Select Committee on Business and Enterprise Minutes of Evidence

Examination of Witnesses (Questions 1-19)


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.

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