Registered Office Address (Rectification of Register) Regulations 2024

Lord Johnson of Lainston Excerpts

Monday 19th February 2024 Grand Committee

Moved by

[Lord Johnson of Lainston]

That the Grand Committee do consider the Registered Office Address (Rectification of Register) Regulations 2024.

Relevant document: 8th Report from the Secondary Legislation Scrutiny Committee

[The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)]

My Lords, I beg to move that the Committee also consider the draft Limited Liability Partnerships (Application of Company Law) Regulations 2024, the draft Service Address (Rectification of Register) Regulations 2024 and the draft Principal Office Address (Rectification of Register) Regulations 2024, which were all laid before the House on 18 December 2023.

These regulations represent the first substantive tranche of a total of some 50 statutory instruments that will breathe life into the reforms being introduced by the Economic Crime and Corporate Transparency Act 2023, which I will refer to as “the Act”. It was my pleasure to help guide that Act through Parliament. I pay tribute to noble Lords for helping deliver a landmark piece of legislation; I am extremely pleased to see so many of them in their usual place today. The Act’s reforms will help bear down on the criminals, kleptocrats and terrorists who abuse our open economy, and will enhance the UK’s reputation as a place where legitimate business thrives.

I will begin by turning attention to the draft Limited Liability Partnerships (Application of Company Law) Regulations 2024. While the inevitable focus of the Act was on the reform of company and limited partnership frameworks, our policy is generally to apply company reforms to the class of entity established through the Limited Liability Partnerships Act 2000. That 2000 Act provides a regulation power to do so and, where appropriate, to modify the application to suit the limited liability partnership, or LLP, context. We intend to exercise the power through further instruments as necessary to ensure that Act provisions apply coherently as between companies and LLPs.

This instrument forms the first step in that process and serves to transpose the elements of the Act that commenced on Royal Assent in October 2023 and in January 2024 and, most significantly, those planned to commence on 4 March. I remind noble Lords that the intention is that many of these points will indeed commence on 4 March. That date is an important one, as it marks the point from which it is intended that many of the company registrar’s new powers will come into effect and from which significant new requirements will apply to companies and, by virtue of this instrument, also to LLPs.

Noble Lords will be pleased to know that I spoke this afternoon to the Registrar of Companies; I was very comforted by her encouraging words about how Companies House is ready for that date and looking forward to it. I am happy to cover further points later around its preparedness and the chronology of other activities feeding off the Act.

Those provisions include: establishment of additional controls around the name an entity chooses to register and that under which it conducts business; a statutory requirement to register an appropriate email address; an obligation annually to confirm that the entity acts with a lawful purpose; and, perhaps most importantly, the registrar’s new objectives under the Act to strive to ensure the integrity and accuracy of register information and, within the parameters of her functions, to prevent companies and others carrying out illegal activities. Elsewhere among those powers and requirements are those that relate to the addresses that corporate entities are required to file with the Registrar of Companies.

That brings me to the next instrument in this group, the Registered Office Address (Rectification of Register) Regulations 2024. Instances can arise in which an unsuspecting householder finds that a company with which they have no involvement has misappropriated their address, claiming it as that of the registered office they are required by law to file with the registrar. This not only causes alarm and inconvenience for householders but can be indicative of criminal intent on the part of the company in question.

Through the Act, we are strengthening the registrar’s powers to combat this practice by tightening the requirements around what constitutes an appropriate registered office address; streamlining and expanding upon existing avenues of redress for those impacted; introducing criminal sanctions for those who fail to take corrective action; and, ultimately, providing the registrar with the ability to strike from the register those companies that persist in offending.

The purpose of this supporting instrument is to establish a flexible framework within which the registrar can act to address this abuse. It puts flesh on the processes to be followed where the registrar believes it appropriate either to act unilaterally and expeditiously to change a company address or to provide it with the opportunity to object to a proposed change. It sets out how criminal penalties will apply to companies, and their officers, which fail to take corrective action where the registrar has replaced an erroneous office address with a default address. It also outlines the process the registrar can follow to strike a company off the register when corrective action is not taken.

These registered office address regulations apply these procedures and processes in the limited company context. The limited liability partnership regulations I introduced earlier serve to transpose them to apply with similar effect in the LLP setting.

I will now cover the Service Address (Rectification of Register) Regulations 2024 and the Principal Office Address (Rectification of Register) Regulations 2024. They are, so to speak, two further chapters in the same story. Just as companies are required to file particular address details, so are persons associated with them. It may be helpful if I set out in a little more detail what these requirements are and where they apply.

I turn first to service addresses. A service address must be filed in respect of all company directors, company secretaries and any individual registered as a person with significant control, or PSC.

I move on to principal office addresses. Certain companies have directors or company secretaries that are other corporate entities rather than individuals. Companies may also have what is termed a relevant legal entity, or RLE, which is a company or organisation that has a significant degree of influence or control over another. They are effectively the same as people with significant control but are entities, not individuals. A company must provide address details in respect of all three of these categories and, in doing so, has the option of filing either a registered office or a principal office address.

These two sets of regulations establish similar processes around the rectification of false or erroneous service and principal office addresses as the service address regulations referred to earlier. However, there is one material difference. Because these addresses relate to individuals or corporate entities other than the company itself, the ultimate sanction of striking the company at issue off the register for persistent non-compliance cannot apply.

All three sets of these address-related regulations are also applied in an LLP context by the draft Limited Liability Partnerships (Application of Company Law) Regulations 2024 that I presented at the outset. In combination, they will deliver a robust and comprehensive safeguard, encompassing, for example, instances in which an address is misappropriated for multiple abuses within the one company, as well as providing scope for much quicker redress for those who still fall victim. At present, the registrar can act only following an application from the victim, and she has to provide companies with 28 days in which they can challenge the claim that an address is being misused. These registrar powers are available only in respect of the registered address; they are not currently provided for service and principal addresses.

Once these improved mechanisms are in place, not only will the registrar also be able to change an address to a default address of her own volition but she will have the discretion to do so immediately, affording the company the opportunity to challenge only after the event. Therefore, in cases of prima facie abuse, it will be possible to deliver much quicker and more efficient resolution. I know that noble Lords on all sides of the House were particularly focused on that topic during the passage of the Act.

In conclusion, these measures are all crucial to the Act’s effective implementation. I hope that noble Lords will support them and their objectives. I beg to move.

[Lord Bourne of Aberystwyth (Con)]

My Lords, I thank the Minister for setting out clearly and crisply the details of the four sets of regulations. I declare my interests as set out in the register. It is certainly not my aim to do otherwise than to support these regulations, which are consequential from the Economic Crime and Corporate Transparency Act 2023, as the Minister explained, but I want to raise some brief points in relation to them.

I appreciate that, in relation to the address of a company’s registered office, one major concern is companies opting for PO box addresses or inappropriate addresses that are not the address of the company or any of its officers. I take the point about the importance of tackling this, particularly in relation to crimes of fraud, money laundering and so on. Does the Minister have any idea of the incidence of this type of misleading activity? If he does not have the figures to hand, I would be grateful if he could write to me.

I have two brief additional points. More widely, I wonder if the Minister can provide any details—he has given some indication—of when other provisions of the Economic Crime and Corporate Transparency Act 2023 will be brought into force. I appreciate what he said about 4 March but I wonder whether Section 60 of that Act, on confirmation of lawful purpose, is to be brought in on that date. I think it is but would be grateful for an identification in the regulations and any other regulations expected in that regard. It would be good to have that mapped out.

Lastly, is the Minister in a position to say something about a review of company law more widely? The last far-reaching review of company law took place in 2006. It was then the most far-reaching review we have ever had and led to the longest piece of legislation on any subject ever seen at Westminster, so it would be quite a task, but that was some 20 years ago and it is in need of some review and refresh. When the Minister responds, perhaps he can give some indication of when that might be tackled. I am most grateful.

--- Later in debate ---

Finally, on the Principal Office Address (Rectification of Register) Regulations 2024, it may be necessary to empower the registrar to change the principal office address of a registered company. It could be in response to a motion from a third party, which may be due to deliberate fraud or poor administration, or if the registrar is satisfied that the address given is not in fact the principal office. I do not want to rehearse the arguments heard earlier in support of these powers, but I seek reassurance from the Minister that there will be guidance in place regarding standard timescales to ensure that the registrar acts reasonably and proportionately unless they have specific and clear justification to impose immediate changes with potentially no period for objection. As ever, we should keep in mind that our public bodies, when granted additional powers, must also be aware of the responsibility to apply them responsibly and that there are clear routes for appeal if individuals believe that this is not the case. I look forward to the Minister’s response to noble Lords’ questions, especially the question asked by the noble Lord, Lord Bourne, about whether the review of company law will happen and the question asked by my noble friend Lord Sikka on who enforces company law.

[Lord Johnson of Lainston (Con)]

As always, I thank noble Lords for a very powerful and constructive debate around this essential legislation. I genuinely think it will make an enormous difference to the quality of Companies House activities and of our business activities, reducing crime in a magnitudinous way and making the data that companies provide far more valuable in terms of them being able to operate legitimate businesses, to borrow money and to give confidence to customers. Markets are based on trust, so the more the Government can do—and have done, I am pleased to say, with the support of all Peers in the House—the better the business operations underneath that framework.

I will briefly go through some of the significant points. If I have missed anything I will be delighted to follow up after this discussion, but I am keen to make sure that everyone is answered as broadly as possible. If I do not have specific data requested, I will write and copy in all noble Lords.

I thank my noble friend Lord Bourne for his contribution; I hope I understood his question correctly. I do not have to hand a number for the instances of PO boxes being used as registered addresses, but I would be comfortable supplying it to him. The whole point is that this legislation will end the practice of having PO boxes. I think that only about 21,000 or 22,000 addresses are classed as default; of course, that is in effect the registrar’s own address. If you think about the however many million companies that are registered—perhaps 5 million or so—that is a very small proportion. A lot of these figures sound high—when you talk about tens of thousands, it seems an enormous number—but the reality is that, in proportion, they are relatively small. A lot of these default addresses—I am covering several points at the same time—are not for nefarious purposes. They might exist simply because, for example, an individual who had a company has died or the accountant who was registering it has gone out of business. So there are administrative reasons why default addresses are used.

Forgive me but I cannot remember whether it was the noble Lord, Lord Vaux, or another noble Lord who made the point about advertising—that because it is a default address, issues around concern and risk may be raised. I have some sympathy with that, although it is not for me to say. A default address does not necessitate that there is nefarious activity; it is often administrative. Clearly, if noble Lords go on Companies House, they will be able to see the date on which an address became the default address, which would potentially give one an indication of the situation.

It is worth talking about the chronology here. I so enjoyed the passage of the Economic Crime and Corporate Transparency Bill. The time went by so fast; it feels like only yesterday that we finished it. It became an Act towards the end of last year. As I said, I am pleased that, following a helpful conversation with the registrar, Louise Smyth, she has been extremely co-operative with my office in promoting our ambitions for Companies House. I am sure that—the noble Lord, Lord Vaux, asked a question about this—it would be extremely helpful for us all to arrange an update. I found speaking to Louise today, ahead of this debate, very helpful. It is important that we have an element of checking to see whether the resourcing is appropriate and whether the speed of activity is there, but I have the fullest of confidence in Louise and her team.

Let us look at the chronology going forward. Assuming that everything today goes to plan, these powers will come into force on 4 March. That will in effect enable the registrar to have far more discretion over how she acts.

I turn to the points made by the noble Lord, Lord Leong, about multiple registrations, how the registrar will effect her duties and the appellate process around that. It is clearly listed in the statutory instrument that you will not have to have 21,000 to the power of however many different applications, as the noble Lord, Lord Vaux, may have suggested. The point is this: currently, people may register my address as their company address. This is one of the core sparks that lit the blue touchpaper, or the rocket, that was the Economic Crime and Corporate Transparency Bill—this iniquitous situation in which any of us could be registered as a director and our address could be used as a company address. It is a completely bizarre situation that will come to an end on 4 March.

It will then be up to the registrar to make those inquiries; at the stroke of a pen, she will be able to cancel out however many thousands of companies registered to one address. How are we going to do this? The registrar will use the intelligence hub; it is already in existence, as far as I am aware, and is being significantly resourced and expanded. I am encouraged that she will have—this is what we discussed in great detail as the Bill passed through the House—the discretionary powers to do the work and do what is clearly the right thing.

The noble Lord, Lord Leong, rightly mentioned the appeals process. It would be unreasonable to suggest that a single agent of the Crown should be able to, at their whim and discretion, change the fortunes of businesses; that is simply not the case. There is a clear appeals process and, ultimately, the courts would adjudicate. Let me be clear: it is not in the interests of Companies House or the registrar to strike companies off if they believe that they are doing legitimate business. That would be a highly unusual scenario, but there are safeguards and checks and balances around that.

I hope I have covered some of the questions asked by my noble friend Lord Bourne and the noble Lord, Lord Vaux. I will cover two other short points on the chronology. These powers will come into effect on 4 March. In May we will get the statutory instrument for the fees—I believe it is being laid in Parliament, in the other place, today—which will go to £50 for incorporation and £34 for verification at the end of every year. The increase is quite significant in percentage terms, but I think all noble Lords in the Committee will agree that, in real terms, that is not a significant amount of money for the incorporation of a company, with all that that entails. I think we have reached quite a good place there.

The all-important work on verification is the real meat of the additional hard work by the noble Lords, Lord Vaux and Lord Fox, and other noble Peers. Our friends the ACSPs hope, as do Companies House and the registrar, that by the end of this year they will have begun the process of ensuring that the verification process around ACSPs is well under way. They expect to bring in the appropriate processes for individual verification in 2025. As noble Lords know, these include photo identity card and passport verification and so on; we have done so much work on this.

[Lord Fox (LD)]

On chronology, am I right in thinking that there is a commencement statutory instrument that needs to be brought forward for the overall Bill? When might we see that being tabled?

[Lord Johnson of Lainston (Con)]

That will happen next week, I am told. I look behind me hopefully on questions like that, but we will do that next week and I hope we stick to this timetable. As I have said, various SIs relating to fees and so on are being laid in the other place today.

I believe I have answered most of the questions from the noble Lord, Lord Vaux, and my noble friend Lord Bourne. The noble Lord, Lord Sikka, made some important points about dividend payments and the stability of our company system. I would not necessarily say that they are relevant to the Companies House regulations that we are looking at today. They are separate from Companies House’s requirement to make sure that the proper accounts are filed. The noble Lord asked who the enforcer for company law is; the court system is. It is important to stress that.

There have been discussions about when company law will be reviewed. As far as I am aware, we have no specific plans to do a full review, but I am happy to take all the noble Lord’s comments and issues back to the Department for Business and Trade, which has particular responsibility over certain reporting areas, to make sure that he is content that the work we are doing is effective.

I believe I covered the points from the noble Lord, Lord Leong, related to ensuring that the Registrar of Companies can operate effectively and the appellate process. Very importantly, on his comment about the powers of the registrar, these are new powers, so we will have to see how they develop. It is absolutely right that the House and the Government continue to keep a close watch on Companies House and the team there to ensure that they have the necessary powers and resources to deliver on a truly transformative regime for how companies are registered and how Companies House operates. As the noble Lord, Lord Fox, rightly said, it needs to move from simply being a repository of information to becoming a truly dynamic activator in overseeing how companies operate. This is exactly what these statutory instruments allow.

I am happy to follow up with any noble Lords who have specific requests, but I very much hope that I have their support on these statutory instruments.

Motion agreed.