Government response
1. The Government welcomes the interest that the
Business and Enterprise Committee has shown in the work of Companies
House and its positive attitude to the way Companies House fulfils
its vital role in the national economy. We would also like to
thank the organisations and individuals who took the time to respond
to the Committee's request for views on Companies House's performance
and role.
2. It is noteworthy that the Committee has reported
on Companies House at a time of global economic downturn. The
report acts as a positive reminder that Companies House performs
a role of economic significance by acting as the mechanism for
the exchange of information throughout the business community,
to provide confidence in decision-making.
3. The Committee is right to point out that Companies
House is a conduit for data: it does not verify, guarantee or
endorse information. The companies register reflects what companies
say about themselves. In this respect, and at times of heightened
economic concern it is vital that companies maintain up to date
and accurate records about themselves, so that prospective business
partners, customers and employees can decide what course of action
to take.
4. We share the Committee's concern that Companies
House should fulfil its role efficiently and that the Registrar
of Companies should make full use of available technology in carrying
out his functions. The programme to update Companies House Internal
Processing Systems (CHIPS) has made a major contribution to this.
As with any major technology programme, CHIPS has been subject
to review during its development. We note the Committee's comments
on costs of the programme but are grateful for its welcome of
the end product. We are confident that Companies House's customers
will receive significant benefits. For example, at the end of
2008 Companies House was able to make its electronic services
available seven days a week.
5. The Better Regulation agenda reflects Government's
intention that transactions with Government as a whole should
be made simpler. We include Companies House in this intention
and we are particularly keen for benefits to be delivered to small
companies, which form such a significant part of the economy.
This is the main thrust of the Companies Act 2006. In achieving
this goal, it is vital that we get things right, in order to avoid
unnecessary costs to business. We are, therefore, grateful to
the Committee for endorsing our decision to postpone full implementation
of the Act until October 2009. This will allow Companies House
to ensure that its systems can operate fully, that companies have
sufficient time to prepare and that there is a smooth change-over
from the old to the new legislation. We will ensure that there
is full and clear communication with companies so that they understand,
and comply with, the requirements of the new Act: in turn, giving
search customers access to clear and accurate information.
6. The Government is determined that full use should
be made of data from the companies register to combat financial
crime. Companies House will pursue fully the work it is already
doing with the Metropolitan Police, the City of London Police,
the Serious Organised Crime Agency and the National Fraud Strategic
Authority to support the National Fraud Strategy and the Treasury's
anti-money laundering strategy.
7. The Committee points out areas in which Companies
House can do more work to improve the general understanding of
its role and of the status of the information it holds. We agree
that people using data from Companies House need to be clear about
the organisation's purpose and the status of the information it
provides and we thank the Committee for its deliberations in this
area. Integrity of the companies register is a major concern for
Companies House. It already carries out significant work to educate
and inform company directors about their responsibilities and
to discuss its services with a wide range of stakeholders. The
Government will continue to encourage this work, with the aim
of delivering an up to date, accurate register and a full understanding
of the nature and status of the data it provides.
8. The Companies Act 2006 provides a fully revised
legal framework for UK companies, a clearly defined role for the
Registrar, with new powers and responsibilities, and the basis
for the register to play a key role to support corporate success.
Companies House has developed a strategy for implementing this
framework and for growing its offering of efficient, electronic
services to its customers.
The Companies House Information Processing
System (CHIPS)
We are concerned that there were initial teething
problems with Companies House Information Processing System (CHIPS)
which resulted in a deterioration of some services to dissemination
agents. We trust that all services are now of a similar or higher
standard to that offered before the rollout. IT systems should
result in an improvement of service to all customers: we would
be concerned if that were not the case. (Paragraph 19)
9. The specific problem referred to by the Committee
affected the delivery of bulk products to a small group of customers.
We can reassure the Committee that all bulk products are now delivered
by Companies House between 5 and 7 am each day and Companies House
is consistently achieving the agreed service levels for the provision
of data to this group. The new system will continue to provide
benefits; some data is now available twenty four hours earlier
than with the old system, and Companies House is in a position
to improve its services further by providing virtually real time
data flows where this is required by customers.
The delay to the Companies House Information Processing
System (CHIPS) has resulted in delays in bringing parts of the
Companies Act 2006 into force. This is disappointing and the large
amount of public money wasted on the original contract is deplorable.
Nonetheless we believe Companies House and BERR were right to
postpone commencement of these sections of the Act, rather than
to press ahead and risk disrupting thousands of businesses if
implementation proved impossible. (Paragraph 22)
10. Since the Committee met, two further phases of
implementation of the Companies Act have taken place in April
and October 2008. These have gone well. Systems changes have been
successful and Companies House has responded actively to support
customers through its contact centre and website. Customers are
beginning to take advantage of benefits. More than half of new
companies no longer appoint a company secretary, following the
removal of the requirement for private companies to have a company
secretary in April 2008, and since October 2008 private companies
have been able to use the new solvency statement route to reduce
their share capital without the need to go to court. Work is progressing
well on the final implementation in October 2009. The scale
of the programme has reinforced the view that it was the right
decision to delay implementation. We are in a better position
to give customers support and information about forms and new
processes well ahead of the date.
Status of Information filed at Companies House
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. (Paragraph 24)
11. When it was introduced, the Companies Bill contained
a new express power for the court to direct the removal of material
from the register, and was amended during its Parliamentary passage
to introduce a new administrative procedure for rectification.
Under section 1095 of the Companies Act 2006, the Secretary of
State has a power to make regulations under which, following a
successful application, the Registrar may be required to remove
certain kinds of material from the register. The Government made
it clear that it saw this new administrative procedure as complementary
to rectification under a court order, and that cases requiring
the exercise of judgment should remain a matter for the courts.
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. (Paragraph 26)
12. We agree with the Committee's recommendation.
Companies House already uses a disclaimer which explains that
it does not verify the information filed with it. However, we
accept that this needs to be given more prominence and, following
the Committee's recommendation, Companies House has taken steps
to increase the visibility of this message to customers by making
its disclaimer more prominent at points where customers take information
from the companies register, for example on the "Our Services"
page and Price List on its website and the start-up screen of
its DVD-ROM Directory.
Disqualified Directors
The number of companies that Companies House incorporates,
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. (Paragraph 32)
13. We agree with the Committee's concern that the
register should be complete with respect to people who are disqualified
from acting as company directors. Companies House and the Insolvency
Service are both agencies of BERR and are in regular contact.
14. Companies House is notified of disqualification
orders by the Insolvency Service in about 90% of cases and by
the courts for the remainder. It runs the disqualification data
against its database of company directors and flags those which
have been disqualified. It contacts companies where disqualified
people are still appointed as directors, to ensure a resignation
is placed on the register.
15. Where new directors are appointed to existing
companies, Companies House checks their details against the register
of disqualified directors. Although it has no powers to reject
the document sent for registration, it contacts the company to
secure a resignation. Companies House refuses to incorporate new
companies if any of the proposed directors are disqualified.
16. The Insolvency Service operates an enforcement
hotline which enables members of the public to report evidence
of misconduct on the part of directors and undischarged bankrupts
who deliberately disregard the disqualification orders made against
them. The hotline is available 24 hours a day and is an important
tool in helping the Insolvency Service to enforce court orders
and undertakings.
17. The Insolvency Service:
- investigates the complaints about directors and
undischarged bankrupts received via the hotline.
- obtains information about disqualified directors
acting in the management of companies through Companies Investigation
Branch, Official Receivers and from returns received from Insolvency
Practitioners.
18. Companies House sends information on directors
who appear on the disqualified register but have not resigned
to the Insolvency Service, so that proceedings can be considered.
The Insolvency Service notifies Companies House of people who
are disqualified but have not yet appeared on the register of
disqualified directors and who are still appointed.
19. While we understand the Committee's concern that
undesirable people may sometimes be appointed as directors of
companies registered in Great Britain, the circumstances in which
someone can be disqualified are specific and care must be taken
in matching personal data to ensure that only people disqualified
by the courts appear in the disqualified directors register. We
are confident that the system works well within its statutory
framework and is adequately funded.
More stringent checks on directors?
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. (Paragraph 33)
20. We welcome the Committee's recognition of Companies
House's role as a registry and we agree with its recommendation.
Companies House has already started an internal review to look
at increasing checks on the data it receives which will include
a cost-benefit analysis of checks on director's details.
Company accounts
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. (Paragraph 37)
21. We agree that the accountancy profession is a
key group of stakeholders whose views and practices Companies
House needs to take into account. Companies House has for the
last two years dedicated a specific post to building effective
relationships and ensuring meaningful dialogue with the profession.
Companies House has also had discussions with the Professional
Oversight Board and as part of this work Companies House and BERR
will meet representatives of all the accounting bodies on the
10 February. We are confident that this on-going dialogue will
continue to be fruitful in improving the standard and the timeliness
of data presented to Companies House.
22. In many cases small companies will be exempt
from the need to have accounts audited and it is at their discretion
whether or not they involve an accountant in the preparation of
their statutory accounts. Where they are used, accountants have
a responsibility to their clients to meet professional standards
in preparing accounts. Under the Companies Act, a company's directors
are responsible for producing the accounts, which they must then
file on the public record. The Act does not authorise the Registrar
directly to require the accountants to submit their details on
the accounts that they have completed. However, it does allow
small companies that are exempt from audit to use an auditor if
they wish to take advantage of the professional validation this
brings. Companies House is developing its systems for filing accounts
electronically. They will discuss with all interested parties
the appropriate way to present the role that accountants and auditors
perform and minimise the risk of accountants' details being falsely
presented.
Identity fraud and 'company hijack'
We understand the rationale for the withdrawal
of the permanent police presence at Companies House, but are nervous
about this apparent reduction in the overall anti-fraud effort.
We recommend that Companies House and both the Metropolitan and
City of London Police forces conduct regular assessments of the
skills and knowledge of the staff at Companies House in relation
to the opportunities for fraud. We also expect the possibility
of reinstating the permanent police presence to be kept under
continuous review. (Paragraph 39)
We are pleased that Companies House is continuing
to work with the police in developing its intelligence role and
is contributing to data sharing among the UK's law enforcement
agencies. The effectiveness of these working arrangements must
be reviewed regularly. (Paragraph 40)
23. We would like to re-assure the Committee that
withdrawal of the Metropolitan Police officer from Companies House
offices does not represent a reduction in its contribution towards
our aim to encourage maximum use of data from the companies register
in the fight against financial crime. The Metropolitan Police
officer was placed in Companies House as part of Operation Sterling,
which targeted financial crime in London. Companies House saw
the potential to fulfil an intelligence role in a national context
and, so, took on the work because the Metropolitan Police does
not have a remit outside London. This involved the Metropolitan
Police training Companies House staff. In the 18 months
since Companies House took over this role it has referred a further
904 cases to law enforcement agencies. We agree with the need
for regular assessments of the skills and knowledge of staff at
Companies House and will organise appropriate training with law
enforcement colleagues.
24. Companies House is now reviewing this role in
the light of the National Fraud Strategy. It is in contact with
the National Fraud Strategic Authority and the City of London
Police, which is now the lead police force in combating fraud.
Decisions on how this work continues will be made following completion
of work by the City of London Police to establish the National
Fraud Information Bureau, which we expect Companies House to contribute
data to.
There is clearly a balance to be struck between
making the register useful to those who are attempting to prevent
crimes such as money laundering, while preventing it being useful
to those attempting to commit other crimes such as fraud. This
balance should be frequently reviewed and legislation amended
as necessary. (Paragraph 43)
25. We agree with the Committee's comments that balance
is the key to achieving a system where it is easy for people to
incorporate limited companies, and where details of ownership
and performance are transparent to anyone planning to do business
with a company. There was considerable debate on this matter when
developing the Companies Act 2006, which led to the introduction
of measures to protect directors' home addresses from general
access by allowing the use of service addresses. At the same time
the Act maintains the requirement for home address details to
be filed so that that they are still available to law enforcement
agencies. This ensures that Companies House can continue its co-operative
relationship with law enforcement. This relationship is an evolving
one and we agree that it should be continually reviewed by Companies
House, in conjunction with law enforcement colleagues, as application
of the national fraud strategy develops.
We would have liked to have seen more urgency
in increasing take-up of electronic filing considering the targets
have never been met. We are disappointed that there is no new
campaign to encourage electronic filing until June 2009. (Paragraph
47)
26. We share the Committee's concern about the take-up
of e-filing. Although it has not always achieved its targets for
growth in electronic filing (e-filing), Companies House has had
considerable success in persuading companies to file electronically
rather than on paper e.g e-filing of the annual return, one of
the two documents filed by all companies has risen from 10% in
February 2005 to 86% in November 2008. Throughout that time Companies
House ran communications campaigns to drive the increase in e-filing,
for example, from July to October 2008 it deployed a multi-channel
communications campaign to promote WebFiling, including targeted
communications to accountants. It has withdrawn the pre-populated
paper annual return and promotes electronic services through e-filing
seminars, customer information days and focus groups.
27. WebFiling is very much at the centre of its promotion
of its three-point plan to help companies to protect themselves
against fraud. The communications Companies House is planning
for implementation of the Companies Act 2006 stresses the benefits
of WebFiling, rather than customers learning their way round new
paper forms.
28. The campaign referred to by the Committee is
the one planned to coincide with the launch of electronic sign-up
to PROOF. Companies House continually promotes PROOF on its website,
at customer events and through mail shots but will embark on a
much larger and targeted campaign when the new service is launched
in June 2009.
There are difficulties in balancing the need to
provide an accessible, efficient, open register of companies'
details at a reasonable cost and the need to have systems to reduce
the opportunities for crime. The evidence presented suggests that
there could be merit in a review to assess whether Companies House
could do more to prevent crime without compromising its core functions.
Such a review could include a risk assessment to identify whether
particular types or sizes of companies are more vulnerable to
fraud, or more commonly used as vehicles for fraud than others
and if so whether there are cost effective targeted interventions
which could reduce the risks such as by asking for annual verification
of information submitted. (Paragraph 48)
29. The Committee is right to highlight the need
for balance between transparency and the need to reduce opportunities
for crime in the maintenance of the companies register. Companies
House has always been mindful to operate within its statutory
framework when co-operating with law enforcement agencies. It
has co-operated with law enforcement agencies to ensure they have
access to information from the companies register, in line with
the Treasury's anti-money laundering strategy and to prevent criminals
benefiting from the proceeds of crime.
30. In its assessment of the problem of fraud, Companies
House has established that the most vulnerable companies are small
to medium in size and have been on the register for two to three
years: long enough to build up a good filing record and credit
rating. We agree that this work is important for Companies House
and that it should keep it under review on a regular basis.
Companies House and the market
We understand that the border between providing
core services to the public and unfairly competing with the private
sector is not crystal clear. However, we do not believe this means
a public organisation should never seek to improve its services
or that it should be deterred from introducing facilities to reduce
fraud. We believe that Companies House has currently got the balance
broadly right, but it must be exceptionally careful, as it strives
to make its payments to the Treasury, that it does not abuse its
position. The Treasury, it follows, must not make unreasonable
financial demands of Companies House. (Paragraph 53)
31. We welcome the Committee's comment that Companies
House has got the balance broadly right and we are grateful for
the Committee's concern that the dividend Companies House pays
should be set at a reasonable level. We can re-assure the Committee
that careful thought is given to deciding the amount Companies
House should pay and the basis for the dividend is set out in
a Treasury Minute dated 12th October 2004:
"The Secretary of State for Trade & Industry,
being the responsible Minister, has determined (with Treasury
concurrence) that a (further) financial objective desirable of
achievement by the Companies House Trading Fund for the 5 year
period from 1st April 2004 to 31st March 2009 shall be to achieve
a return, averaged over the period as a whole, of at least 3.5%
in the form of a surplus on ordinary activities before interest
payable and dividends payable expressed as a percentage of average
capital employed."
The dividend payable is therefore included as a valid
cost within the Companies House cost structure, and recovered
via fees charged which are approved by Parliament in a Fees Order.
In this way, Companies House ensures that it does not abuse its
monopoly position by overpricing its products. The Annual Report
& Accounts gives further transparent evidence of this, disclosing
the rate of return actually achieved, as well as disclosing a
segmented analysis of the surpluses of the main product types.
We can reassure the Committee that payment of the dividend does
not impede Companies House work to improve it services and to
create benefits for customers.
Companies House facilitates "do-it-yourself"
incorporation if paper is used: it is logical for it to offer
this service electronically as well. Here, again, the issue is
transparency for those who use the services of Companies House.
The advantages and disadvantages of using the service offered
by Companies House should be made clear. (Paragraph 56)
32. We agree that Companies House should make clear
to customers the benefits of using its web incorporation service.
This service will be developed, in conjunction with Business Link,
for launch in 2010/11. We also agree that guidance should identify
the advantages and disadvantages of using the service.
The Committee understands the frustrations for
incorporation agents of having to carry out "due diligence"
when incorporating when Companies House does not. Nonetheless
we do not believe that Companies House's role should be extended
to scrutinise the businesses they are incorporating. However the
register should show where an incorporation agent had been used
as opposed to an "off-the-shelf" incorporation and also
indicate the different levels of assurance that this provides.
(Paragraph 58)
33. We agree with the Committee's view that Companies
House role should not be extended to scrutinise businesses that
are incorporating and appreciate the comment about increasing
transparency to those looking at the register. However, the money
laundering regulations only require due diligence to be carried
out when there is an ongoing relationship with a company. A one-off
incorporation action does not fall into this category. The result
is that some agents will do full procedures, others will not.
Because of this Companies House considers that any marker based
on whether the incorporation was on paper or through an agent
could imply that incorporations made through an agent are in some
way better or more reliable than others.
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