Civil Penalties for Compliance Breaches
Business organisations should be aware of updated Companies House guidance on the new civil penalties regime and what it could mean for directors responsible for compliance breaches.
The general enforcement policy document (published the same day) details CH’s intended approach to enforcement of breaches of the Companies Act and other offences and paves the way for CH to put it new powers into practice.
But it makes clear CH will use a wide variety of methods to encourage and support legal compliance. Companies can be reassured that a practical and judicious approach will (says CH) be taken to non-compliant companies or those otherwise in breach of the law.
The underlying message is: financial penalties may be a last resort – but prosecution remains an essential part of enforcement. The financial penalties guidance comes against the backdrop of the ECCTA 2023 (Financial Penalty) Regulations 2024, which gives the companies registrar wider powers beyond pursing criminal prosecution where suspected corporate offences have been committed. CH’s enforcement policy (available here) emphasises the need for a “high standard of corporate governance”; and that the benefits of limited liability are given in exchange for transparency and accountability.
When will financial penalties be imposed?
A risk-based proportionate and targeted approach will be taken. If businesses do not comply, CH “will consider enforcement options in line with the enforcement policy, while having regard for economic growth and the impact that our actions are likely to have on businesses”.
The options available to CH are:
· Imposing financial penalties
· Issue a warning notice (a financial penalty may be imposed if required action is not complied with)
· Civil actions, eg court ordered filing of documents
· Asking the courts to disqualify an individual from being company directors under the Company Directors Disqualification Act 1986
· Provide companies with information and advice on compliance
· Refer the case to other agencies
· Pursue a criminal prosecution – but only where there a realistic prospect of conviction, and it is required in the public interest. Criminal prosecution can be taken against individual directors or officers
Each case will be considered individually, but generally - the more serious, intentional or repeated the failure, the stronger the enforcement action to be taken.
Financial penalties
Where a financial penalty is considered appropriate for an individual, the registrar will be satisfied, beyond reasonable doubt, that the person has engaged in conduct amounting to a relevant offence under s1132A of the Companies Act 2006.
Depending on the offence, it may be a fixed penalty (based on factors such as the offence and previous behaviour – to a maximum of £2,000 for the most serious offence); a daily rate penalty (for each day that the offence continues); or a combination of a fixed penalty and daily rate penalty.
Penalties can be appealed with the court’s permission.
CH says it will proportionate when exercising its enforcement powers (for example, looking at the extent of harm caused); and being mindful to keep the burden on business productivity to a minimum.
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