Company Law Reform Bill [Lords]
intervention from the Office of the Information Commissioner. Both a full and edited electoral register were established. The full register was created from the annual canvass and is updated monthly on the basis of a rolling register. The edited register is made up of the records of those individuals who have not opted out of their data being used for any purpose.
Restrictions on the supply and use of the full electoral register resulted in only credit reference agencies engaged in the business of providing credit reference services being authorised to purchase the full register. In turn use of that register was restricted to:
Vetting applications for credit or applications that can result in the giving of credit or the giving of any guarantee, indemnity or assurance in relation to the giving of credit:
Meeting any obligations contained in the Money Laundering Regulations 1993...or any rules made pursuant to section 146 of the Financial Services and Markets Act 2000(c); and Statistical analysis of credit risk assessment in a case where no person whose details are included in the full register is referred to by name or necessary implication.
There are three major CRAs providing consumer information and five major CRAs providing commercial information to lenders and, in the area of sole traders and small and medium sized enterprises, there is considerable overlap between consumer and commercial activity.
CRAs provide information to lenders about businesses and those responsible for them. The information that they provide is a combination of public and privately shared data. Traditionally, this information has been provided to enable lenders to make decisions about advancing credit, to confirm identity for the prevention of fraud and money laundering, fraud prevention and investigation and for debtor tracing.
One important source of the information used is the directors data from Companies House. This can be combined with other information to enable lenders considering doing business with an organisation to check the individuals responsible for its running. A key element of this check is access to the home addresses of directors to verify and cross-check the identity of an individual across different databases.
We are concerned that the removal of the provision to permit the disclosure of the protected register to CRAs is likely to have significant and un-intended consequences for lenders.
Unscrupulous and disqualified directors may be encouraged to abuse the restricted register to avoid financial responsibilities, commit fraud, and obtain access to goods and services that would normally not be granted and to create fictitious identities. In turn lenders and other commercial organisations will face heightened risk and will become reluctant to do business with companies or individuals with whom they are unfamiliar unless further checks can be undertaken. New start-ups and particularly small and medium enterprises (SMEs) to whom our members provide finance are likely to find access to credit restricted as a result, all of which will serve to restrict growth and competition. Failed and disqualified directors will be able to conceal and disregard existing liabilities and bad debt and resume trading to the detriment of other businesses and the finance sector.
In order to mitigate these consequences it is important that the new public register of directors addresses specifies whether the disclosed address is a directors home or service address. The protected register of directors home addresses must continue to be made available, in full, to certain authorised organisations for certain specific and limited purposes on condition that they use the information in specified ways for particular purposes only. This will safeguard lenders access to the information they need when assessing whether to advance a loan and in helping applicant identification.
CRAs have ensured that robust systems exist to manage access to the data contained within the electoral register and ensure that it is only supplied and used in accordance with the regulations. The recently published Electoral Administration Act 2005 empowers individuals deemed to be at risk to apply for anonymous registration in order to prevent their personal information from being published on the public register.
I shall return to that point.
The FLA continues:
The Department for Constitutional Affairs has also consulted with CRAs to ensure that access to personal data is maintained in a way that safeguards the identity of the individual while promoting financial inclusion.
We therefore strongly believe that the provisions of the Bill as drafted provide a practical and sensible set of arrangements providing for the continued functioning of the market whilst also putting in place the necessary safeguards to prevent abuse.
That is a well-considered letter and it deserves to be mentioned. The Government will get about half way to providing what the FLA wants, but will the Minister discuss its concerns generally? It would be good to have that on the record.
Whether the provisions will work is yet to be seen, although we think that they will help. However, various issues need to be addressed now to tighten up their effectiveness. One is the need to enable directors to remove prior notifications of their home address; otherwise, the proposals will be useless if a director moves home. In the Lords, the Government resisted
Ministers also said that as people can access details on the internet in any event, we should not bother to deal with the issue now. We disagreed with that position and were pleased that the Government seemed to have changed their mind in the final stages of consideration in the Lords.
This is part of a letter sent to me by Lord Sainsbury, who wrote:
As regards historic information, the Billas amendedprovides power for regulations to specify circumstances under which addresses can be removed from the public record held by Companies House. We intend to consult over draft regulations later this year so that they can be brought into force at the same time as the provisions providing protection for all directors home addresses.
That is all well and good, but we do not understand why it cannot be done now in the Bill. We agree that if there is a cost, it should be borne by the director concerned. Furthermore, we will later move amendments Nos. 258 and 279 to clause 225(2)(b). That clause interacts with clause 741, which aims to ensure that when it is considered appropriate for old Companies House records to be removed, the registrar must do so.
There is a further issue of wider access to directors home addresses via the internet, which was discussed in the Lords. Gone are the days when we just threw up our hands and said, Thats on the web, so theres nothing to be done about it. It is clear that the vast majority of directors addresses on the web are accessed via the electoral register, and we must deal with that.
In a letter of 9 May to Lord Sainsbury, I said:
I am aware that Clause 10 of the Electoral Administration Bill, currently going through Parliament
that is what the FLA picked up on
would allow for an elector to apply to be registered anonymously. Please could you confirm that this provision could be used by individuals to ask town halls to remove their details from the public register.
Has your department assessed how useful these provisions would be to deal with the problems set out in this letter, e.g. as regards the level of proof of violence that would need to be given to the council?
Lord Sainsbury, replying on 8 June, said:
You asked about directors addresses on the electoral register. Anonymity is to be granted to those whose safety would be at risk if their name or address were to appear in the electoral register. The Department for Constitutional Affairs advises that decisions have not yet been taken on the evidence that will be required for a person to be granted anonymous registration, but the key will be in meeting the safety test as set out in clause 10 of the Electoral Administration Bill. This test is satisfied if the safety of the applicant for an anonymous entry or that of another person of the same household would be at risk if the register contains the name of the applicant or his qualifying address.
I am not totally convinced that the Government have yet given the issue the attention required or that they have considered closely enough the provisions of the Electoral Administration Bill in terms of protecting company directors in the context of this Bill.
When do the Government expect decisions to be taken on the evidence that will be required for a person to be granted anonymous registration and what will the threshold be? The Minister might have to come back to me on that matter.
The issue is a major concern for many embattled company directors. It is a serious issue for the stability of British business and the welfare of many directors and their families. I hope that the Government listen to their great need and come back to us on the matter.
I acknowledge the efforts of Lord Sainsbury, one of the few members of the Government who has consistently been brave enough to stand up for directors and shareholders who have been terrorised and who has paid attention in the past five years to the Oppositions calls for protection for company directors and shareholders.
We recognise that the Bill has been greatly improved by various amendments made in the other place, but it is not quite there yet.
Margaret Hodge: That was a long speech on clause stand part. I want to return to the amendments. I thank the hon. Gentleman for picking up an incorrect cross-reference, and we are therefore happy to accept amendment No. 270.
On amendment No. 459, the hon. Gentleman makes a good case for companies having the option of keeping their registers of directors wherever their register of members is kept available for inspection, although he will agree that it must be in the same jurisdiction as the registered office and that it must be notified to the Registrar of Companies.
Any relaxation that the hon. Gentleman suggests should equally apply to matters such as plc registers of secretaries and to registers of authorised signatories for those companies required to keep them. The requirement should not be considered in isolation; there is also a right for members to inspect records of resolutions and meetings under clause 341. There is a right for members to inspect directors service contracts and qualifying third-party indemnity provision under clauses 213 and 220. There is a right for members and creditors to inspect instruments creating charges and a public right to inspect registers of charges under part XII of the 1985 Act, which is to be restated.
The possible places for the inspection of the various records and registers vary. We must minimise the likelihood of records being sent all over the place, possibly discouraging inspection by those who want to exercise that right.
Mr. Djanogly: The Minister has just hit on the point. The procedure can be used to discourage inspections by having people go to different parts of the country to see different registers.
Margaret Hodge: The hon. Gentleman and the Law Society have made a sensible proposition. All that I would say to him is that we need some time and would like to table an amendment on Report that gives companies the option of keeping their register of directors either at the principal place of business or at
Amendment No. 367 appears to be deregulatory, relieving the company of the obligation to enter an alternate directors particulars on the public record if his or her appointment is of minimal duration, but I am sure the hon. Gentleman would accept that there could be a serious problem with such an exemption. However long or short a time someone is appointed for, they have duties as a director for the period when they act as such. That is the current law, which the Bill retains. Under the amendment some appointments would become invisible. On that basis, it would be better not to accept it. I accept that bureaucracy is involved in complying with the 100 per cent. record, and if we can think of a better way of reducing the bureaucracy but maintaining the record we should adopt it. We will certainly consider that, but at present for completeness and consistency, we need to reject amendment No. 236.
I shall now speak to the Government amendments. On introduction in another place the Bill provided for a system whereby any director could apply to have his or her home address on the protected record. It was argued that that would leave many directors exposed, and we were persuaded that it would be better if all directors were to provide both a service address for the public record and their home address for the protected record. We tabled amendments based on a scheme suggested to us by the Association of the British Pharmaceutical Industry, which we will consider later when we reach chapter 8 of this part.
To keep things as simple as possible for companies and their directors, the Bill permits both that the service address be given as the companys registered address, and that the home address be noted as being the same as the service address. That means that it would be possible for the record of a directors residential address held at Companies House to be changed automatically if the company were to change its registered office, whether or not the director had in fact moved.
Furthermore, as the record of the residential address is not public, such errors would not come to light until an enforcement agency, for example, needed to use it. That would probably be a common problem, for as we all know, many companies on start-up have their registered homes at a directors home but latergrow out of that arrangement. The Government amendments address that problem while still keeping things as simple as possible for both companies and directors. Amendment No. 365 provides that a directors residential address may be stated to be the same as his or her service address only if the service address is not the companys registered office.
Amendment No. 366 requires that with any notification of a change in the directors service address there must also be either an accompanying notification of a change in the residential address or a statement that there is no change.
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