Prosecutions by Companies House 10 FAQs

Here you can download our Prosecutions by Companies House 10 Frequently Asked Questions answered booklet. An example of the useful information you can find in the booklet is featured below.

Introduction

Directors of Limited Companies ultimately have responsibility for all steps taken by a Company, regardless of whether they are actively involved in such steps, merely agree that such steps should be taken (for example at a Board Meeting) or even are completely unaware of such steps. These are known as the Director’s fiduciary duties and a Director’s statutory duties.

Inactivity or a failure to act is no defence to any proceedings brought on the basis of such corporate governance requirements and is a breach of a Director’s fiduciary duties in itself.

Increasingly, Non-executive Directors, Shadow Directors and Directors who are spouses of the appointed Directors are being held liable for such matters. This liability will often depend on the size of the Company and the circumstances of any such default and it is always encouraged to get advice as early as possible where any such risk exists, as a failure to act is no defence to such proceedings later brought.

Here we address some criminal prosecutions that are regularly brought against Directors by the Registrar of Companies for various breaches of Companies Acts legislation (the most relevant now being the Companies Act 2006).

This article is not intended to cover all types of criminal prosecutions that Directors may be subject to, but rather the most common ones.

1. How Can A Director Be Criminally Liable?

There are obviously two ways any individual can be liable as a Director – by way of being personally sued for a financial claim (civil proceedings) and/or being prosecuted in the Criminal Courts, which may lead to a fine.

Criminal proceedings are intended to act dissuasively, as a punishment intending to warn off or prevent similar actions occurring, or alternatively protect the public from that party repeating those same actions.

There are certain requirements that a Company must abide by at law, to give effect to the transparency of corporate information and to ensure that the legal vehicle of the Company (especially its limited liability) is not abused.

As Directors may make arrangements for a Company to cover the cost of any civil action against Directors (via insurance), the only option to ensure compliance is to make Directors criminally liable for any failure to ensure the Company meets its statutory duties.

2. How Will I Receive Notice Of Criminal Proceedings?

Companies House does not issue criminal proceedings without warning.

In almost every occasion (unless a Director/Company cannot be located) they will write with notice of the default failure to file the relevant documents, such notice being usually sent to the Company’s registered office address.

Such correspondence will normally give a reasonable period to bring the paperwork up-to-date and it is only when such notices are ignored are criminal proceedings issued.

Unfortunately, the letters from Companies House are not on solicitors’ letter headed paper and can often be easily ignored without any understanding of the consequence until it is too late.

Even where criminal proceedings are ignored, at a very early stage where it is a first offence it may not be too late to remedy the problem and ask Companies House to withdraw the claim. However, this has to be done very early and may not have any effect when the proceedings relate to repeated offences.

3. What Is Punishable By Criminal Proceedings Brought By Companies House?

The number of sanctions against Companies, Directors and third parties contained within the Companies Act legislation (most particularly the Companies Act 2006) are too numerous to cover in this article.

However, the most important obligations that lie with the Company (and therefore its Directors) are documents filed on the public register, which can be viewed by anyone upon payment of a small fee to Companies House.

These include a failure to file Annual Returns and Financial Accounts within the requisite statutory period.

The reason for such harsh consequences for a failure to file such documents is that, without such records, anyone with an interest in a Company (be that a bank for lending purposes, a supplier releasing high value stock or goods without immediate payment or even customers paying for items that have not yet been delivered) will not be able to find out anything about who owns or runs the Company and whether it is credit worthy.

This public information requirement has been a condition of the limited liability status that pervades all of the Companies Act legislation in the modern era.

4. What Do Companies House Generally Prosecute Directors For?

Part 15 of the Companies Act 2006 is the legal framework which governs which reports and accounts must be filed at Companies House and when These sections also deal with the consequences of failing to file such accounts and reports with the Registrar of Companies.

Section 441 of the Companies Act 2006 provides details of a Company’s filing obligations in respect of the necessary accounts and reports, whether a small Company, a medium-sized company, a large unlisted Company or even a quoted Company.

Section 451 of the Companies Act 2006 provides that Directors can be liable to a fine in the Magistrates Court where the Company fails to file such accounts and/or reports by the end of the period required for filing them (normally 9 months from the year-end in the case of financial accounts and 28 days from the anniversary of incorporation for Annual Returns).

Even where the accounts, returns or reports have been brought up-to-date, it remains an offence that the relevant documents were not filed within the statutory time period.

IN ORDER TO FIND OUT MORE ABOUT THIS SUBJECT AND THE ANSWERS TO THE QUESTIONS LISTED BELOW, DOWNLOAD OUR HANDY TIPS BOOKLET HERE.

ALTERNATIVELY, CONTACT THE TEAM ON 020 7841 0390

5. Can Anyone Who Has Been A Director Be Prosecuted?

6. Is There Any Defence?

7. Is A Fine The Only Criminal Sentence I Can Receive?

8. How Long Can A Director Be Disqualified For?

9. What Options Do I Have If Faced With Disqualification?

10. If I Am Disqualified, Do I Have Any OptionsS?

Should you require any further assistance at all with these matters, then please contact one of our corporate specialists on 020 7841 0390 and we will be happy to discuss this with you.

 

I was introduced to Francis Wilks & Jones with little or no expectation as to whether they could assist me.  I had spent two decades with my co-shareholder and co-director running a small company that we developed together, but it felt in latter years that my income was not growing with the company – as opposed to my co-shareholder who appeared to be doing very well.  As time went by I was being paid a pittance and was struggling to work out how I could leave the business and sell my shares.

I was introduced to Francis Wilks & Jones, a firm in Central London, who agreed to take my instruction on the basis of a funding arrangement which meant that they were only paid if my claim was successful.  I found them very supportive and friendly, with partner-led involvement and I was always able to speak to the partner dealing with my matter and who managed it very professionally through to completion.  I would recommend Francis Wilks & Jones to anyone facing a similar situation.

Director/Shareholder