Whether you own an apartment on a long lease and decide to become director of the company that owns the freehold or you are the director of any other company for that matter, you take on duties in the role. These include, for example, as a director you must act in a way that (i) promotes the success of the company (ii) avoids a conflict of interest and (iii) you must always exercise reasonable care, skill and diligence to name just a few of the duties.
What may be less well known (and especially for those who are not professional directors) is what liabilities you can assume personally by becoming a director.
One such liability arises as a consequence of the late filing of the company accounts.
Do not leave it too late
Every year companies are required to send their accounts to Companies House. Unless the filing is for the first accounts, the time allowed for a public company to deliver its accounts is six months from the accounting reference date and nine months for a private company.
The late filing of the company accounts carries with it a civil penalty which is imposed on the company but it may come as a surprise to learn that it is also a criminal offence and every person who was a director immediately before the end of the period for filing the accounts, commits the offence pursuant to sections 441 and 451 of the Companies Act 2006 (“the Act”).
Those who commit the offence, may then find themselves receiving a summons from Cardiff Magistrates Court requiring them to attend so the offence can be tried.
If found guilty of the offence, a director will be faced with the possibility of a fine but more importantly, a successful conviction will result in a criminal record.
Taking ‘all’ reasonable steps
Although it may appear that no defences are available, this is not the case.
Whilst it is advisable to avoid the situation altogether, under section 451 of the Act, it is a defence if a Director can prove that they took all reasonable steps to secure the requirement to file the document before the period for filing the accounts lapsed.
Additionally, the Court also has a general discretion under section 1157 of the Act if it can be persuaded the person charged “acted honestly and reasonably” and in all the circumstances “ought reasonably to have been discharged”.
However, there are never any guarantees that a director who tries to avail themselves of these defences will be successful and the bar is a high one.
What to do if you have been contacted by Companies House?
The number of prosecutions pursued by Companies House has started to increase again since Covid and Companies House appears to be taking a harder line.
Whilst data for 2023/24 is unavailable, Companies House data shows the number of charges laid in Court against directors in England and Wales (not the company) for the late filing of annual accounts has risen from 1,364 in 2021/22 to 1,938 in 2022/23.
This has resulted in over 800 convictions in 2022/23 and over 1,500 since 2021.
If you receive a summons from Companies House it is imperative that you do not ignore it and you seek specialist advice early on because if you do nothing the matter can be heard in your absence.
How Colman Coyle can assist
Colman Coyle has recently had success in a case involving charges laid against eight directors and has experience dealing with prosecutions brought by Companies House.
Early communication with Companies House can sometimes result in it agreeing to discontinue the proceedings but getting advice and, if appropriate, communicating with Companies House early on will be key.
If you have received a summons or would like to discuss any of the issues raise here please do contact Mr Adam Palmer on + 44 0(207) 354 3000 or adam.palmer@colmancoyle.com.