The Companies Act 2006 (“the Act”) imposes criminal liability on directors personally for various breaches of statutory responsibilities.  This means time absolutely is of the essence when filing company accounts.

An increasingly common offence being prosecuted by Companies House is the breach of the duty imposed on directors under section 441 of the Act, filing accounts on behalf of the company for each relevant accounting period by the prescribed deadline.

In order to bring a prosecution for failing to deliver annual company accounts, all Companies House need to prove is:

1.       that the filing deadline has expired;

2.       that Companies House did not receive the documents by that time; and

3.       that the defendant was a director immediately before the end of the period to file the accounts.

As can be seen, any director of a company in default of the obligation commits an offence under section 451(1) of the Act irrespective of their role within in the company. What is more, individuals who have resigned their directorships by the time of the summons can still be prosecuted.

What will happen if a breach occurs while filing company accounts?

In practice, when a breach has occurred, Companies House will normally send a warning letter or email to the director in question threatening enforcement action unless the missing accounts are delivered by a specified date.

Should this email not result in compliance, Companies House will then give consideration to striking the company off the register and/or prosecution of the director(s).

Additionally, Companies House could also issue an administrative penalty either as an alternative or in addition to a prosecution once the accounts are delivered.

If the prosecution is successful, a director is liable to an unlimited fine as well as a daily default fine for any continued contraventions. A criminal conviction can have significant personal and professional implications.  From the personal persepctice it may have to be declared on foreign travel applications like the US ESTA or the EU equivalent.  From a professional perspective the relevant professional rules often require self-reporting.

The conviction can also lead to director disqualification proceedings.  These would prohibit the person from being involved in the promotion, formation or management of a company, for up to five years.

There is a statutory defence available to a director in section 451(2) of the Act:

“(2)    It is a defence for a person charged with such an offence to prove that he took all reasonable steps for securing that those requirements would be complied with before the end of that period.”

This statutory defence places the legal burden on the defendant to discharge to the civil standard. This in itself is potentially open to challenge as the interference with the presumption of innocence under Article 6(2) of the European Convention on Human Rights would need to be proportionate to withstand judicial scrutiny.  If it is not, the burden may well revert to the prosecution to disprove the defence to the criminal standard.

There is also a potential defence set out at section 1157 of the Act:

“1157 Power of court to grant relief in certain cases

(1) If in proceedings for negligence, default, breach of duty or breach of trust against—

(a) an officer of a company, or

(b) a person employed by a company as auditor (whether he is or is not an officer of the company),

it appears to the court hearing the case that the officer or person is or may be liable but that he acted honestly and reasonably, and that having regard to all the circumstances of the case (including those connected with his appointment) he ought fairly to be excused, the court may relieve him, either wholly or in part, from his liability on such terms as it thinks fit.”

This is an important additional defence as a director can only avail themselves of the statutory defence in section 451(2) if they can demonstrate that all reasonable steps were taken.

Case law has determined that what is reasonable for the purposes of section 1157 of the Act is less onerous than what is required to avoid a finding of negligence such that it could be argued that a court is entitled to grant relief under section 1157 of the Act, even if a finding of negligence could technically be upheld i.e., a director was negligent by failing to:

“Take all reasonable steps for securing that those requirements would be complied with before the end of that period.”

If you are a director in need of advice, please get in touch with our commercial dispute resolution teamon 01254 828410.

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