Member Article

Yorkshire insolvency experts urges introduction of director ID check to combat business fraud

In response to a Government consultation into strengthening the role played by Companies House in the UK’s anti-fraud framework, Eleanor Temple, chair of insolvency trade body R3 in Yorkshire, is calling for the Government to introduce identity checks for company directors to help reduce business fraud.

Ms Temple believes that by tightening the rules around checking information submitted to Companies House, the Department for Business, Energy and Industrial Strategy (BEIS) has a real opportunity to make the UK’s overall corporate governance system more robust.

Companies House acts as the central register of company information in the UK, and is responsible for incorporating and dissolving limited companies.

Eleanor Temple, who is also a barrister at Kings Chambers in Leeds, says: “R3 has been concerned for some time about the relative laxness of some of the processes central to Companies House’s operations, especially those around verifying that directors are who they say they are. We believe that some simple reforms, such as introducing director ID verification, would significantly strengthen the role and powers of Companies House.

“It’s surprising that the checks currently performed when opening a high street bank account are actually more rigorous than those carried out when registering a new company – banks rightly recognise that not ‘knowing their customer’ can lead to misuse of financial systems to facilitate fraud. The protections offered to directors of limited liability companies by the corporate veil are powerful, and directors should be subject to a correspondingly greater degree of scrutiny.

“The current lack of director ID verification means that individuals who wish to obscure their involvement with other firms can enter a slightly different version of their name onto the Companies House register.” Ms Temple adds: “There is also a risk that directors who have previously been disqualified may continue to operate behind the scenes. Our members often come across disqualified directors who are contributing to successive business failures or fraudulent activity, breaching the terms of their disqualification by acting as shadow directors and ‘advisers’, or using friends, family or other contacts as a ‘front’ for their involvement.

“It is, of course, important that entrepreneurs are not discouraged from ‘trying again’ after a business failure, but it is equally important that safeguards are put in place to protect everyone from directors who repeatedly act improperly.”

BEIS’ consultation on enhancing the role of Companies House and increasing the transparency of UK corporate entities closed in early August, and a response is expected in the coming months.

Eleanor Temple continues: “Companies House is a key part of the business landscape, and insolvency practitioners often use its register to build up a picture of directors’ track records, and to follow flows of money through annual accounts when investigating potential fraud and other similar issues following the insolvency of a company.

“Making the information held at Companies House as robust and accurate as possible can only help legitimate businesses by making it harder for fraudulent operators to hoodwink good-faith suppliers and customers. We hope that the Government will set out robust new measures and a clear timetable to implement them in order to boost anti-fraud efforts, not least on the part of the insolvency and restructuring profession.”

This was posted in Bdaily's Members' News section by Emma Kilmurray .