses, where ownership changes quite regularly, and small businesses that have enough to do without worrying about perfectly innocent share transfers. For larger companies—public companies in particular—this may not be too onerous. I remind the House of my comments at Second Reading that the Quoted Companies Alliance had calculated that the average public company accounts now comprise 95,000 words—no one is keen to add any more words to that. I would certainly not wish to see this apply to private and SME businesses.
My Lords, I support these amendments. I have listened to what the noble Lord, Lord Leigh, has said and will perhaps think about that. I should declare my interest as a director of the London Stock Exchange. At 5% ownership, there are significant things that can be done: if it is a public company, at 5% you can apply to the court to prevent it going private. That is a significant power, and we ought to know that it is applied properly. I guess the court would find out if you were not who you said you were; nevertheless, you might be masquerading as such and could still have influence—you could call general meetings and propose resolutions. These are all events that could have a significant effect on companies of all sizes. I tend to feel, therefore, that other shareholders need to know that things have been properly verified.
I have sympathy for the SME angle and will think about it further. However, just because you are small does not mean that you do not need to know some of these things, including who might have an exercisable right which you know has been verified. I would probably follow suit in the decision on persons with significant control: if you are going to exempt SMEs, they should be exempted for both; if they are going to be included, they should be included in both. I am still veering towards including them, simply because it is a substantial power. There are plenty of private SMEs in which people have significant sums invested, and I do not really see that they should be protected any less from not having full awareness of who really holds these powers to do things or of whether they are sheltering a nominee.
At the moment, my tendency is to support both of these amendments as they stand, with the caveat that I will go away and think a bit about whether this would be too onerous for SMEs. We have to remember, however, that the “M”s of SMEs can be quite big.
I am not wholly convinced that what you would be required to do under this amendment is very onerous. I remember looking at this when we were examining the desirability of transparency in relation to ownership of shares. Presuming bad actors—although this is, I hope, infrequently the case—it is very easy for someone to, as it were, redistribute their shares to smaller packages if they wanted to conceal their identity. I am not saying that that is what people do most of the time, but it would be more difficult if there were an obligation to disclose of the sort contained in this amendment.
My Lords, very quickly, I will not repeat what we said on an earlier group, but these two amendments cover very much the same sort of areas of transparency. I ask the Minister—probably as a matter of relative urgency, given the discussions we have had—whether he could facilitate a meeting of the various interested parties so that we can try to thrash out where we want to start to coalesce around these issues, as that would be helpful.
I declare that I am a shareholder in an SME. We need to be aware that there are various classes of shares. You could be a 5% shareholder in terms of owning the company, but an 80% shareholder in the voting shares. Whatever the outcome of these discussions, we need to be very clear which type of shares we are talking about.
I was going to make a similar point. Obviously, there are a number of different classes of shares; as it stands, the amendment is, with respect, a little unclear as to how it would operate in relation to voting shares, non-voting shares, preference shares, class A shares, class B shares and so forth. That would need to be tightened up.
On the amendment creating a dangerously onerous regime, it occurred to me that a further aspect of its onerousness relates to what the registrar is required to do pursuant to this amendment. It currently states that the registrar must
“verify the number of shares the person claims to control.”
If taken literally, that might require the registrar to look quite carefully at what is being said about the slightly tricky concept of control, which is not quite the same as ownership. That might need to be reconsidered in due course, or perhaps watered down or removed.
Noble Lords, including my noble friend Lady Bowles, have usefully teased out some of the principles that we need to adopt and the fact that we are not quite there in terms of trying to find a relatively simple formula that is not unduly onerous. They also point out that the current provisions are not adequate. Indeed, it is quite interesting that we have two separate groups here, in coming to government Amendment 42. This whole area of persons with significant control and what the noble Lord, Lord Agnew, set out in terms of shareholders holding more than 5% of shares demonstrate that we need a greater level of transparency.
I very much hope that the Minister will come back in the spirit in which these proceedings have been conducted and say, “Yes, we think there is more to be done and that it is possible to get over the SME issue that has been raised by a number of noble Lords. However, we think in principle that it is desirable to go down this sort of route that has been suggested.” I hope that we will get a positive reply from the Minister and an undertaking to take this forward in the way that the noble Lord, Lord Vaux, suggested.
My Lords, I echo what the noble Lord, Lord Clement-Jones, said. When the noble Lord, Lord Agnew, moved Amendment 39, which places a duty to register on those owning 5% or more of shares, and he spoke to his Amendment 43, which creates an obligation for the registrar to examine the statements attesting to the identity of the person, by his tone he made it crystal clear that that was not the last word on the subject. In fact, he threw down a challenge to the Minister in introducing that group and saying, “If not this, then what? What will be the strategy to combat the bad actors?”
As he said, the problems lie in the undergrowth. There are shareholders with smaller shareholdings, and maybe there are multiple companies owning small shareholdings; there are many ways of hiding things and many who will facilitate those who want to hide their wealth. The whole theme of this group is a challenge to the Minister; it is not about the detail of the amendments themselves. I look forward to what he has to say.
I thank the noble Lord, Lord Ponsonby, for that summation. I am very grateful to noble Lords for the powerful reason which they bring to bear on these amendments. The Government are delighted to have more discussions around how we ensure that we have full knowledge of people who have control of companies and of companies’ beneficiaries. I believe that the Bill as it stands gives us that level of security. The Government would be reluctant to set arbitrary levels in terms of that above a certain percentage one should have additional registration information, but I am happy to have a discussion around those principles, if that is helpful.
If people do not have confidence in Companies House, we will not have achieved part of our goal, which is to give people a sense of that the data has integrity and is true. The whole point about this exercise is to make sure that people put the right data in so that we know who the people are who are behind businesses and people can trust that information. I am very sympathetic to this discussion, which is extremely important.
To balance this, I say that this is about helping businesses function better in a lawful environment. One can go to the ultimate degree in terms of requirements for information and verification that do not necessitate greater degrees of security but cause significant burdens for businesses. This is not simply about satisfying our desire for excess information simply for the sake it; it must be linked to whether this is going to help us achieve our basic goals, which is to understand who owns these businesses, who is behind them and who is benefiting from them. With that in mind, I am open to having further discussions, as my colleagues would be.
I thank the Minister for his offer to have an ongoing conversation about this, because that is how you achieve the best results in these things. This very formal and rigid process of trying to look at individual clauses in isolation does not solve the problem. We have had several clauses this afternoon that all mesh together with one objective, which is to improve transparency. I take my noble friend Lord Leigh’s point about creating a bureaucratic system that impacts adversely on thousands of decent people, particularly small businesses. However, the transaction of changing car ownership in this country, where you have an asset worth a few thousand pounds, it is a very simple process. You fill in a change of ownership form, you send it to the DVLA, and the job is done—so to the point made by my noble friend Lord Faulks, I do not believe that we have to create a bureaucratic system to get transparency.
I remind noble Lords of the downside of not having this information. A case study was given to me by Members in the other place. The awful ammonium nitrate explosion in Beirut a couple of years ago killed and wounded hundreds of people. It was eventually uncovered that the company that owned the warehouse was a British-registered company, Savaro Ltd, but it was almost impossible to find out who the shareholders of that company were and to get to grips with who were the people who caused that terrible accident.
There is a lot more to this issue. As someone who has created a lot of small businesses in my career, I do not want a heavy hand on this, but light-touch regulation done well is the answer. I urge my noble friend to have an open conversation with Members here as a way of solving the problem in a business sense, not in this very formal way.
I appreciate my noble friend’s summation. Again, I hope that the Government have demonstrated today that the principles of the Bill conform to the expectations and desires of this Committee. Clearly, there are details that require further discussion, and that debate will help propagate the ambitions and values that we are trying to inject into the Bill. I am grateful for the comments but, in this instance, I ask my noble friend to withdraw his amendment, given that we will have further discussions to try to ascertain the right levels and what burdens we should impose on business to achieve our outcomes.
I beg leave to withdraw the amendment.
Amendment 39 withdrawn.
Clause 52 agreed.
Schedule 2: Abolition of certain local registers
Amendments 40 and 41
40: Schedule 2, page 177, line 26, at end insert—
“(f) if the person would be disqualified under the directors disqualification legislation by virtue of section 11A of the Company Directors Disqualification Act 1986 or Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002 (designated persons under sanctions legislation) but for the authority of a licence of the kind mentioned in that section or Article, a statement to that effect specifying—(i) the date on which the licence was issued, and(ii) by whom it was issued.”Member’s explanatory statement
This amendment is consequential on new Clauses (Power to impose director disqualification sanctions), (Disqualification of persons designated under sanctions legislation: GB) and (Disqualification of persons designated under sanctions legislation: NI) (which are inserted after Clauses 36 and 38).
41: Schedule 2, page 177, line 27, after second “permission” insert “of a court”
Member’s explanatory statement
This amendment is consequential on the amendments to Clause 40 that appear in the Minister’s name.
Amendments 40 and 41 agreed.
Schedule 2, as amended, agreed.
Clause 53 agreed.
42: After Clause 53, insert the following new Clause—
“False statements about persons with significant control
(1) Schedule 1B to the Companies Act 2006 (enforcement of disclosure requirements in relation to persons with significant control) is amended as follows.(2) In paragraph 13, in sub-paragraph (1), omit paragraph (b) and the “or” before it.(3) In paragraph 14, in sub-paragraph (1), omit paragraph (b) and the “or” before it.(4) After paragraph 14 insert—“False statements: basic offence14A_(1) A person commits an offence if, in purported compliance with a notice under section 790D or 790E or in purported compliance with a duty imposed by section 790G or 790H, and without reasonable excuse, the person makes a statement that is misleading, false or deceptive in a material particular.(2) Where the person is a legal entity, an offence is also committed by every officer of the entity who is in default.(3) A person guilty of an offence under this paragraph is liable on summary conviction—(a) in England and Wales, to a fine;(b) in Scotland, to a fine not exceeding level 5 on the standard scale;(c) in Northern Ireland, to a fine not exceeding level 5 on the standard scale.False statements: aggravated offence14B_(1) A person commits an offence if, in purported compliance with a notice under section 790D or 790E or in purported compliance with a duty imposed by section 790G or 790H, the person makes a statement that the person knows is misleading, false or deceptive in a material particular.(2) Where the person is a legal entity, an offence is also committed by every officer of the entity who is in default.(3) A person guilty of an offence under this paragraph is liable—(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);(b) on summary conviction— (i) in England and Wales, to imprisonment for a term not exceeding the general limit in a magistrates’ court or to a fine (or both);(ii) in Scotland, to imprisonment for a term not exceeding twelve months or to a fine not exceeding the statutory maximum (or both);(iii) in Northern Ireland, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum (or both).””Member’s explanatory statement
This is about the provision of false or misleading information about persons with significant control. The current offences require the prosecution to prove knowledge or recklessness in all cases. The amendment replaces that with a strict liability offence (not dependent on knowledge) and an aggravated offence (where there is knowledge).
My Lords, I apologise if I have not followed the procedure correctly, but I am grateful to our Deputy Chairman of Committees for her guidance in getting us to the right place.
The purpose of Amendment 42 is to align the drafting of the false statement offences in the Companies Act with the equivalent offences in Section 15 of the Economic Crime (Transparency and Enforcement) Act 2022 and the amendments made by Clause 161 of the Bill. This will ensure the same approach to misconduct by a UK company or an overseas entity.
The current offences require the prosecution to prove knowledge or recklessness in all cases. The amendment replaces those offences with a strict liability offence not dependent on knowledge, and an aggravated offence where there is knowledge. The amendment also removes the need for the prosecution to prove recklessness in any case.
The amendment inserts new paragraph 14A into Schedule 1B to the Companies Act 2006. New paragraph 14A introduces a basic offence, where a person makes a statement that is misleading, false or deceptive in a material particular without a reasonable excuse.
The amendment also inserts new paragraph 14B into Schedule 1B to the Companies Act 2006. New paragraph 14B introduces an aggravated offence, where a person makes a statement that the person knows to be misleading, false or deceptive in a material particular. The penalties are more severe to reflect the knowledge of misconduct. If any of the three offences is committed by a legal entity, the offences are still also committed by every officer of the entity who is in default. I believe the noble Lord, Lord Faulks, raised that point. I am not sure whether there was confusion about whether it related to this part rather than an earlier part, but I would be delighted to clarify that point later.
The penalty for the basic offence is a fine. The penalty for the aggravated offence is up to two years’ imprisonment, or a fine, or both. The level of fines and prison sentences a person will be liable for are the same as for the equivalent offences in Clause 161 of the Bill. This amendment ensures that equivalent offences can be prosecuted in the same way, with the same penalties applied for non-compliance, whether the misconduct relates to an overseas or a UK entity. I beg to move.
My Lords, I do not really understand this provision. The purpose is to create a basic offence of strict liability—that is what the Minister and the Explanatory Notes say—but the wording that inserts the basic false statement offence says:
“A person commits an offence if, in purported compliance with a notice … or in purported compliance with a duty imposed… and without reasonable excuse, the person makes a statement that is misleading, false or deceptive in a material particular.”
It is the words “without reasonable excuse” that bother me. I do not see how a strict liability offence can have an excuse. Last week it was well-publicised that someone in the other place said, “Yes, I misled, but I had a reasonable excuse because no one told me. Indeed, I was advised that there was nothing wrong.”
What is meant by a reasonable excuse? How can it be, as put forward, a strict liability offence in circumstances like that? This of course goes to officers who are in default, which is another contradiction within that proposed new paragraph. I ask the Minister to take this proposed new clause back to those advising him and ask whether it is correctly drafted. I do not think it is.
Further to what the noble Lord, Lord Thomas, has said, the use of the phrase “false statements” rather than “inaccurate statements” is quite significant. A false statement carries with it the connotation of a deliberate inaccuracy, whereas simply getting something wrong is rather different. I agree with him that without reasonable excuse the prosecution would have to prove the absence of a reasonable excuse, which is contrary to the concept of a strict liability offence.
I agree with what the noble Lords say. It occurs to me that the intention of calling this a strict liability offence but including the concept of “reasonable excuse” might be to impose a burden on the person who is responsible for filing the misleading statement to demonstrate a reasonable excuse—shifting the presumption, as it were. That might work. It would not quite be a strict liability offence, but it would make it relatively easier to prosecute the matter where a false statement was filed, and it would cater for the rare case—like the person trying to persuade a committee in the other place a few days ago—where the person filing the statement was entirely blameless because they had acted honestly and reasonably in reliance on information supplied by someone else. In that rare case, where the person who had made an error and filed a false statement but was entirely blameless could demonstrate that, it seems right that they should avoid a conviction.
To echo a point made in relation to a different amendment by the noble Lord, Lord Faulks, I am slightly troubled by the further subsection that talks about an offence being committed by
“every officer of the entity who is in default”.
At the moment I am not certain what that is getting at, and I simply seek clarification.
My Lords, to add to the point that has been made, if the burden of proof is going to be changed so the defendant has to prove his innocence, it is essential that the clause be carefully drafted to make that clear. Otherwise a judge who is trying to direct a jury really does not know how to do it.
I am struggling, as are others, with the wording in subsection (2) about
“every officer of the entity who is in default”
because I do not know what “default” means. In most of these circumstances, this may be something that is filled in by the company secretary and they do not necessarily get the approval of everybody who might end up being in default. I would like to know more about that.
In his introduction, the Minister said this was bringing the Bill into line with what was in the Economic Crime (Transparency and Enforcement) Act 2022. I am afraid I have been rather busy on other Bills so maybe I have not read everything that I should have about this one. I did the last economic crime Bill but I am not sure what is being referenced there, will the Minister elaborate on what this is being brought into line with because I am a bit confused? If what is said here is exactly the same as what has been said in that Act then we also have a mistake there that we need to correct if its wording is as ambiguous as this.
My Lords, all this is well above my legal pay grade, but the Minister has no doubt heard all the voices; clearly, there are flaws in this new clause. I suggest that he listen to those voices, take advice and not move this amendment and that we should come back to this at a later stage. As the Minister can see, there is considerable appetite around the Room for a proactive approach to the new Companies Act powers and duties, the registrar and so on. However, there are genuine concerns that have been expressed, so I suggest that the Minister takes this away and considers it pretty carefully, given the opinions that have been vouchsafed this afternoon.
My Lords, I am fully in favour of this matter being taken away and simplified, if it can be. I just take advantage of this opportunity to do something I probably do not do very often, which is to support the existence of the words “reasonable excuse” as a defence in this strict liability clause. It is a long time since I practised law, but I am certain that there are lots of regulatory and other offences out there that have this defence of reasonable excuse. I am absolutely certain that the statutory provision that makes it a strict liability offence to carry an offensive weapon allows, in its drafting, a defence if you are doing it with reasonable excuse. I do not think that these two things are inconsistent, but this is not clear.
This has been an interesting debate—and a very lawyer-heavy debate —on the juxtaposition of “strict liability” with “reasonable excuse”. I can claim some knowledge here as a sitting magistrate in that I deal with those sorts of things quite regularly, frequently with respect to knife crime and traffic matters. It is a conundrum; it is worth examining further and I hope the Minister will take it further.
The noble Lord, Lord Clement-Jones described this as above his legal pay grade. Talking as a magistrate, I am an unpaid legal practitioner. Nevertheless, the Minister should take up the invitation of members of the Committee to look at this further. I can see that it is open to confusion, and I also take the point made by the noble Baroness, Lady Bowles, about putting other officers in default. I hope that the Minister will take these comments in the spirit in which they were made and that there may be further opportunity for discussion on the points raised.
I greatly appreciate the input from noble Lords. Knowing my record over the last hour, I will probably vote against this in any event.
I shall just explain this in my own words, if noble Lords will tolerate my lack of legal expertise. The point was that, until this amendment, you had to prove—I welcome interventions from noble Lords if they feel that I am straying into their legal territory—either dishonesty or recklessness, rather than simply misfiling, in order for there to be a prosecution, which set a very high bar for prosecution. As I understand it, a number of important prosecutions—which is the whole principle for us being here—failed because they were unable to prove that exceptionally high bar.
This therefore makes it an offence to misfile which, as has been rightly pointed out, is a statutory event. However, it would seem to be unreasonable that, if you accidentally put your address down as “46B” when it should be “46C”, you then receive a two-year prison sentence or indeed a significant fine. It is right in this instance that “reasonable excuse” is brought to bear.
Unfortunately, I do not think that is a “reasonable excuse”; that would not be a “material particular”.
I am delighted that the noble Lord pointed that out; that is certainly true. I think noble Lords understand the direction of travel in the intent of this amendment. It is important; it is not simply tidying up. There are some elements of making sure that penalties relating to overseas entities relate to companies registered in the United Kingdom, but, following consultation with department officials, it seems to me that this is a very important part of the Bill. I do not support dropping it at this stage, but I am very comfortable having further conversations about it. I would be grateful if the Committee gave me a few moments to consult my team on the specifics about how to proceed. I want to make sure that we have a sensible and reasoned debate but that I do not get the process wrong regarding amendments to the Bill.
I do not get the impression that the Committee is against the idea; there is simply a lack of clarity as it is currently formulated as to what constitutes “false” and a “reasonable excuse”, and what is inaccurate. I think the Committee is generally in favour of this provision and understands why it is there; we are just not quite sure that this captures it, as currently drafted.
My Lords, the procedure in Grand Committee is quite clear: there has to be unanimity for an amendment to proceed.
We are not against the Minister’s amendment; we just think it needs clarity. The Labour Party would not object if the Committee agreed the amendment. If appropriate, we will come back to it at a later stage.
The appropriate procedure would be for the Minister to withdraw it, and then move an amendment on Report. We would be very happy if the Minister came back on Report.
At this stage, I believe it would be appropriate to consider further the amendment.
May I just clarify for the Minister that it would be very unfortunate if he pressed his amendment? If he pressed it and lost it in Committee, I do not think he could bring back exactly the same amendment on Report. That is the rule: he would have to bring back something different on Report, even if all the officials and legal advice said that it was a perfectly sound clause—he may well get advice on that. I suggest that he withdraws it so that we do not have to vote against it.
My Lords, I advise that, if the amendment is voted against, it is negatived.
My Lords, I am extremely grateful to noble Lords for their input. I hope they felt, over the last few hours of very productive debate, that the intentions of this Government and the speakers in this debate are entirely aligned: to try to create the right structure for Companies House and the right penalties and compliance regime. Given that, and my gratitude to the Committee for the constructive discussion, I beg leave to withdraw this amendment, with the understanding that we may easily return with something identical on Report, having followed a good degree of debate and discussion on that point.
Amendment 42 withdrawn.
Amendments 43 and 44 not moved.
Committee adjourned at 6.40 pm.