Examination of Witnesses (Questions 1-19)
COMPANIES HOUSE,
BERR
26 MARCH 2008
Q1 Chairman: Gentlemen, I am sorry to
keep you waiting a little. We were just discussing some of the
issues this session would bring up. We are very grateful to you
for coming. I am sorry it is such a large room and you are so
far away from us as well, but at least the acoustics are quite
good so we should be able to hear each other. Can I begin as I
always do, by asking you to introduce yourselves for the record?
Mr Jones: Yes,
Chairman. Thank you. My name is Gareth Jones. I am Chief Executive
of Companies House and Registrar of Companies for England and
Wales.
Mr Dart: Good afternoon, Chairman.
Thank you also. My name is Geoff Dart. I am the Director of Corporate
Law and Governance at the Department for Business, Enterprise
& Regulatory Reform, which means I have responsibility for
company law and therefore a lot to do with Companies House.
Q2 Chairman: Thank you very much
indeed and, Mr Jones, thank you very much indeed for the written
evidence you provided the Committee with as well. This may seem
a strange question to ask to begin with, but can you explain to
us what you are for?
Mr Jones: Yes. The functions of
Companies House and its predecessors go back a long way. Even
back as far as the mid-nineteenth century there was no company
registration system. Prior to that, companies had to take their
status and their constitution from the Royal Charter, so a system
of company incorporation was set up to make it easier for companies
to incorporate and therefore make it easier for companies to operate
in the UK. Shortly after that, the whole concept of limited liability
raised its head because investors had traditionally been reluctant
to invest in companies because of their full liability for any
debt that might be incurred. So there began the one half of the
bargain that Government still has to this day with companies in
the UK, that in return for easy and relatively cheap incorporation
and in return for limited liability status for its directors,
directors of companies have to provide certain information to
me, as Registrar of Companies, which I then make available for
the public. The purpose of making that information available is
really the nub of what Companies House is there to do. In order
to allow businesses access to easy and readily accessible information,
and in order to allow people to assess the performance of companies
and assess the track record of directors in companies, in return
for that limited liability status that information is provided.
That enables people, of course, to make informed decisions about
who they want to do business with, who they want to work with
as their clients, who they want to work with as their suppliers,
and who indeed they believe have good credit, for example.
Q3 Chairman: Who typically uses the
services of Companies House? Apart from the people who file their
reports and accounts, who else uses those services?
Mr Jones: Oh, a vast range of
people use the services of Companies House. Typically, it is companies
who are determining whether or not another company is a good one
to do business with. Credit reference agencies use the information
in Companies House to assess the track record of directors. Competent
authorities and law enforcement agencies use our information a
good deal and we put a great deal of effort into working with
them, and indeed ordinary citizens who are interested in whether
or not, for example, to buy goods and services from particular
companies may well access that information, typically on our website,
to see whether or not the company is one they would wish to do
business with.
Q4 Chairman: I want to set this evidence
session in the context of the overall flavour of the evidence
we have received from witnesses, from oral and written evidence
beforehand. For example, one bit of paper I have got says, "In
our view, Companies House generally perform extremely well within
their remit and meet the majority of their targets, as their own
figures show". So generally "extremely well within their
remit". I think perhaps there are some issues in understanding
what that remit actually is and that may be one of the problems.
The Professional Oversight Board, part of the Financial Reporting
Counsel, Sir John Bourn, wrote to us and said this, and I would
like to know what you say in answer to this point: "Our research
found that a sizeable minority of annual accounts filed at Companies
House appeared in 2005-06 to include significant technical issues,
material computational errors or other evidence of a lack of care
and preparation that, taken together, could undermine the usefulness
of the accounts".
Mr Jones: Yes. We worked with
the Oversight Board and have done for several years. I think he
also said in his letter that he accepted that that was not actually
an issue for Companies House but was in fact an issue for the
institutes and others who regulated those bodies rather than our
remit, which is effectively one of registration of information
that is sent to us.
Q5 Chairman: So really you are a
repository of data and that is really it, is it not? The quality
of the data is a matter for those who submit the data to you?
Mr Jones: We are a provider of
information, I would say, Chairman, and as a prerequisite to be
able to provide that information to individuals we have to ensure
that companies comply with sending us the necessary information,
as they are supposed to do, either as a result of events in the
company life or as a regular feed of information into Companies
House, which is normally on an annual basis.
Q6 Chairman: There may be very good
reasons for this—and I know one of my colleagues wants to
come in on some issues we are discussing at present—but
you are obliged to put a very high premium indeed on timely filing
of accounts with quite significant and increasing penalties for
failure to file in a timely fashion. Some of the smaller charitable
organisations, local bodies that actually have to file accounts
with you, I have had the experience of them saying, "We said
to Companies House, `If you give us a couple of weeks we'll give
you accurate accounts,' and Companies House said, `No, no, no,
give us inaccurate accounts now rather than accurate accounts
in two or three weeks' time.'" Timeliness seems to take precedence
over accuracy?
Mr Jones: I would be very disappointed
if that was the reaction of Companies House. It is true to say
that we expect people to file their accounts on time. Private
companies, after all, have ten months after the completion of
their accounts to file them with Companies House, so I would argue
that they have certainly sufficient time to get that work done
and to file their accounts with us. If, however, companies are
running up to the deadline and have very good reasons why they
are not able to file their accounts on time—and I can give
a number of examples of instances where we have considered, very
favourably, reasons why people have suggested they cannot file
their accounts on time—we do occasionally, and exceptionally,
give an extension. But people have to demonstrate that there are
good reasons, rather than just, "Well, we simply haven't
managed to do it yet".
Q7 Mr Weir: One thing I wanted to
ask was, you made it very clear that Companies House is just the
repository of documents which are put there by the companies,
basically for public inspection, but do those who come to you
for information or who are searching for company directors or
data on the companies, do you think they fully understand that
position or are they looking for something a bit more than that,
some sort of guarantee of the probity of the company because of
the information at Companies House? Is it looked on as perhaps
the Land Register is, or is it fully appreciated that it is merely
a public register for inspection with no guarantee of accuracy
as to what is there?
Mr Jones: We certainly try and
make it clear that that is what we are there for and that we accept
information sent to us, as it were, in good faith. However, I
think you are right in your implication that people who are searching
for information on what is, after all, an important Government
database of information probably do assume that there are more
checks done on that information. 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. We make rudimentary checks on the
information and also, if somebody gets in touch with us and says
they do not believe or accept, or that they are sceptical about
the information on the register, we will always follow that up
and look to see whether or not something is amiss, but that is
effectively the only way in which we can follow up compliance
in terms of the content of the information that is on the register.
Mr Weir: Could you tell me what sort
of percentage of returns are actually checked in that manner?
Q8 Chairman: This is the sort of
inquiry of a member of the public expressing concern about a return.
Mr Jones: I can tell you that
out of the approximately 600,000 documents that we get in every
month in Companies House about 50 are brought to our attention
as potentially connected with some sort of fraud or corporate
ID issue. I do not have the figures to hand as to how many people
draw attention to, as it were, anomalies or inaccuracies, or incorrect
information on there.
Q9 Mr Weir: I think Brian will come
on to some of these issues later, but if I set up a company and
I send you the documents, what does your checking procedure in
a normal situation briefly consist of? Is it just checking that
all the boxes are ticked and filled up properly? Is there anything
behind that as to checking the veracity of anything I send to
you?
Mr Jones: We simply check that
all of the necessary information that is required by the Companies
Act is present. So, for example, if you are sending in a set of
accounts we check that it is signed by a director, we check that
the company name is correct, we check very, very simple levels
of information. The difficulty we have as a registry of information
is that it is almost impossible for me to assess the truthfulness
of the information that is being sent in, even if, for example,
somebody else writes in and says, "Well, we don't believe
the information that is sent in to you on this annual return,"
or, "on that set of accounts," I am not in a position
to judge one way or another whether that complaint is a legitimate
one or perhaps one based on an argument or mischievousness within
the company or associated with that company.
Q10 Mr Weir: But do you have any
procedure, say of spot checking a given percentage of them in
more detail?
Mr Jones: No. About 40% of the
documents that come in to us come in electronically and those
documents are assessed via a verification process in the computer
system, and that system will submit information to the register,
all forms, all pieces of information that appear to it to pass
those verification processes.
Q11 Mr Weir: So it is a completely
electronic procedure?
Mr Jones: As I describe it, Chairman,
it is a process which for a large number of cases means that those
forms do not touch the sides when they come in to Companies House.
They simply come in, go via the verification process and are put
on the register. For those forms that fail the verification process,
they are sent to a member of staff, to a query handler, who then
has to assess whether or not the information is correct or not.
There may be mismatches of information compared with the information
we already have on the register, or there may be pieces of information
missing, in which case the form would be sent back to the applicant
for re-submission. For paper documentation—and that amounts
to a very significant amount of documentation, we receive something
like three-quarters of a tonne of mail every day—
Q12 Chairman: That is more than the
average MP gets!
Mr Jones: But less interesting,
Chairman, I am sure! All of those pieces of paper are brought
into the office, are taken to a member of staff, who then inputs
the information into the system before every single document is
scanned onto the register. So the register is made up of a database
of information with data and separately in excess of 300 million
pages of scanned image.
Q13 Mr Binley: As a supplementary,
I would like to come on to the whole issue of fraud and how you
deal with it. Is it true to say that whilst that law states some
very bare bones responsibilities that you need to carry out, the
way you have developed your business has created a different perception
in the business community and that they see you as a provider
of information and they believe that information needs to be credible?
Is there not a real stress between what the law says you have
to do as a registration office and the business you have consciously
moved into, which is quite profitable to you in terms of information
provision, and does not that stress mean that you have a greater
responsibility in truth than the way you have explained it to
us at this very moment?
Mr Jones: The first thing I would
say about that, Chairman, is that we do not make a profit. We
simply cover the costs that we incur, and indeed on a year on
year basis we are not allowed to make a profit, we simply—
Q14 Mr Binley: You had a surplus
of £1.3 million of income over expenditure? That sounds like
a profit to me.
Mr Jones: We did last year, but
we will make a loss next year, which is why year on year the requirements
of cost recovery are met. In the context of your question about
information provision, well, we operate within the powers that
we are given and we do not go beyond those in terms of our ability
to test or legitimise the veracity of the information that is
there. Indeed, it is very easy sometimes for one to think, when
one gets a letter from a member of the public to say that this
piece of information or that piece of information on the database,
on the register, is clearly wrong, that that person must be right.
But actually 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.
Those powers can only be provided by a direction from the courts.
The new Companies Act, Chairman, does give me more powers in terms
of rectification, in terms of expunging information, in terms
of annotating the register where we believe something is incorrect,
but as of now within the provisions of the 1985 Companies Act
I do not have the powers to be able to change the register, to
take information off the register, or take off information I believe
is wrong. That can only be provided by an instruction from the
courts. Just to say, Chairman, we do often offer help to individuals,
however. If we believe the information is wrong, we often help
as to how to take that procedure through the courts, though it
is a cumbersome procedure.
Q15 Mr Clapham: Mr Jones, in terms
of the documentation you record in reference to each company,
would that include such things as, for example, employers' liability
insurance, and if so have you an historical list of employers'
liability insurance in relation to companies?
Mr Jones: I do not know the answer
to that, Chairman, as to whether or not employers' liability insurance
is included. I suspect it is not a statutory piece of information
which is required, though as part of the accounts that are provided
to us on an annual basis (depending on how big the company is)
they may well get into the realms of provisions for that. If they
are making provisions for that sort of liability, then they would
be in the accounts. The vast majority of accounts that come to
us, of course—and we receive something like two million
sets of accounts a year—are either small, abbreviated, un-audited
accounts or accounts which relate to dormant companies, so they
certainly would not include information to that level. In terms
of your question about history, we do maintain a history of all
the documents which are sent in to us from a company for 20 years,
so anybody who wants to look back through the history and the
track record of a company, or indeed the track record of its directors,
can get that information from us at a very reasonable price.
Q16 Chairman: I do not want to labour
the point, but it seems to me that documents filed at Companies
House are about as reliable as a newspaper report. They draw attention
to the fact that a story exists, but the wise reader of the accounts
(the article) should check the facts in more detail before acting
upon them?
Mr Jones: I think it is true to
say, Chairman, that the completeness or accuracy of a set of information
on the register says a lot about a company and readers of that
information who are making informed choices about whether or not
to do business with that company should take their decisions on
the basis of just such information. 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.
Q17 Chairman: I see that, but I am
trying to work out what weight I should attach to Sir John Bourn's
comment that the usefulness of the accounts could be undermined
by the inadequacy, the errors contained within filed accounts,
that people would not be aware of, that even professional accountants
probably would not be aware of. It seems to me that the caveat
emptor rule must apply very strongly to those who use the
information which you store?
Mr Jones: I would agree, and I
think the point about working with the accountants, the institutes,
for example, and getting them to take their responsibilities in
terms of their members in a slightly more robust way is almost
the point John Bourn was making in his letter.
Q18 Chairman: Yes, he was certainly
implying that, I thought as well. Let us move on from this, and
we will return to fraud towards the end of the session in some
detail because that is a matter which does concern this Committee
quite considerably. I just want to get this question of whether
you make a profit or not sorted out. According to your report
and accounts, the Companies House Trading Fund paid a dividend
for the last financial year of £2 million to the Treasury,
so that seems like a profit for the Treasury to me, if not to
Companies House?
Mr Jones: Well, if you count the
dividend, Chairman, then we do make a profit, yes.
Q19 Chairman: I think counting dividends
is quite an important part of the assessment of your profitability!
Mr Jones: We are required to pay
a 3.5% dividend to the Treasury. If one puts that into our costs
base, then our aim is to cover our costs by setting fees appropriately,
and that is what we do.
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