Economic Crime Bill: ‘once in a generation opportunity’ to close fraudster loophole

Without the closure of risky loopholes, the government’s efforts to reform Companies House will fall short of achieving their intended goals, according to Christina Fitzgerald, president of R3, the trade association for insolvency professionals.

The Economic Crime and Corporate Transparency Bill aims to tackle the abuse of UK companies’ registration and removals by reforming the powers of the Companies House.

Speaking at the House of Lords in February 2023, Lord Johnson of Lainston said: “The Bill will ensure that law enforcement and the private sector have the tools needed to help tackle economic crime, including fraud and money laundering, and it will deliver greater protections for members of the public and businesses.

The Bill is currently at the committee stage with the House of Lords, and this stage will begin on March 27.

R3 vice president, Nicky Fisher says without alterations relating to the company dissolution process, the aims of the bill will not be met.

“At the moment, anyone who is looking to avoid investigation can do this by waiting till their company is struck off the Register, as the option of restoring it via the courts to enable an investigation to happen is often too time-consuming and expensive for the business’s creditors.

“This loophole needs to be closed if Government wants this legislation to achieve what it’s intended to, and stop company law from being abused,” Fisher adds.

The Office for National Statistics reports that the total number of fraud offences for the year ending September 2022 was 3.7m, according to estimates from the Crime Survey for England and Wales (CSEW).

Also speaking to the Lords, Lord Ponsonby of Shulbrede said the Bill will introduce necessary changes but, “we must make sure that those changes are strong enough to stand up to the significant problem that economic crime has come to be in this country.”

“The Government first promised action against fraud, money laundering, and other forms of economic crime in 2016. It is regrettable that change has taken so long to reach us.”

Fitzgerald states the statistics illustrate a “serious issue” and the insolvency and restructuring profession can play a pivotal role in tackling fraud.

“The Bill provides us with a once in a generation opportunity to close this loophole once and for all,” Fitzgerald adds.

R3’s recommendation

R3 says they would like to see companies who have not met Companies House’s deadlines for accounts and confirmation entered into compulsory liquidation.

“Putting a Company automatically into a Compulsory Liquidation would make it easier for director misconduct to be investigated, for the business’s assets to be recovered earlier, and would send a warning to those people looking to commit fraud,” argues Fisher.

Fitzgerald acknowledges this would require additional costs but believes the directors going through the compulsory liquidation should be liable for the extra costs to the process. R3 notes that this would act as another deterrent to prevent further economic crime.

House of Lords

As the Bill is currently with the House of Lords, Baroness Altman says she was not aware of this loophole but hopes the government will look to fix this while the Bill is going through the Lords.

“It is really important that this landmark legislation addresses as much wrongdoing as possible, to protect the public and the financial system from rogue operators,” she adds.

R3 and Fitzgerald will be working with the Lords to continue to push for the amendment to the Bill, closing the unwanted loophole.

“We previously worked with Shadow Insolvency Minister Seema Malhotra MP on three amendments she tabled when the Bill was at Committee Stage in the House of Commons. These amendments weren’t adopted at the Commons stage, but Kevin Hollinrake MP, Minister of State at the newly formed Department for Business and Trade, agreed that the Government should consider this issue further,” she notes.