Firms need to get house in order to prepare for new economic crime laws: Jon Healey

Onerous red tape is seen as a necessary evil for most SMEs which have the pleasure of dealing with Companies House, HMRC or other government bodies on a regular basis.

However, businesses in England and Wales are having to quickly get up to speed with a new wave of legislation that could have far-reaching consequences for those who fall foul of the recently introduced laws.

I’m referring to the new Economic Crime and Corporate Transparency Act 2023 (ECCT Act) which aims to strengthen the UK’s response to economic crime and increase transparency.

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The first of many new legal requirements coming into force imminently include a requirement for a company to always ensure that its registered office is an ‘appropriate address’, introducing or expanding a number of corporate offences and granting Companies House enhanced investigative and enforcement powers.

Jon Healey shares his expert viewJon Healey shares his expert view
Jon Healey shares his expert view

Other changes are set to follow later in 2024, including introducing identity verification for all new and existing company directors. Stiff penalties await any business directors or shareholders who ignore the new directives as Companies House will be responsible for policing the new laws and its powers to investigate have been enhanced.

More information will be available as the various provisions of the ECCT Act come into force but we are already aware of the possible disqualification of directors on the grounds of persistent breaches of the legislation. Businesses and individuals could also face fines if they fail to notify changes in directors, secretaries or PSC information to Companies House.

The Registrar will also have the power to strike off a company if it has reasonable cause to believe that any information contained in the incorporation application is materially misleading, false or deceptive. If a company fails to respond to a direction to change its company name, the company and its directors could face hefty fines, coupled with a daily default of up to one-tenth of the amount for as long as the contravention continues.

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There are to be several new offences created by the ECCT Act, including for making false statements and failing to prevent fraud.

The ECCT Act will have a pretty significant impact on directors, shareholders and companies once its various provisions come into full force; it takes corporate compliance obligations to the next level, including the penalties.

Ultimately the ECCT Act will improve things but it does impose a further burden on businesses, and the individuals involved with them. Directors, shareholders and company secretaries will be under a personal duty to notify any changes in their details to the company as soon as possible, so that Companies House can then be updated by the company within 14 days of the change occurring.

A failure to meet this deadline without a reasonable excuse will mean an offence is committed by the company and every officer, punishable by a fine, and potentially annotated on the public register at Companies House.

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All businesses will need to ensure they are compliant but another knock-on effect will be felt in the UK’s transactions’ market when buying or selling businesses.

When we are looking at buying a company on behalf of a client, we will be looking at its track record of compliance in line with the new laws and will have to be satisfied it is meeting the new standards.

Jon Healey is Raworths’ Head of Corporate and Commercial

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