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Print articleCompanies house wields new powers
March, 2024 - Shoosmiths LLP
These filings were made without the knowledge of the companies concerned or the lenders who held the charges. As a result, Companies House incorrectly marked the charges as satisfied on the public register when in fact they remained outstanding – causing widespread concern amongst banks and other lenders.
The filings all seem to have been made in February by an individual giving an address in Enniskillen in Northern Ireland. There does not appear to be any discernible pattern, with the issue affecting various companies and lenders. The filings have been made maliciously, although the motivation remains obscure.
This article explores the action taken by Companies House in response to the attack and steps which a lender may want to take in the light of it.
What action has Companies House taken to rectify this?
At the time of writing, Companies House has not made any formal announcement regarding the issue or the action that it has taken to rectify it, although it has communicated directly with affected parties. Companies House believes that it has identified all the affected companies and blocked the account from which the incorrect filings were made.
It is also understood that Companies House has rectified the register for the affected companies using new powers under the Economic Crime and Corporate Transparency Act 2023 (ECCTA). In each case, the charge previously erroneously shown as satisfied is now stated to be outstanding. The filing history for the company has also been annotated with a note that it has been rectified and that material formerly considered to form part of the register is no longer considered by the Registrar to do so.
Enhanced role of Companies House under ECCTA
This incident and the action taken by Companies House highlights a recent fundamental change in the role of Companies House. Under ECCTA, which received royal assent in October 2023, this is changing from an essentially administrative function to that of a more proactive gatekeeper in relation to company formation, with new objectives, including that of ensuring the accuracy and integrity of information on the register of companies.
ECCTA enshrines these new objectives in statute and provides Companies House with additional powers to fulfil this role, including stronger powers to remove information from the register, require additional information to be provided and reject documents where there are inconsistencies. Many of these additional powers came into force on 4 March 2024 and Companies House appears to have moved quickly to utilise them to deal with the erroneous filings. Previously, it would have been necessary for an affected party to obtain a court order authorising the rectification of the register in each case – which would have been time consuming and involved a cost to the company.
New guidance on Companies House website states that its approach to the removal of information from the register is changing. It will remove information where it is satisfied that information is false, has been sent without the company’s knowledge or where a document records a transaction that never occurred.
ECCTA will also introduce identity verification requirements for directors, persons with significant control and persons filing information on behalf of companies. These measures are not yet in force but had they been, the person who made the fraudulent filings would have had to comply and provide evidence of their identity. Their introduction is seen by Companies House as a longer-term project as they require a significant upgrade to Companies House’s existing systems. However, the fact that one individual could cause this amount of disruption demonstrates the need for these measures.
Acceptance of statements of satisfaction in the future
The incident also highlights a well-known flaw in the system for noting charges on the register as having been satisfied. It has always been viewed as anomalous that Companies House must accept a completed statement purporting to be from or made on behalf of the company and mark a charge as satisfied on the register, without reference to the charge holder and without any evidence that the charge has actually been satisfied or released. Whilst there have been instances in the past of companies mistakenly filing statements of satisfaction, it may not previously have been anticipated that a third party might maliciously file a statement of satisfaction, falsely claiming that they were doing so on behalf of the company.
As one of Companies House’s new objectives is to ensure the accuracy of information on the register, it may look to take a more rigorous approach to its acceptance of such statements in future. While we wait for the identity verification measures to be brought into force, it will be interesting to see if Companies House takes the view that it can use its new powers under ECCTA to take a more stringent approach, consistent with its new objectives.
What action should lenders take?
Affected lenders should check that the relevant company did not enter into any transactions which might prejudice any charges whilst they were incorrectly shown as satisfied on the register.
Subject to this, the action taken by Companies House should resolve the current issue. However, it is possible that Companies House has not identified all affected companies and there could be further deliberate misfilings made from another account.
We anticipate that lenders will therefore want to take a cautious approach on new and existing matters and require their advisers to check recent filings of statements that charges have been satisfied to see if they look suspicious. In relation to any transactions where reliance is continuing to be placed on existing security (for example, on an amendment to an existing loan facility), it will be prudent to check that it has not been incorrectly marked as satisfied on the register.
Conclusion
This incident has brought into focus some of the very concerns which prompted ECCTA in the first place and provided Companies House with an early opportunity to step into its new role. For further detail on Companies House and its new reforms, please see the following series of articles created by Shoosmiths.
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