Insolvency Law and Director Disqualifications

Debate between Richard Thomson and John McDonnell

Wednesday 14th June 2023 Westminster Hall

[Richard Thomson]

The hon. Member makes an extremely powerful point, which gets to the heart of the issue: those responsible for the waves of financial chaos that result from a corporate failure are not the ones who pay the price. Often, those who can afford to lose the least end up losing the most, whether that is their homes or their livelihoods. In 2020, two years on from the collapse, the assistant general secretary of the trade union Unite said that the UK’s accounting and audit system was clearly “not fit for purpose” and accused the Government of failing, even then, to demand reforms, because of their “many friends” among the major accountancy firms.

While the recent launch of the Financial Reporting Council consultation on its proposed changes to the UK corporate governance code was welcome, serious questions need to be asked about why that has taken so long so far. Frankly, the Government must get a move on with the reforms to ensure that they lead to a prompt, substantive and enforceable change of the landscape, so that the culture of corporate backscratching —if I may put it that way—that led to the Carillion collapse is left as a dim, distant and not-too-pleasant memory.

Robust deterrents are also required to ensure that where criminality is involved, those responsible—whether they are company owners or directors—and enablers are caught and receive proportionate sanctions for their actions. Culpable directors, senior managers and other enablers of economic crime need to face proportionate sanction, and the rules on anti-money laundering supervision need to be applied consistently.

[John McDonnell]

The hon. Member mentions criminality. I am flicking through Prem Sikka’s report, and I forgot to mention the section on Companies House. Previously, in the exposure of Magnolia Fundaction UK, an Italian fraudster who was one of the directors had registered himself—hardly fraudulently—as the “chicken thief”, with his occupation as “fraudster”, while another officer gave his address as the “Street of the 40 Thieves” in the town of “Ali Babba”. The issues at Companies House need to be addressed. I am interested to hear how much that will be addressed by the Minister.

[Richard Thomson]

I thank the right hon. Member for highlighting a particularly egregious example of hiding in plain sight. I will come on to mention some of the reforms that need to take place at Companies House.

To go back to the anti-money laundering supervision, there are clearly some significant holes in the AML framework, as well as a pretty patchwork approach to supervision, which varies significantly across companies and sectors. The non-governmental organisation Spotlight on Corruption noted that some 22 industry bodies oversee anti-money laundering compliance across the legal and accountancy sectors, which seems far too many to be doing the job effectively. With 22 supervisory organisations, a few gaps are bound to creep in somewhere.

In 2021, the Office for Professional Body Anti-Money Laundering Supervision, or OPBAS, found that only 15% of supervisors were effective in using predictable and proportionate supervisory action. OPBAS also found that only 19% had implemented an effective, risk-based approach to supervision, so the system is clearly not working. In the UK, an estimated £88 billion of dirty money is cleaned by criminals every year, compared with £54.5 billion in France and £51.3 billion in Germany. I know money launderers are consistently evolving their practice and that pace needs to be kept, but trying to supervise it across 22 bodies with those low levels of effective frameworks in place does not seem to be making the best impact possible on that trade and the other criminal activities that it promotes. Putting adequate resources into tackling economic crime not only pays for itself, it provides additional resources for public spending and reduces criminality across a broad spectrum of activities.

On Companies House specifically, Transparency International recently found that 14% of all LLPs incorporated show money laundering red flags. The Economic Crime and Corporate Transparency Bill had the opportunity to be a strong first line of defence in tackling that at the earliest opportunity, but unfortunately it did not provide the scale of reforms needed to ensure that the registrar could effectively tackle economic crime. Low registration fees in the UK and the quick turnaround clearly do not lend themselves to robust scrutiny by the registrar, as we heard in the example given by the right hon. Member for Hayes and Harlington (John McDonnell). It is exemplified by the inclusion of a warning at the top of the Companies House website that states that it does not

“verify the accuracy of the information”

filed. Well, it seems to me that that is something it very much should be doing.

The SNP tabled amendments to the Economic Crime and Corporate Transparency Bill that would have introduced more stringent requirements for company directors, including one to limit the number of directorships that an individual could hold. We put forward amendments for directors in breach of duties, which would prevent directors who failed to comply with their tax obligations from being able to receive public funds, except for the purpose of paying staff. We were vocal on the issue of phoenixing, where directors of companies that go insolvent then open up a new company that is effectively the same as the one that went under.

We are used to amendments to Bills falling flat on their face. That seems to be the fate of Opposition parties who table amendments, whether they are the third party or the official Opposition, but it was particularly disappointing that nothing to pick those ideas up was reflected in what came through in the Bill, because ensuring that information is correct at that early point would ultimately help to prevent companies from engaging in money laundering, other forms of economic crime and other dubious activities or from evading their corporate governance responsibilities, which causes the damage we have heard about. With adequate resourcing, that is a task that Companies House is more than capable of fulfilling.

To draw my remarks to a close, we need robust supervision of directors and proper deterrents in place against negligence and malfeasance. We need further reform and increased resourcing for Companies House. Above all, we need to create a culture of honesty, transparency and compliance, which in good times and especially in bad is as fair and beneficial to all as it is possible to be. I very much look forward to what the Minister has to say about those points when he takes to his feet.