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Company Law Reform Bill [HL]

moved Amendment No. 315ZASA:"After Clause 430, insert the following new clause—" ““DEFAULT IN FILING ACCOUNTS AND REPORTS: REGISTRAR’S PROCEDURE (1)   Where the requirements of section 419 are not complied with before the end of the period allowed for filing accounts and reports, the registrar may send to the company by post a letter informing it that it is in default of its statutory obligation to file accounts and that the default should be made good within one month. (2)   If the registrar does not within one month of sending that letter receive the accounts or an answer to the effect that the company is not carrying on business or in operation, he shall send to the company by post a registered letter stating that if accounts are not received within one month from its date, a notice will be published in the Gazette with a view to striking the company’s name off the register. (3)   If the registrar either receives an answer to the effect that the company is not carrying on business or in operation, or does not within one month after sending the second letter receive the accounts or any answer, he may publish in the Gazette, and send to the company by post, a notice that at the expiration of 3 months from the date of that notice the name of the company mentioned in it will, unless cause is shown to the contrary, be struck off the register and the company will be dissolved. (4)   At the expiration of the time mentioned in the notice the registrar may, unless cause to the contrary is previously shown by the company, strike its name off the register, and shall publish notice of this in the Gazette; and on the publication of that notice in the Gazette the company is dissolved. (5)   However— (a)   the liability (if any) of every director, managing officer and member of the company continues and may be enforced as if the company had not been dissolved, and (b)   nothing in subsection (3) affects the power of the court to wind up a company the name of which has been struck off the register.”” The noble Lord said: There has long been a duty on companies to file accounts and reports with the Registrar of Companies within a specified period. The sanction of a monetary penalty was first introduced in the Companies Act 1976 and repeated in the Companies Act 1985 but was never brought into effect. Then along came the European Union’s seventh directive on company law, which required member states to provide for sanctions against companies that failed to publish accounts. That directive led to the Companies Act 1989. A penalty provision was then put into effect and the current system began. The objective of the penalty regime is to encourage companies to deliver annual accounts, and so on, to the registrar in accordance with the statutory timetable. The question is: has the penalty regime been successful? Of about 2 million active companies on the register at any one time, 10 per cent are in default. Apparently, this year, about 210,000 penalties will be imposed and a substantial number of those companies are being properly penalised for successive years. As the figures are broadly the same each year—although there was a slight improvement in filing in the early 1990s, following the Companies Act 1989—they demonstrate that the penalty system, which has now been operating for about 14 years, has not had the desired effect of persuading companies to comply. Reminder letters before the deadline for filing and a series of default letters after a company is late in filing seem to have had only limited effect. There seems to be a stubborn pool of companies—perhaps 100,000, but this is a round figure—that seem neither to know nor care whether they file accounts on time or at all. Does that matter? Chapter 11 of this part of the Bill and the provisions that it replaces in previous legislation have a sound commercial purpose: to enable those who deal with a company, whether as suppliers, investors, potential investors, customers or otherwise readily to ascertain the financial state of the company. If existing sanctions are inadequate, as I suggest that they are, they should be strengthened. I doubt whether simply increasing the penalties will ensure more than a marginal improvement in filing. The purpose of my amendment is to enable the Registrar of Companies, after a default letter and a warning shot about striking a company from the register, actually to strike a company from the register. That would provide an adequate incentive to file accounts that the threat of penalties does not. After a while, when, say, a few dozen companies have been struck off and word gets about that filing is no longer some tiresome bureaucratic requirement that can be fairly safely ignored, there would be a difference. I realise that some minor corrections would be needed to my amendment in view of the fresh wording in Clauses 429 and 430 that the Committee has inserted through the ministerial amendments with which we have just dealt. Finally, because my amendment would be inserted after Clause 430, it may be asked: what about Clause 430 itself, which provides for court orders? The court order provision in Clause 430, or something like it, has been there for 30 years. I understand that successive Registrars of Companies have never used that power to deal with failure to file accounts, possibly because the action would have to be in the High Court but, far more important, there would have to be dozens or hundreds of actions per annum. I beg to move.