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"REGISTRAR TO WHOM RETURNS, NOTICES ETC TO BE DELIVERED
(1) This section applies to an oversea company that is required to register or has registered particulars under section 661 in more than one part of the United Kingdom.
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(2) The Secretary of State may provide by regulations that, in the case of such a company, anything authorised or required to be delivered to the registrar under this Part is to be delivered
(a) to the registrar for each part of the United Kingdom in which the company is required to register or has registered particulars, or
(b) to the registrar for such part or parts of the United Kingdom as may be specified in or determined in accordance with the regulations.
(3) Regulations under this section are subject to negative resolution procedure."
The noble Lord said: In the days when all registrations were done on paper, the concept that, say, a Scottish company was one which had registered in Scotland was fairly straightforward. Nowadays, when so many incorporations are electronic, to say that a company registers information "in" a particular physical location may be straining the meaning of the word a little. To avoid any possible doubt, the amendment therefore specifies that registration in a particular jurisdiction means registration with the registrar for that jurisdiction.
"( ) If any person suffers any loss or damage or incurs any expense as a result, direct or indirect, of a failure by the registrar to perform the registrar's functions, the registrar shall indemnify and keep indemnified that person against all such loss, damage and expense."
The noble Lord said: We are dealing with the registrar of companies, and the purpose of the amendment is to provide an indemnity to any person who is affected by the failure of the registrar to perform the registrar's functions set out in the Companies Acts.
Neither the existing Companies Acts nor the Bill cover the question of the liability of the registrar for mistakes made in registering information on the register. That is in notable contrast to directors and auditors. In its report on company security interests, published in 2005, the Law Commission referred to consultees' views that in principle the registrar should be liable for losses caused by any failures that were the result of negligence by Companies House. The commission thought that this should be the subject of a comprehensive review or left to the courts.
This is not just an academic issue. We know of instances where the registrar has failed to perform his or her functions, with significant consequences for the company concerned. In one case, the registrar failed to
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issue a certificate of re-registration of a public company as a private company, despite all the necessary documents having been delivered by the company. This went unnoticed for several years; meanwhile, the company relied on the exemptions available to small private companies in preparing its annual accounts. When the error was discovered, the company had no option but to have public company accounts prepared and audited for each of the years in which it had unwittingly remained a public company. From personal experience, I can assure the Committee that that was at considerable cost to the company.
There have also been instances of the registrar failing to record registered charges in a company's register of charges maintained under Section 401 of the Companies Act 1985. That has misled lenders to the company into thinking that the company had no registered charges, only to find that when the company went into liquidation there was a substantial lender ranking ahead of them whose debt consumed all the available assets of the company. That is the sort of cost we suggest should be covered by an express indemnity from the registrar. I beg to move.
Lord McKenzie of Luton: In discussing this amendment, I think it is important to be clear what the role of the registrar consists of. There are many public bodies which intervene in the life of the individuals or organisations to which they provide a service. These bodies make judgments and take discretionary actions which have effects on their customers. Companies House is not, on the whole, a body of this sort. It is a registry. Its basic function is to take receipt of information and place that information, which it accepts in good faith, on the public register.
Of course, this requires Companies House to perform actions promptly and accurately and, on occasions, to carry out certain checksfor example, that information is complete and properly delivered on the right form, and so on. But it does not on the whole require Companies House to enter into any more substantial checking or a verification exercise in respect of the contents of the information.
Generally, therefore, where a company suffers damage as a result of an error or omission on the public register, it will be because the original information was wrong or was wrongly deliverednot because of anything Companies House does or does not do. I understand the points that the noble Lord made and the cases in which he may have been involved, but obviously I cannot comment on the detail. Any general notion of liability for the registrar therefore seems a little beside the point.
The registrar has an obligation to register the information which she receives. It is a fact of life that, on occasions, mistakes will be made, given that more than 7 million documents are handled each year. I do not believe that mistakes are common, but they do happen. That is why there is a thorough and accessible complaints mechanism; Companies House can be alerted quickly to any problem and can take steps to rectify it. My understanding is that in the great
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majority of cases this leads to a satisfactory conclusion for all parties before any material loss is sustained. However, in a very limited number of cases, where the registrar has made an error which has caused a company to incur real costs, I understand that she operates an ex gratia payments procedure to reimburse the company. I understand that around 140 payments of this nature were made in the most recent 12-month period.
I think that the position I have outlined is robust and works well. I am not convinced that the case has been made to establish an express, formal and across-the-board indemnification arrangement of the sort proposed in the amendment. We would need to be aware of the consequences if we did so. If Companies House were under an express obligation to indemnify in all cases, it would need to be sure that it had arrangements in place to fund the unquantifiable contingent liability that would be created. Whatever the precise nature of that arrangement, it would most obviously involve passing the costs on to all companies in the form of higher transaction fees. Companies House would also, I suspect, feel obliged to institute additional checking and risk-management processes within its organisation, involving increased resource and, again, the prospect of higher fees across the board to fund it. I do not believe that the scale of any problem that may exist at the moment would justify going down this route.
Lord Sharman: With the greatest respect to the Minister, I listened to his remarks with increasing incredulity. We are not in any way talking about failures of the registrar when he is given wrong information. That is expressly excluded from my amendment. We are saying simply that, when a person is negligent and another person suffers loss as a result, it is wholly reasonable that that person be indemnified. That is what this amendment says.
As for the argument that there are many millions of transactions, many millions of audits are carried out every year and very few of them fail. That does not remove the liability from auditors. Many millions of directors are involved in many millions of transactions, but that does not remove the liability from them.
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