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Criminal consequences for failure to file company accounts

Posted on 29 November 2024

Directors will be familiar with the requirement to file yearly accounts and reports with the registrar within the required period applicable to the company. However, it is less well known that failure to comply with this duty is a criminal offence. The consequences of committing criminal offences can be significant for directors in their personal capacity, and for companies themselves.  

The Companies Act 2006 creates over 150 criminal offences, all relating to the management and administration of companies. These offences include fraudulent trading, false accounting and failure to keep a register of members, but by far the most frequently prosecuted offence is section 451 of the Companies Act 2006, being late in filing accounts and reports. 

Section 451 Companies Act 2003 – Default in filing accounts and reports 

If accounts are not filed for a company within the required period, each director of the company immediately before the end of the timeframe commits an offence. The Companies Act 2006 therefore holds every director personally criminally liable for any failure to file the company's accounts on time. It does not matter whether the individual director was aware that the accounts were late; they could still be found guilty of the criminal offence because lack of knowledge is not a defence.  

It is, however, a defence for a director to prove that he took all reasonable steps 'for securing that those requirements would be complied with before the end of that period'. This defence does not require that a director take all steps possible, only those which are reasonable; the director must prove that he did more than take some reasonable steps. If the director could have taken more or other reasonable steps which objectively would have prevented the offence, it necessarily means that not all reasonable steps were taken. This defence raises a high bar and in order to protect from individual criminal liability directors need to ensure that they have adequate processes in place to be able to demonstrate that all reasonable steps were taken. 

The consequences of being found guilty of this offence are that each and every director will be personally liable on summary conviction to an unlimited fine and will have a criminal conviction. In the most serious cases of persistent breaches of company legislation, Companies House may also seek disqualification that would prevent the individual acting as a director for up to 5 years.  

Financial penalties 

Companies House was granted the power to issue financial penalties on 2 May 2024 pursuant to new regulations made under the Economic Crime and Corporate Transparency Act 2023.   

The power to issue a financial penalty can be used when Companies House is satisfied, beyond reasonable doubt, that the person has engaged in conduct amounting to an offence. Companies House can issue either a fixed penalty, a daily rate penalty (for a continuing contravention) or both, up to a maximum of £10,000. If Companies House decides to issue a financial penalty, it cannot then prosecute individuals for the same conduct. This means it is likely that Companies House will use these powers for cases that fall within the less serious end of the spectrum and reserve prosecution for what it considers to be the most serious failures. 

Independent of any other enforcement action it may decide to take, Companies House can also issue late filing penalties to the company itself. Therefore, failing to file accounts by the due date can have financial consequences for both the directors in their personal capacity, and the company itself. 

Companies House enforcement policy 

Despite the wide ranging and serious consequences of a Companies House prosecution, until relatively recently there was very little guidance from Companies House about how they applied their prosecutorial discretion when deciding to prosecute individuals. However, on 27 September 2024, Companies House published its enforcement policy setting out the registrar's approach to using its enforcement powers

The enforcement policy sets out a compliance framework which adopts a risk-based approach to deciding how to proceed with any breaches of the law. The compliance framework creates five levels of risk ranging from "Compliant" to "Seriously or Serially Non-Compliant" and it sets out the level of enforcement action Companies House is likely to consider appropriate for each different level. Level one describes fully compliant companies and individuals who do not require intervention by Companies House. Level five, on the other hand, describes those seriously or serially non-compliant companies or individuals which Companies House defines as companies or individuals who display disregard for the filing obligations, have a significant history of late filing or are wilfully non-compliant. Whilst Companies House will limit their involvement to monitoring and automated reminder emails to level one companies/individuals, level five companies or individuals will cause Companies House to consider any and all sanctions available including criminal prosecution and disqualification proceedings set out above. 

Consequences for directors 

As will be apparent from the different levels of Companies House compliance framework, it is important that directors and their companies ensure their filing remains up to date and have in place systems to ensure that this is adequately monitored. Frequent late filing is one of the features that is likely to result in Companies House considering a company to be in a higher risk category which, in turn, will result in Companies House taking a more active interest in the company and may consequently lead to more severe enforcement for any failure to comply with the requirements of the Companies Act 2006 or other obligations. 

The consequences for directors can be significant and we have already highlighted the risks of a criminal conviction and unlimited fine. A director's criminal conviction will carry significant reputational risk for both the director and company and there may be certain reporting obligations to either the market or a regulator. If a director is disqualified it is likely to result in significant business disruption.   

Failure to file accounts is rarely due to deliberate non-compliance and there are often good reasons to explain why there is a delay. However, if accounts are late, it is important to seek legal advice at the earliest opportunity to help manage the risks so that steps can be taken to mitigate against the possible significant consequences that may follow.  

 

 

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