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United Kingdom | Publication | December 2020
On December 9, 2020 the Department for Business, Energy and Industrial Strategy (BEIS) published, as part of its consultations on reforms to the UK’s register of company information, a consultation seeking views on the Government’s proposed approach to restricting the use of corporate (i.e. non-natural person) directors in pursuit of its objective of enhancing corporate transparency.
While provision to prohibit the use of corporate directors was taken in section 87 of the Small Business, Enterprise and Employment Act 2015 (SBEEA 2015), that provision has not come into force and the purpose of this consultation is to determine how to define exceptions such that corporate directors can still be used in certain situations. Of relevance to this is the announcement in September 2020 of a new mandatory identity verification process for company directors.
Following consultations on this topic in 2014 and 2015, the Government has decided that defining exceptions by reference to a “principle” is a more efficient means of achieving the aims of transparency so it intends to bring forward regulations that create a “principles” based exception alongside the commencement of the prohibition on corporate directors. The principles the Government envisages as a starting point are that a company can be appointed as a director if:
In terms of scope, it is proposed that there should be no differentiation between corporate directors by reference to their place of origin, so UK and overseas entities will be subject to the same treatment. As a result, where a company is seeking to appoint an overseas entity to the role of director, evidence would need to be provided to Companies House that that entity has only natural persons as its own directors, and those directors would need to have their IDs verified.
In terms of compliance and reporting, the regulations would be structured to effectively safeguard the integrity of the natural person principle from the perspective of both the potential appointor company and the appointee, at least in so far as both are UK registered companies. The consultation paper provides this illustration; if UK company C appoints a UK company D as director, any attempt by D to appoint a corporate director would be unlawful and, therefore, ineffective. This would work both “up” and “down” the chain of directorships: C cannot validly be appointed as another UK company’s director while it has D as its director. As a further safeguard, and to cater for relationships involving non-UK companies, Company C would be required to take all reasonable steps to assure itself that D has (and continues to have) no corporate directors. In its annual confirmation statement to Companies House, C will have to confirm that it believes this to be the position.
The consultation paper also seeks views on applying the proposed corporate director principles more broadly to Limited Liability Partnerships (LLPs) and Limited Partnerships (LPs), and how the ID verification would operate in those contexts.
Responses to the consultation are requested by February 3, 2021. The consultation paper notes that the proposals are likely to further primary legislation, as well as being dependent on funding for the associated operational changes at Companies House.
(BEIS, Consultation on implementing the ban on corporate directors, 09.12.2020)
On December 9, 2020 the Department for Business, Energy and Industrial Strategy (BEIS) published, as part of its consultations on reforms to the UK’s register of company information, a consultation seeking views on the Government’s proposed reforms to the filing of financial information at Companies House.
The Government believes there are opportunities to improve the way financial information is filed with, and published by, Companies House and the proposals in the consultation paper seek to:
Responses to the consultation are requested by February 3, 2021. The Government states that it will consider responses to this consultation in parallel with the other aspects of register reform it is consulting on and will confirm its plans in 2021. These measures will require primary legislation.
On December 9, 2020 the Department for Business, Energy and Industrial Strategy (BEIS) published, as part of its consultations on reforms to the UK’s register of company information, a consultation seeking views on the Government’s proposed approach to the Registrar’s power to query information and changes to the Registrar’s existing powers, as well as the widening or reframing of the Registrar’s current administrative removal powers, the requirement for digital filing, the obligation for companies to keep a register of directors and changes to other statutory registers and the register election regime.
The proposals are set out in three chapters:
Responses to the consultation are requested by February 3, 2021. The consultation paper notes that the proposals are likely to further primary legislation, as well as being dependent on funding for the associated operational changes at Companies House.
On December 4, 2020 the Financial Reporting Council (FRC) published updated guidance for companies on corporate governance and reporting in light of the COVID-19 pandemic, which supersedes earlier guidance published by the FRC in March and May 2020.
As well as encouraging listed and AIM companies to make use of the extensions already granted to them for publication of audited annual financial reports, the FRC highlights some key areas of focus for boards in maintaining strong corporate governance and provides high-level guidance on some of the most pervasive issues when preparing annual reports and other corporate reporting.
The FRC’s key messages to boards on corporate governance are to:
The FRC notes that making forward-looking assessments and estimates when preparing financial statements and providing other corporate reports is particularly difficult currently. Its guidance is intended to help boards focus on areas of reporting of most interest to investors, and to encourage them to provide clarity on the use of key forward-looking judgements. The guidance covers:
On December 4, 2020 the Financial Reporting Council (FRC) published a Bulletin setting out updated guidance for auditors carrying out audit engagements that may be affected by COVID-19. It supersedes previous FRC guidance for auditors on this topic.
The updated Bulletin now incorporates some new guidance:
On December 9, 2020, the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2020 were laid before Parliament and come into force on December 31, 2020. As a result of these Regulations, a temporary measure introduced by the Corporate Insolvency and Governance Act 2020 restricting the use of statutory demands and winding-up petitions, which was due to expire on December 31, 2020, has been extended to March 31, 2021.
The reason for extending the duration of these temporary insolvency measures is to continue to provide protection to companies from aggressive creditor enforcement whilst the adverse effects from the coronavirus pandemic continue and the related social distancing restrictions remain in place, including regional tiered restrictions, which affect normal trading. The extension of these measures means creditors cannot rely on statutory demands as evidence of a company’s inability to pay its debts and therefore it’s solvency, to bring winding-up petitions as they will be void. Where company winding up petitions are made, a petitioner will have to satisfy a court that the company’s inability to pay is not due to coronavirus.
On December 9, 2020 the Department for Business, Energy and Industrial Strategy (BEIS) published an update to its position paper on the Delegated Regulation on the use of the European Single Electronic Format (ESEF) published by the European Commission on May 29, 2019.
The position paper has been updated to take account of a number of recent developments, including the announcement by the Financial Conduct Authority that the ESEF requirements for filing and publication of machine-readable accounts and mandatory tagging of basic financial information will be postponed so that they will apply to financial years beginning on or after January 1, 2021.
The position paper has previously made it clear that when directors consider whether to approve company accounts as having been prepared in accordance with the Companies Act 2006, there is no requirement for them to consider the tagging of the accounts in ESEF and in particular to consider this as part of whether the accounts are ‘true and fair’. The tagging can be applied later, in a version prepared in XHTML format with iXBRL tagging.
However, the position paper now looks at whether the government will introduce mandatory reporting by the auditor on ESEF tagging. It notes that, as regards the contents of the audit report, there is currently no requirement in UK law for the auditor to report on whether the electronic formatting of the accounts complies with ESEF requirements. The European Commission argues that an auditor reporting requirement should apply. Having considered whether the UK should introduce such a requirement, the government has concluded this would not be appropriate at this stage.
The position paper also notes the following:
On December 10, 2020 the Financial Reporting Council announced its corporate reporting and audit quality review programme for 2021/22 alongside its priority sectors for review.
Five thematic reviews of corporate reporting are planned as supplements to routine reviews of corporate reporting. These are as follows:
The FRC’s Audit Quality Review team will pay close attention to the impact of Covid-19, fraud, estimates and climate risk when conducting its programme of audit quality inspections.
In selecting corporate reports and audits for review, the FRC will give priority to the following sectors: travel, hospitality and leisure, retail, property and financial services.
Publication
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