On 27 September 2004 Companies House published guidance on how they will exercise their enforcement powers generally (see here) and separate guidance on their new power to issue financial penalties (see here). The guidance was accompanied by a press release (see here) warning companies and directors of the potential consequences of failing to comply with their responsibilities under the Companies Act 2006 ("CA 2006").
While Companies House state that they will support businesses, they warn that they will not hesitate to use their powers against those who fail to comply with the law or misuse the registers. Those ignoring warnings from Companies House could face financial penalties, civil action, director disqualification or even criminal prosecution.
A key part of the enforcement regime is the new power to impose financial penalties instead of pursuing criminal proceedings. Under the relevant provisions (section 1132A CA 2006 and the Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024), the Registrar of Companies (the "Registrar") can impose a financial penalty if satisfied, beyond reasonable doubt, that a person (which could be an individual or a company) has engaged in conduct amounting to a "relevant offence" (essentially any offence under CA 2006 other than one contained in Part 12 (company secretaries), Part 13 (resolutions and meetings) or Part 16 (audit) CA 2006). The penalty can be a fixed penalty (up to £10,000), a daily rate penalty or a combination of the two.
Before imposing a penalty the Registrar must give the person concerned a warning notice. The person then has 28 days to take the required action (e.g. file a missing document) or make written representations. At the end of the notice period, the Registrar may issue a penalty notice setting out details of the penalty being imposed.
Penalties will be calculated based on the seriousness of the offence and how many times the person has committed the same or similar offences in the last five years. Other factors that will be considered include how much the person deserves the blame, the harm involved and any aggravating or mitigating factors. A table in the guidance shows that penalties could range from £250 for a first, 'minor' offence up to £2,000 for a fourth or more 'very serious' offence. There is scope to appeal a penalty but this would require permission of the court.
Notwithstanding this new power, the guidance notes that the Registrar may still consider prosecution instead if that is warranted.
Up until now the only penalties issued by Companies House related to the late filing of accounts. The implementation of this new power significantly widens the failings companies (and directors) could be penalised for. As a result companies should ensure they have processes in place to ensure prompt compliance with their obligations.
If you require any further information, or specific advice, please contact our expert team.
