Registered Office Address (Rectification of Register) Regulations 2024

Lord Sikka Excerpts

Monday 19th February 2024 Grand Committee

[Lord Sikka (Lab)]

My Lords, it is pleasure to follow the insights of the noble Lord, Lord Vaux. I will speak to the second SI, the Limited Liability Partnerships (Application of Company Law) Regulations 2024. I broadly welcome the thrust of the proposals but I have a number of questions; I hope that the Minister will be able to answer them.

First, the words “company law” appear in the statutory instrument, obviously, but can the Minister tell the Committee whether there is in the UK any central enforcer of company law—or for LLPs, for that matter? I have not been able to find one in all these years, so it would be helpful to know where the buck stops. Who, in the final analysis, is responsible for regulating these entities? This matters, especially when companies and LLPs engage in unlawful practices such as paying dividends without sufficient distributable reserves—something that damages the interests of creditors, including pension schemes with a deficit.

Let me go back a little while, because I have always been interested in this topic. In a Written Question on 14 September 2017, Kelvin Hopkins, the then Member of Parliament for Luton North, asked the Business Secretary

“what checks his Department carries out to ensure that dividends paid by companies do not exceed their distributable reserves”.

This was the reply, on 12 October 2017:

“The Department is not responsible for carrying out checks on dividends paid by companies to ensure that they do not exceed their distributable reserves”.


That is still the position. Nothing has changed. We still do not know who is responsible for looking at these things.

In recent years, companies such as Domino’s, Dunelm, Games Workshop and Hargreaves Lansdown have admitted to paying dividends that were, strictly speaking, unlawful; after a while, they noticed that they were unlawful. They therefore paid illegal dividends but, in the absence of an independent enforcer of company law, no one really examines such instances. The Business Department has long washed its hands of such matters. I hope that the Minister can tell us where the buck stops and which external agency is responsible for enforcing both company law and LLP law. That is my first question.

Secondly, LLP and company financial statements are prepared in accordance with what are sometimes called generally accepted accounting principles—or GAAP, although there are many variations on that—and are promulgated by the Financial Reporting Council in the form of accounting standards. They have an important bearing on whatever counts as an asset, a liability, income, an expense, wages, a tax, liquidity, accountability and much more. Ultimately, the rules or standards have a bearing on the distribution of income, wealth and risks.

In a democratic society, only Parliament has the social mandate to adjudicate on competing claims concerning the distribution of income and wealth. However, that authority has been subverted by the Government, and none of the accounting standards issued by the Financial Reporting Council is ever debated in Parliament. Why is that? Why has Parliament’s authority been subverted? I hope that the Minister can explain why the Government do not bring accounting standards to Parliament for approval because they affect the distribution of income and wealth and form the basis of taxation.

Thirdly, through the FRC, committees dominated by partners of LLPs make their own accounting and disclosure rules. They operate through a private company, which is named CCAB Ltd and is dominated by the accountancy bodies. No one in the Government has ever suggested that the hungry should set food standards, the homeless should set housing standards or the poor should set the minimum wage, but the partners of LLPs are allowed to make their own accounting rules without any kind of parliamentary oversight.

If noble Lords look at LLPs’ accounts, they will see that these LLP partners do not like transparency. For example, LLPs are not required to disclose their partners’ share of profits, which is the nearest equivalent to director remuneration in limited liability companies. We do not know their exact share of the profit, even though they may be enjoying government or other public contracts. Why is the partners’ share of profits not disclosed in LLPs’ financial statements, and why is setting the rules for LLP accounting and disclosure considered private? Surely it is not.

[Lord Fox (LD)]

My Lords, as someone who has spent a lot of his professional life working on annual reports, I have often had questions about GAAP, but the Minister will be pleased to know that I will not ask them today.

The four SIs before us are to be welcomed. They are steps on the way from our discussions on both the last economic crime Bill and the one before that. We are moving forward, in a sense. I am glad that the noble Lord, Lord Vaux, introduced what I call the Knighton collection of companies that were registered to a terraced house in the Welsh borders, not far from where I live—as I believe does the noble Lord, Lord Bourne. I would like some reassurance that the statutory instrument on registered office addresses would deal with that.

As the noble Lord, Lord Vaux, eloquently set out, there are a lot of steps to go through to eliminate falsely registered companies. It comes back to the question of whether Companies House is capable of really handling this, ceasing to be a filing cabinet and starting to be an investigative organisation. To echo the point made by the noble Lord, Lord Vaux, it would be very helpful to have an update on how the huge cultural change that Companies House needs is going. Many of us were impressed by the team that we saw, but also a little frightened by the huge task that it has in front of it to make these SIs and the next 51—or however many there are—come to life.

I have some trepidation on the second of these SIs, on limited liability partnerships, because the noble Baroness, Lady McIntosh, seated opposite, is our Scottish legal expert. I wondered where Scottish partnerships come in, because the territorial extent of that statutory instrument is the whole UK. Where do Scottish partnerships sit within that?

The service address and principal office address regulations are useful and important too, but expose the central weakness that is still within our system. After all the work we did on the Bill, those with control still have the ability to hide that control. We welcome the Service Address (Rectification of Register) Regulations and the Principal Office Address (Rectification of Register) Regulations, but can the Minister set out, either now or in writing, how we are going to eliminate the cancer within this system of people obscuring the real ownership of assets to the authorities and wider society? With that, we welcome these four statutory instruments.