In addition, The Economic Crime (Transparency and Enforcement) Act 2022 has tightened the filing requirements for company accounts
It is a criminal offence for directors to file their company accounts late under the Companies Act 2006 and Companies House is becoming more aggressive over the enforcement of penalties and the severity of the penalties, with prosecutions now much more common. In addition, the threat of director disqualification has increased, following provisions in the Economic Crime (Transparency and Enforcement) Act 2022 (ECCTA).
Late filing penalties from Companies House
Most directors will be aware that there are late filing penalty fees, ranging from £150 for a private company or LLP filing late for up to a month, up to £7,500 for late filing by a public company of more than 6 months. In addition, the penalty will be doubled for filing late in 2 successive financial years.
Late filing of company accounts is a growing issue, with the total of filing penalties reaching c.£150 million in 2022/23 for England and Wales. Despite this, the fact that late filing is a criminal offence is not widely appreciated by directors. However, Companies House is increasingly taking the view that the existing financial penalties are not a sufficient deterrent for directors not to comply, and prosecutions are now becoming much more common. Indeed, the days of filing late and not expecting any further action from Companies House appear to be long gone.
Companies House data shows that the number of charges heard in Court against directors in England and Wales for the late filing of annual accounts has risen by over 42% from 1,364 in 2021/22 to 1,938 in 2022/23.
This has resulted in over 800 convictions in 2022/23 and over 1,500 since 2021.
The story for directors does not end there, because directors convicted for late filing could well suffer travel restrictions, as the conviction may have to be declared on foreign travel applications for the USA and the EU.
The tightening of filing requirements under the ECCTA could lead to Director Disqualification
The ECCTA is a wide-ranging piece of legislation, introducing reforms that aim to enhance the accessibility and transparency of corporate information held by Companies House.
Under the Act, directors can be disqualified for three or more breaches of company legislation, even if the company is not insolvent. For the purposes of this article, the key breach is:
- Non-Compliance with Filing Requirements: Directors must ensure that all necessary documents and reports are filed with Companies House in a timely manner. Failure to comply with these filing requirements can result in disqualification.
In addition, filings at Companies House can now only be done by a verified officer of a Company (normally a director or the Company Secretary), or an authorised corporate service provider. False or misleading filings will be a criminal offence.
Directors should talk to their Accountants
In order to avoid the possibility of fines and criminal prosecution for late filing, even if there is an apparently good reason, such as a shareholder dispute or some other issue delaying preparation of the company’s accounts, directors should always seek advice in the first instance from their accountant and legal advisors.
From an Insolvency Practitioner’s point of view, when we are appointed as Liquidator of an insolvent company, a variety of information is needed, including all company books, records, bank statements, insurance policies, and other papers relating to the company’s assets and liabilities.
We are legally obliged to write a report on the affairs of companies we are appointed as Liquidators for. This report is sent to the Insolvency Service and will include any examples that we uncover of misconduct, wrongful trading or fraudulent activity in the three years leading up to and during the company’s insolvency. If wrongdoing by directors is uncovered, and this includes failing to keep proper accounting records they could be made personally liable for company debts or even face a director disqualification.
If you are concerned that your company is in financial difficulties and heading towards insolvency, the sooner you talk to an Insolvency Practitioner, the more we can do to help.
