Company Directors may now face civil financial penalties, of up to £10,000, for many of the offences under the Companies Act 2006 which can apply to Directors.
These can now be issued, for example, instead of prosecutions for late filing of various documents at Companies House.
In some cases penalties can be levied against both companies and every officer in default.
This is because of the Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024, which gave the UK Registrar of Companies at Companies House power to impose such penalties.
In principle, it appears similar to arrangements in other jurisdictions, such as the USA where, instead of going through a costly court prosecution process, the government or
appropriate agency, which in the UK is Companies House, is willing to accept a fine or penalty from the accused.
These arrangements cover a very wide list of offences such as failure to file or late filing of, confirmation statements, annual accounts, or other documents required to be filed with the Registrar, and other subjects covered by the Companies Act 2006. It covers the offences of failure to keep and maintain the required statutory books and registers of a company.
Companies House previously indicated it would not use its new powers until it had published guidance on their use, which it has now done. The guidance is available online, and relates to its approach to financial penalties, and its enforcement policy.
The guidance covers when Companies House can decide to issue financial penalties, and the steps or process it will follow; and the calculation of fines, as well as an appeal process.
The Registrar may impose fixed penalties – a set amount based on various factors including the seriousness of the offence, and previous behaviour such as a company’s filing ”history”.
There will also be “Daily rate” penalties – for each day that the offence continues; or a combination of both.
The Registrar may issue a warning notice in writing, giving the individual or company 28 days to remedy the default. The guidance says that directors or companies will not usually receive a penalty if the default is remedied within the time specified in the notice.
Directors or companies receiving such notices can make representations to the Registrar, and the Registrar will not make a decision on offences and penalties until he or she has considered any information provided.
If the Registrar is satisfied an offence has been committed, a penalty notice may be issued imposing financial penalties, after taking into account how many times the company or individual has committed the same or similar offences in the previous 5 years.
Penalties for each offence start at £250, for less serious offences, and for first-time offenders, but then increase to £2,000 for each offence for very serious offences, and for repeat offenders.
Though penalty notices are intended to be a quicker process and less costly to the government agency doing the work than the prosecution of offences under the Companies Act, Companies House made it clear it will still consider prosecution where it believes directors and companies have committed the same serious or very serious offences 3 times in any 5-year period.
For Directors of groups of companies, or directors with multiple directorships, this can be a common issue. There is also the risk of director disqualification, because under the Company Directors Disqualification Act 1986 the prosecutor of any director facing 3 of these Companies Act offences must refer the matter to the Magistrates, who will hear the charges, to consider disqualification of each director for from 1 to 15 years in respect of all their UK company directorships.
It is essential for all Companies and Directors that they ensure they have systems in place to avoid penalties by keeping fully up to date with their compliance obligations. That may in practice be easier said than done of course.
One recurring challenge for many larger Companies is the time it takes to complete each year’s accounts and then have them audited. Delays in these areas are very unlikely to be accepted by Companies House, prosecutors, or Courts, as a sufficient reason to stop a prosecution.
There also appears to be a belief that the annual confirmation statement cannot be filed until the accounts are filed, and so the confirmation statement is held back when it could be filed in a timely way, and so avoiding the risk of a criminal charge, and one which counts towards the 3 charges triggering a referral for director disqualification.