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Many people do not realise that Companies House is able to investigate and bring criminal prosecutions against individuals. As the government body which regulates UK company registrations, Companies House prosecutes company directors accused of failing to fulfil their statutory obligations under the Companies Act 2006.
The primary offence which Companies House prosecutes is failing to file a company’s annual accounts on time. The agency can bring a range of other, related, criminal charges.
The consequences for any director found guilty are not necessarily insignificant. Not only would the convicted person have a criminal record, but they may be fined and can, in certain circumstances, be disqualified from acting as a director for any company. A director who is a professional such as an accountant or a solicitor may have to notify their regulator of the conviction.
Having previously made relatively little of its prosecutorial powers, Companies House is now much more active in this area and often prosecutes directors, of companies of all size, for delays and other issues which may not be their fault.
While Companies House prosecutions are rarely complex, there is much that someone facing the prospect of prosecution can do to protect their position. Anyone facing the prospect of Companies House prosecution is advised to seek the advice of an expert lawyer as soon as possible, as key to a successful defence is often to act swiftly.
Below are the answers to some frequently asked questions (FAQs) regarding Companies House prosecutions.
The Companies Act 2006 (the Act) imposes criminal liability on company directors for breaches of a variety of statutory responsibilities. Arguably the most significant of these (and certainly the duty which Companies House is most keen on enforcing) is the obligation to file annual company accounts on time.
The Companies Act 2006 obliges directors to file audited accounts with the agency within a period of time of the financial year end (there are different rules depending on the type and size of the company, for filing a company’s first set of annual accounts and if these cover a period of more than 12 months).
If these accounts are delivered late then the individual directors in post at the deadline can be prosecuted under Section 451 of the Act. Prosecution can take place even if the delay was due to circumstances beyond a director’s personal control or if the director was not personally involved in the filing of the accounts (which may well be the case in very large organisations or for directors of more than one company).
The evidence required for a Companies House prosecution for failing to file company accounts on time is relatively unsophisticated. Because it is a criminal offence for a company director not to comply with the requirements to file the company’s accounts by the relevant time limit, all the prosecutor needs prove is:
It is important to recognise the liable directors are those who were in place immediately before the end of the period to file the accounts (even if they have subsequently left the company).
While the elements outlined above may give the impression that failing to file accounts on time is a ‘strict liability’ offence (i.e. one to which, if the criteria are met, there are no possible defences), this is not the case. There is a statutory defence to the offence of failing to file company accounts on time. This defence is that “a person charged with such an offence to prove that he took all reasonable steps for securing that those requirements would be complied with before the end of that period”.
There are two things to note about this defence. Firstly, the responsibility lies with the director to raise this defence, but also to prove it. This is not the case in most criminal prosecutions where the defence needs only to put forward a defence, which the prosecution has to disprove.
Secondly, the director must show that they took all reasonable steps to comply. The key word to note here is “all”. It is not sufficient to demonstrate that the director took “some” or “many” reasonable steps to ensure the accounts were filed on time if there were any other reasonable steps that they could have implemented, and which did not occur.
In addition to the above (and also somewhat in contradiction) there is a rather more wide-ranging provision in the legislation which appears to allow a court to exercise discretion to excuse a defendant from criminal liability if they acted “honestly and reasonably” and that “having regard to all the circumstances of the case (including those connected with his appointment)” they “ought fairly to be excused”.
Failing to file company accounts on time is an offence triable only in the Magistrates Court. If convicted the Court can impose a number of penalties up to and including a fine. Imprisonment does not apply.
Apart from the criminal conviction and financial penalty, a particular concern for some directors may be disqualification. If a person is persistently in default of companies’ legislation (including the requirement to file accounts on time), a court can order that they are disqualified from acting as a company director for up to five years.
Persistent default can be conclusively proven by showing that, in the five years up to the date of the application for disqualification, the director has been found guilty of three or more relevant offences. This applies even if the convictions occurred on the same occasion.
This is a significant risk for directors of many companies or companies which are late filing accounts for several years.
Any director who is contacted in relation to a potential Companies House prosecution is advised not to ignore this communication. Constructive and early engagement can prove important to establishing a defence by enabling the director to explain to the agency what the problems have been and also how they will be resolved.
It is important to be aware, however, that over promising to the agency at this stage is generally a mistake. It can help to draft correspondence which deals with the defences and sets out the action taken by the directors to meet the deadline(s) and to remedy any failures.
Anyone who receives a summons to court from Companies House is advised not to ignore it.
The director will be required to either attend Court personally, or through a lawyer, or via correspondence and indicate a plea to the charge. If a not guilty plea is entered a trial will be listed and the director will have to attend and may give evidence and call witnesses. The summons will normally be to Cardiff Magistrates’ Court, as this is near Companies House headquarters.
Hickman & Rose has substantial experience in defending the interests of directors in Companies House prosecutions and investigations.
Our lawyers are used to examining highly complex corporate structures and getting to grips with issues involving directors, accountants and auditors which can result in delays beyond the scope of the individual director.
We have expertise in advising on tactical considerations and we have been extremely successful in persuading Companies House to drop cases.
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