Company Law and M&A
Insights for In-house Counsel | Autumn 2023
Getting tough on corporate crime
The Economic Crime and Corporate Transparency Act (ECCTA) received Royal Assent and passed into law on 26th October 2023. ECCTA gives greater powers to the Registrar of Companies to act as gatekeeper for the integrity of the register by querying filings and requiring further information. The Act also contains provisions requiring verification of identity for company directors and others, new rules intended to improve the financial information on the register, and various other changes which aim to "prevent organised criminals and kleptocrats from abusing our open economy".
What changes will ECCTA 2023 introduce?
- New powers for the Registrar of Companies House (Registrar) to act as a gatekeeper in relation to company creation, including new powers to check, remove or decline information submitted to, or already on, the companies register.
- Improved financial information on the register.
- Increased power for Companies House to investigate and enforce the accuracy of the data submitted to it, including the ability to cross-check information with other public and private sector bodies, and share information with law enforcement bodies, where appropriate.
- Identity verification for all new and existing registered company directors, People with Significant Control, and those delivering documents to the Registrar.
- Measures to clamp down on misuse of corporate entities, including corporate criminal liability, in certain circumstances, for large organisations for failure to prevent fraud and corporate liability for economic crimes committed by senior managers.
- Enhanced protection of personal data submitted to the Registrar.
Take a look at our Real Estate section for a discussion on how ECCTA will improve transparency in property ownership.
As anticipated, the ECCTA includes a new failure to prevent fraud offence. However, following amendment in the House of Lords, the Act does not contain the previously proposed requirement for shareholders to state whether they are holding securities as nominee and to disclose their respective beneficial owners.
Whilst the ECCTA is now law, many of the reforms will require secondary legislation as well as significant development and upgrades to Companies House systems and procedures. That said, the Registrar of Companies has indicated that certain provisions, including powers for Companies House to query filings, share information with law enforcement agencies and remove inaccurate information, will come into effect in early 2024. Other measures will take longer to implement, such as identity verification and the failure to prevent fraud offence.
Read more about the next steps for UK company directors and secretaries in this detailed briefing.
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Update on reporting requirements
The Government has withdrawn the draft Companies (Strategic Report and Directors' Report) (Amendment) Regulations 2023 (Regulations) in response to concerns raised by companies about the additional reporting requirements. The Regulations would have amended the Companies Act 2006 to introduce new reporting requirements for large public and private companies (those with 750 employees or more and an annual turnover of at least £750 million), including:
- a distributable profits figure and an annual distribution policy statement
- material fraud statement
- an annual resilience statement
- a triennial audit and assurance policy statement.
The Government has announced that it will shortly set out options to reform the wider reporting framework to reduce the "burden of red tape on business".
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Changes to the Takeover Code
The Takeover Panel has published a revised Practice Statement No 5 on invoking conditions to takeover offers. This Statement now provides additional guidance as to when the Panel will give its consent to a bidder to walk away from a takeover bid by invoking a condition – under the Takeover Code this requires the Panel's consent which will only be given if a test of "material significance" is met. The amendments further clarify the Panel's position, particularly in the case of "Phase 2" referrals by the Competition and Markets Authority and other in-depth competition referrals. For more, read our briefing.
In addition, the Panel has published its response to the recent consultation on Rule 21, which prohibits takeover targets from taking "frustrating actions" which may prejudice a bid. The new rules and amended guidance will improve targets' ability to operate in the ordinary course of business, while protecting bidders against unwarranted corporate actions. The amendments also provide for unilateral extension of a scheme long stop date in a competitive situation, and simplification of due diligence access for competing bidders. The amendments will take effect from 11 December 2023 and will apply to all companies and transactions, including on-going transactions, from that date.
