Select Committee on Business and Enterprise Thirteenth Report

3  Status of Information filed at Companies House

23. Mr Jones told us that Companies House accepts the information sent to it "in good faith"[39] and that:

    The reality is that with the sorts of volumes of information we get into Companies House, in excess of eight million documents sent in to us every year, it would be nigh on impossible to have a robust and complete system of checking that information.[40]

Companies House checks that the papers contain the information required by the Companies Act: for example, the accounts are signed by the director and the company name is correct.[41] Approximately 48% of documents that come in to Companies House now do so electronically and these are checked via a verification process in the computer system.[42] If there is something wrong or missing from the data, documents are forwarded to a member of staff to assess and if necessary the forms are sent back to the applicant for re-submission. If the system detects no errors, the information will be put straight on the register: as Mr Jones said, they do not even "touch the sides".[43] The documents that arrive at Companies House in paper format are input into the computer system by a member of staff and then scanned onto the register.[44]

24. Mr Jones told us that further checks are only carried out if somebody contacts Companies House about information on the register and this happens with approximately 50 of the 600,000 documents it receives every month.[45] But he told us that, even if he had been informed that information on the register was wrong, he did not have the powers to change it:

    I cannot get into the business of determining between two members of the public, or indeed two directors in a company, which is often, I am afraid the case, as to whether or not one or the other is telling the truth. So we put the information on the register that we are told to put on the register, within the limits of our powers, and it gets to the point after that whereby even if we believe the information is incorrect at the moment I do not have the powers to take that information off the register.[46]

    At present only the courts have the power to correct the register, which, as Mr Jones said, is a "cumbersome procedure,"[47] although the new Companies Act 2006 will provide some rectification power. This will allow the registrar to remove information that:
  • Derives from anything invalid or ineffective or that was done without the authority of the company, or
  • Is factually inaccurate, or is derived from something that is factually inaccurate or forged.[48]

Under this power the only information that can be removed from the register is: a change of address of registered office; a change to directors; and a change in company secretaries.[49] We believe that the Companies Act 2006 could have given greater rectification powers to the Registrar of Companies to remove incorrect information from the register without having to resort to the courts.

25. It is important for users to be aware that Companies House is a receiver and publisher of information, a public records office: the checks it makes are extremely limited. We believe that Companies House could do more to make this clear. For example its website notes "Companies House Direct is our premier search tool for accessing and downloading company information directly from your own PC"; it contains few caveats. We believe that public perception of the reliability of this information, available through a government website, should be better managed. Mr Jones acknowledged that there is more that Companies House could do,[50] but he believed that:

    the completeness or accuracy of a set of information on the register says a lot about a company […] So the fact that information is either missing or not up to date, or not filed on time, or in some cases inaccurate is, I would suggest, just as useful information to someone who is considering doing business with that company as a pristine set of accounts.[51]

26. We recommend that Companies House takes every opportunity to make clear that its primary function is to publish the information it receives, and that it cannot guarantee the accuracy of the information. It needs to amends its website and other published material to reflect this reality as a matter of urgency.

27. Those who submitted memoranda to our inquiry were particularly concerned about two areas of information on the Companies House register: the registration of directors and the filing of company accounts.

Register of Company Directors


28. A recent report by World-Check and Datanomic of the Companies House register of company directors and secretaries claimed that 3,994 high risk individuals were listed. They suggested that there were: over 1,500 disqualified directors running current UK companies, many operating from prison; 154 individuals involved in finance crime; 13 wanted by Interpol for terrorism or associated with terrorist groups; nearly 1,000 domestic and foreign politically exposed persons[52] and 37 narcotics traffickers.[53]

29. When we questioned Mr Jones about the World-Check report and the subject of company directors, he explained that "being wanted by Interpol does not necessarily disqualify you as a director of a UK company".[54] However, he said that "if we have got disqualified directors on the register clearly I want to know about it because our responsibility is to make sure that we keep a register of disqualified directors".[55] It is an offence for someone subject to a disqualification order to be appointed as a director of a company. Companies House check all newly appointed directors against its register of those who have been disqualified. However, a slight change or addition to any of a disqualified director's details could result in a registration being accepted.[56] If Companies House does detect that a newly appointed director was subject to a disqualification order it has no powers simply to remove them (see paragraph 24). Companies House writes to the director in question asking them to resign and if the director does not resign, the case is referred to the enforcement unit within the Insolvency Service. This can lead to a prosecution under the Company Directors Disqualification Act 1986.[57]

30. We were concerned by the Insolvency Practices Council's Annual Report 2007 which highlighted the potential effects of the reduction in the Insolvency Service's 2006/07 enforcement budget:

    The deterrent effect of the Company Directors Disqualification Act depends on directors believing that any misconduct will be investigated and, where appropriate, penalised […] The effectiveness of the system could easily deteriorate if the perception develops […] that reports will not be followed up.[58]

31. Given the role of the Insolvency Service in investigating disqualified directors re-registering at Companies House, we wrote to them asking about this. In reply, the Insolvency Service informed us that in 2006/07 its enforcement budget was reduced by
£3 million which resulted in it carrying out 500 fewer investigations.[59] It is hard to produce consistent figures for the Service funding because of the transfer of the Companies Investigation Branch (CIB) finances to it from the then Department of Trade and Industry in 2006 but the Insolvency Service have told us that this reduction was a 6% cut in its budget. However, it reassured us that, by employing strict prioritisation criteria to focus on cases where there was a reasonable prospect of a successful disqualification outcome, the overall number of disqualifications remained at previous levels: 1,200 directors were disqualified in 2006/07 compared with 1,173 in 2005/06 and 1,240 disqualifications in 2004/05.[60] The Service also told us that the budget was restored in 2007/08 and has been carried forward into the allocation for 2008/09.[61] The Insolvency Service's enforcement activities have recently been the subject of a review. The findings published in July 2008 recommended options for restructuring, further development of the vetting process and a clearer enforcement criteria.[62]

32. The number of companies that Companies House incorporates, at 120 every working hour, may mean that it cannot thoroughly scrutinise every name that appears on the register. Where it appears that a mistake has been made, the onus must be on concerned individuals and organisations to report disqualified directors to Companies House for further investigation by the Insolvency Service; the Insolvency Service needs the resources to do its part. Any information available to the relevant authorities relating to disqualified directors that is not acted upon in a timely fashion will bring the whole register into disrepute, especially if the information concerns serious offences or malpractice.


33. As noted above, Companies House does not verify the details sent to it. The Finance and Leasing Association wanted a more thorough vetting process for the registration of company directors:

The British Bankers Association suggested that directors names should be verified by Companies House against "voter roles, mortality files, VAT records" to prevent "front companies" being set up. They are concerned that false names, corruption of names and unwitting or collusive distant family members are held up as directors of so called "front companies" which are used to hide assets from creditors.[64] We understand why it would be desirable to have more thorough vetting of directors and we note the British Bankers' Association's suggestion that directors' details should be checked by Companies House against other government held data. However, the principles of data protection need to be abided by and the practicalities of such scrutiny considered. Moreover, we recognise that Companies House's primary function is to maintain its register and make it available to the public and this would be a move away from its statutory role. Given the volume of information handled such vetting could have considerable costs. There is also a danger if only partial checks were made, users of the data could be given false confidence in its reliability, rather than knowing, as now, that Companies House simply acted as publisher. Nonetheless, we recommend that a cost-benefit analysis is conducted of available ways to increase the level of checks on directors and, in particular, to make it harder for disqualified directors to evade detection by small changes in their details.

Company accounts

34. Through Companies House it is possible to see from paper files if an account was prepared by a qualified accountant and the name of that accountant; this is not possible with electronic files. The Professional Oversight Board, which oversees the regulation of accountants and actuaries by their respective professional bodies, suggested that this should be introduced for electronic filing. Accountants could then check electronically that their names were not associated with accounts they had not prepared.[65] The Professional Oversight Board was also concerned about the variable quality of accounts filed and argued that electronically filed accounts which indicate the accountant responsible for preparing them, would increase transparency and therefore indirectly improve quality.[66]

35. When we asked Companies House why electronic accounts did not include the reference to the accountant, we were told the process was kept as simple as possible to encourage initial take up of on-line filing. However, Companies House also said that it was:

    being actively encouraged by BERR to work towards providing companies and their advisors with opportunities to include […] as wide a range of options as possible for additional disclosures, in addition to the statutory minimum information.[67]

36. Professional accountancy bodies have been working with Companies House to develop these arrangements but, according to the Professional Oversight Board, "progress to date has been rather limited."[68]

37. We understand why Companies House did not include information on the preparation of accounts when it first arranged to publish them online. However there would be real benefits in giving this information in the future. We cannot believe that there is any significant technical barrier or extra costs to indicating the involvement of a professional accountant on electronically filed accounts. We also support the Professional Oversight Board's suggestion that accountants should be notified of the filings, in which they are named, to prevent them being falsely associated. We urge Companies House and the Professional Oversight Body to resolve these issues as soon as possible. The accountant identified as responsible for filing the accounts should then take full responsibility for the accuracy of the information contained in them. Notwithstanding our recommendation in paragraph 26, this would enable users of Companies House data to have much greater confidence in its reliability without placing any additional burden on the companies whose information is recorded there, or on Companies House itself.

39   Q 7 Back

40   Q7 Back

41   Q 9 Back

42   Q 10 Back

43   Q 11 Back

44   Qq11 and 12 Back

45   Q 8  Back

46   Q 3 Back

47   Q 14 Back

48   Ev 31 (Companies House)  Back

49   Ev 31 (Companies House) Back

50   Q 41 Back

51   Q16 Back

52   The Financial Action Task Force define Politically Exposed Persons (PEPs) as individuals who are or have been entrusted with prominent public functions, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations and important political party officials. There is a risk that PEPs involved with business could be corrupt politicians who are money laundering and/or financing terrorism. Back

53   "World-Check exposes terrorists, financial criminals and disqualified", World-Check Press release, 21 February 2008  Back

54   Q 62 Back

55   Q 61 Back

56   Ev 33 (Companies House)  Back

57   Ev 33 (Companies House) Back

58   Insolvency Practices Council Annual Report 2007 Back

59   Ev 37 (Insolvency Service) Back

60   Ev 37 (Insolvency Service) Back

61   Ev 37 (Insolvency Service) Back

62   Grant Thornton, Review of Investigations and Enforcement: The Insolvency Service, July 2008 Back

63   Ev 36 (Finance and Leasing Association) Back

64   Ev 24 (British Bankers Association) Back

65   Ev 41 (Professional Oversight Board) Back

66   Ev 41 (Professional Oversight Board)  Back

67   Ev 31 (Companies House) Back

68   Ev 41 (Professional Oversight Board) Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2008
Prepared 21 November 2008