Companies (Address of Registered Office) Regulations 2016

Lord Stevenson of Balmacara Excerpts

Monday 14th March 2016 Grand Committee

[The Earl of Courtown (Con)]

My Lords, I shall also speak to the draft Register of Companies and Applications for Striking Off (Amendment) Regulations 2016. The aim of both sets of regulations is to provide new procedures to protect innocent parties where information on the public register about a company’s registered office address, or about the appointment of a director of a company, is inaccurate.

First, I shall deal with the regulations about registered office addresses. The Companies Act 2006 requires every company to have a registered office to which all communications and notices may be addressed. The registered office acts as the company’s address for service. It is not necessary for the company actually to carry on business from the registered office; it can use the address of a third party, such as a firm of solicitors, as its registered office.

The Registrar of Companies receives complaints that some companies use as their registered office the address of another business or private individual which they are not authorised to use. If someone finds that their address is being misused in this way, the impact can be significant and distressing. In the worst cases, bailiffs could be sent to the address in the false belief that it is linked to the company.

The Companies Act 2006 allows the Registrar of Companies to remove factually inaccurate, invalid or ineffective material from the public register, either through an administrative process or by order of the court. However, there is a slight oddity in the Companies Act provisions on registered office addresses. What makes an address a company’s registered office address is the fact that it is recorded on the public register as such. As a result, it cannot be removed under the existing provisions. A new mechanism is needed to stop a company from continuing to use an address where it is not authorised to do so. This is what the regulations do.

Under the new system, a person will be able to apply to the registrar for the company’s registered office address to be changed on the grounds that the company is not authorised to use it. The registrar will send a notice to the company directing it to either change its registered office address or provide evidence that it is authorised to use the address. Where the registrar is satisfied that the company is not authorised to use the address, the registrar will change the registered office to a temporary default address. The intention is for the registrar to operate an address at Companies House for this purpose.

I turn now to the regulations on director appointments. Companies must inform the registrar when a director is appointed or removed or when a director’s details change. At present, a person appearing on the public register as a director of a company can apply to have their name taken off on the grounds that they did not agree to the appointment. However, the company can stop an application merely by objecting, without having to provide any evidence to support its objection. The regulations change this by requiring the company to provide evidence that the person consented to become a director. If the company supplies this information, the person’s name will stay on the public register; if the company does not, the person’s name will be removed from the public register.

These regulations share the same aim of providing a more effective way of correcting information on the public register. They will enable the registrar to quickly change addresses to protect innocent third parties and make it easier to resolve cases where people have been appointed as directors without their agreement. I commend both sets of regulations to the Committee.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I am grateful to the noble Earl for his introduction. These are not contentious issues and I do not intend to hold up the debate for long, particularly as we are ready to go on to the next debate, my noble friend Lady Sherlock having arrived—she was worried that we would finish even before she could arrive.

My general point is that these seem to fall into the category of sledge-hammer and nut issues. I am a little more concerned about the address of registered office regulations than about the striking-off regulations, but it is true that, in both cases, the regulations have been brought forward because there is a defect in the original legislation and it is right and proper that at the appropriate time these are corrected—I am singing the same tune as the noble Earl did in his introduction. My points are therefore rather lightweight, but they are made for the purposes of scrutiny.

First, on a factual point, in both sets of regulations it is clear that a review will be required not only before December 2020 but every five years thereafter. However, it does not say that in the Explanatory Memorandum, although it does say it in the regulations and, in one case, in the Explanatory Note. When these things are brought before the Committee, it would be helpful if such things were all along the same lines. I assume that the substantive position in the regulations is correct and that these provisions will be subject to periodic review. Having said that, these changes are so trivial that, given their nature, I wonder whether it was necessary to make them in quite such a gold-plated way. The statement is fairly clear that not only is there to be a review within five years and every five years thereafter, but that there is also provision for a review should there be any unexpected responses to the regulations, so the Government are well covered on this. I certainly would not be shouting from the rooftops were this to be watered down a little, but it may be too late for that.

My second, slightly more substantial, point applies to both sets of regulations, but primarily to the registered office address regulations. The regulations seem to give the registrar a quasi-judicial authority. In a sense, this is entirely in line with the broad approach that is taken to the Registrar of Companies, because there are points on which the registrar must make a determination. However, I worry slightly about the extent to which these are going to be treated as judicial events when and if there are complaints about them, as opposed to their being done administratively with any subsequent actions to be taken up through the courts. Just before I came in, I was looking at the Explanatory Memorandum for the registered office regulations, in which there are some references. For example, regulation 9 provides:

“For the purposes of determining the application, the registrar may … refer the application, or any question relating to the application, for determination by the court”.

However, the regulation does not explain which court and under what basis.

If one were to take rather a cynical view, one could see this undermining the whole basis of the costings. If you are talking about bringing in expensive lawyers and fancy courts at a high level, then costs will be a lot more than the very small sum of £180,000 that is currently estimated. I assume that is not the case and I am not asking for a detailed response at this stage, but perhaps in a moment of greater leisure the noble Earl could write to me or put the position on the record and in the Library. Is this an issue related to the interpretation of statute, or are these matters of fact that need to be determined by the court, or is it because we are concerned generally that the registrar should not become too judicial so, where the decision is tricky, it goes to the courts? These are matters of judgment and there may not be a specific line on them, but the regulations are a little vague. I can imagine myself in a company position not being quite clear where I might end up and therefore being a little confused about it. I should like a little more clarity.

This question may not be particularly well dealt with in the response because—it does not need to be said again—we are talking about a very small sample of companies likely to be affected. This will not have a major impact on the way in which the economy operates, but there is a default position that this is largely a nuisance issue where people discover that the house which they have just bought, or the rooms which they occupy, have an office with a registered address there, so they get flooded with letters and, if things go really badly, bailiffs will be forcing their way into their accommodation. I suspect that it is a rather rare occurrence and do not imagine that it is what we are talking about. However, the impact assessment says that this facility might be of value in cases of fraud. I could see no figures given in the impact assessment on whether we are talking about substantial numbers of companies here, which are in fact required to be affected because they are engaging in fraudulent activity. If we are talking about a significant number of fraudulent companies, then clearly that is slightly different from the irritation of having your previously private address taken over by another company. Again, I am not looking for a full response today. I just wondered whether the fraud element which creeps into the impact assessment but is not mentioned in the Explanatory Memorandum is a significant issue. If it is, perhaps the Minister could write to me at some point to explain that.

[The Earl of Courtown]

My Lords, I thank the noble Lord, Lord Stevenson, for his contribution.

On the issue of companies referring applications to the courts, I can say that in the vast majority of cases the registrar will be able to make a decision quickly and easily. The regulations allow the registrar to rely on certain evidence without further inquiries about the address that the company is authorised to use as its registered address—for example, evidence that the company has a property interest at that address. However, there may be exceptional cases—for example, those which are particularly complex—where the court is better placed to make a decision. I note carefully what the noble Lord said about the other use of courts and where that use can go, but in those circumstances where the courts are better placed to make a decision, the registrar should be able to refer the dispute to the court to determine the matter. The aim is that it will be concerned solely with issues of fact.

The noble Lord also referred to the instances of this raised in the consultation. The consultation involved a relatively small number of people, but I think that about 80% to 85% of the people who responded—it was in the region of 120 to 130 people on both regulations—thought that these provisions would be of use, because they would prevent people using their home address for nefarious deeds.

The noble Lord also asked a number of other points, and I will ensure that I write to him with a little more detail than I can give now.

These regulations will provide a more effective way of correcting information on the public register. I therefore commend both sets of regulations to the Committee.