Under the Companies Act 2006 (‘The Act’) it is possible for companies and individuals to be liable for criminal offences. Directors need to be very familiar with the Companies Act to avoid such liability. Many companies assume that the risk of criminal conviction under The Act is only theoretical. The risk should however, be taken more seriously, prosecutions do occur and the consequences for businesses and individuals could be serious.
There are over 100 sections in The Act that create separate criminal offences. These range from serious offences to relatively trivial.
A director is considered to have committed the offence by default if he or she “authorises or permits, participates in, or fails to take all reasonable steps to prevent” the offence being committed. This is a low threshold and does not require to have any knowledge of the crime or any intent to commit the crime.
Is action taken?
In the majority of cases most offences are done without anyone realising it was a criminal offence, and no action will be taken. In reality only a very small number of these offences result in action being taken, and even fewer result in prosecution. With nearly 4 million companies registered in Companies House it would be almost impossible to monitor them all.
Most offences only come to light when a third party is involved. This could include a liquidator when the company is in insolvency discovering fraud or deceit. It could also be Companies House itself who spots issues when certain documents are not filed when they are meant to be. Alternatively, it could be the shareholders themselves who look into the dealing of directors and discover some wrongdoing.
What are the consequences?
Even if the offence is brought to the attention of prosecutors, the prosecution of directors is considered a last resort. The offences most likely to come to light are the failures to report to Companies House as these will be flagged by automated systems. The consequence for these offences is a fine ranging from £150 – £1500 depending on how late the document is. Companies House can also apply to strike the company.