When people think of the Companies Act 2006, they often associate it with company administration, directors’ duties and filing requirements. However, the Act also contains a significant number of criminal offences, some of which can result in liability for the company itself as well as its directors and other officers.
For businesses and directors, understanding where criminal liability can arise is therefore an important part of managing corporate risk.
Can a company be criminally liable
Yes. A company is a separate legal entity and can, in appropriate circumstances, be prosecuted for offences under the Companies Act 2006.
The range of potential offences is broad. Some concern relatively routine corporate administration, while others involve more serious conduct. Examples include failures relating to company accounts and records, failures to provide information required by the legislation, and fraudulent trading.
Importantly, conduct does not necessarily have to involve dishonesty before criminal liability becomes relevant. What may initially appear to be an administrative or filing problem can sometimes carry criminal consequences.
For example, section 451 of the Act deals with criminal liability arising from a company’s failure to file its accounts and reports within the required period.
Can directors be personally liable
The fact that an offence relates to a company does not necessarily mean that liability stops with the company.
A number of offences under the Companies Act can also result in liability for an officer who is in default. The legislation can therefore expose individual directors and other company officers to prosecution alongside the company itself.
This is particularly important because delegating day-to-day responsibility for company administration does not automatically remove the potential for personal liability. Depending on the particular offence and circumstances, the actions or omissions of individual directors and officers may need to be considered separately.
Directors should therefore take compliance concerns seriously, even where the issue initially appears to be a matter for the company rather than them personally.
False or misleading information provided to Companies House
One area in which companies and directors should exercise particular care is information supplied to the Registrar of Companies.
Section 1112 of the Companies Act 2006 makes it an offence, without reasonable excuse, to deliver or cause to be delivered to the Registrar a document, or make a statement to the Registrar, that is misleading, false or deceptive in a material particular.
This has particular relevance when information submitted to Companies House is later questioned. If there is concern about the accuracy of a filing, it may be sensible to obtain legal advice promptly rather than simply assuming that correcting the company’s records brings the matter to an end.
What are the possible consequences?
The consequences will depend upon the particular offence. Criminal convictions of offences under the Act can carry financial penalties, disqualification as a director where applicable and the more serious offences can expose individuals to imprisonment.
There can also be consequences beyond the sentence imposed by the criminal court. An investigation or prosecution may cause reputational and commercial difficulties for the business, while directors may need to consider the implications for their individual position and their ability to continue acting in the management of a company.
For that reason, it can be important to obtain advice at an early stage, before responding substantively to an allegation or investigation.
When should a company or director seek legal advice?
Companies and directors may wish to seek specialist advice where:
- they have been contacted by Companies House, the Insolvency Service or another investigating authority about a suspected offence;
- a director is concerned that they could be personally liable for the company’s conduct;
- inaccurate or potentially misleading information may have been provided to Companies House;
- company accounts, records or statutory information have not been maintained or filed correctly;
- allegations of dishonesty, fraud or serious misconduct have been raised;
- there is disagreement between the company and its directors as to who was responsible for a particular failure;
- the company or an individual has been asked to provide documents, information or an explanation to investigators; or
- criminal proceedings have been threatened or commenced.
Obtaining early advice can help establish what offence is actually being investigated, whether the company, individual directors or both are potentially exposed, and how best to respond. In several instances, it is clear that had clients had earlier legal intervention, steps could have been taken to avoid the matter’s escalation.
It can also be particularly important where the interests of the company and an individual director may no longer be aligned. In those circumstances, separate legal representation may need to be considered.
How our Criminal Team can help
Being investigated for a Companies Act offence can be daunting, particularly where both corporate and personal liability are in issue. In particular, the legislation for section 1112 offences under the Companies Act is still in its earliest stages of development, however we have access to specialist experts who are experienced in the prosecution of these offences. Specialist legal advice at an early stage can help businesses and directors understand the allegations against them, their potential exposure and the options available.
Our team can advise companies and directors on investigations and potential prosecutions, assist with responses to investigating authorities and provide representation where criminal proceedings are contemplated or commenced.
If you or your business are concerned about potential criminal liability under the Companies Act 2006, contact our Private Crime team to discuss how we can assist.