Clause 13
Company Law Reform Bill [Lords]
11:00 am

Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

I beg to move amendment No. 15, in clause 31, page 12, line 19, after ‘a', insert ‘public'.

Clause 13 deals with the statement of compliance. It relates to section 12(3) and (3)A of the Companies Act 1985. Based on recommendations of the CLR, the current requirement of a statutory declaration or a chronic statement here and elsewhere in the Bill is replaced by a requirement to make a statement of compliance. This statement does not need to be witnessed and may be made on paper or in electronic form. It will be for the registrar’s rules under clause 75 to specify who makes a statement and its form. Will the Minister advise us whether her Department has now considered the form of the statement or whether that will follow?

My probing amendment provides for retaining the use of the statutory declaration. Our concern here is related to impersonation and the growing problem of identity theft. There is a growing problem of forms 288 being sent in by crooked individuals to change the directors of registered companies. They may do that in their own name or under a pseudonym or, often, the name of a dead individual. These so-called directors then change the registered office to one of their own choice so that the company has therefore been hijacked to some extent, and typically they enter into contracts using the false details.

The safest stage of the registration process at the moment is the company formation stage. That is because at that moment one has to go in front of a solicitor or possibly a commissioner for oaths and make a statutory declaration. Will the safety that we have within the system now disappear? I assume that it will. How do the Government intend to make sure that we retain this element of safety without the statutory declaration, not least in view of the additional risks of accepting details online? This is a probing amendment, I hasten to add. I am generally in favour of e-commerce and using the internet, but we need to appreciate that there are security concerns here that they are being misused. This is not me suggesting that a problem will happen; it is a growing problem and we need to have a remedy in place by the time the Bill comes into force.

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

The hon. Gentleman rightly said that the statutory declaration and the electronic statement will be replaced by this new statement of compliance. He asked me whether the form of the statement had yet been published. It is not yet published; it will be for the registrar’s rules, although he will understand that the rules will not require the presence of the solicitor or a commissioner of oaths. They are likely to allow greater flexibility as to the persons who are able to make the statement on behalf of the company: for example, we could have such professionals as accountants making such a statement on behalf of the company.

Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

I may have missed something here. Is the Minister saying that someone will still have to give some kind of compliance statement on the form, even though it does not take the form of a statutory declaration?

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

Yes.

The hon. Gentleman then raised the issue of fraud. Clearly it is a problem that we all constantly have to grapple with, but I am not convinced that the hon. Gentleman’s answer will really help. The registrar’s rules will enable provision to be made for authentication, and we may, for example, be moving towards a unique identifier. Breaches will continue to be a serious matter, but there are various clauses in the Bill to deal with the issue. Making a false statutory declaration would be a matter for the law of perjury, while making a false electronic statement would be an offence. Under clause 764, a false statement of compliance will become a false statement, and the clause sets out the penalties on conviction, including fines and custodial sentences. Although the hon.  Gentleman is right to allude to a problem, therefore, I am not sure that the answer lies in maintaining the statutory declaration.

Shailesh Vara (North West Cambridgeshire, Conservative)

Although the Minister is right to say that there are penalties for those who use a wrong identity, would she none the less agree that the idea in effecting the relevant clauses is not to punish people but to prevent the offences from being committed in the first place? That is where our argument is coming from: we want to avoid the offences, rather than to prosecute later on.

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

Clearly, prevention is the better route, and we all want to go down it. As has been said, we hope that the existence of the penalties will become a disincentive to breaking the rules. I am simply not convinced that we shall be better able to prevent fraud if we have a witnessed statutory declaration. That was all I was saying, although I entirely accept that we would rather prevent fraud, and we need constantly to look at the development of electronic communication to see how we can improve facilities for doing so. The issue regularly comes across my desk in relation to other parts of my portfolio.

Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

I am a little confused. As I understand it, there will be a declaration from someone else, rather than a statutory declaration. Presumably, there will be a wider pool of people who can give a declaration, so the process will become easier, and there will be less red tape. Conceptually, that is fine, but if the idea is also to move online, will the Minister explain how that ties in with someone—albeit someone else—giving a declaration? Will the fact that it has been given be declared online?

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

I think that the answer is yes. What I was trying to say was that the current developments in electronic communication support improvements to ensure that the statement is not given fraudulently or by an impostor. I am also told that, currently, somebody can give a statement online that what someone else has declared online is already the position, and we are not changing that.

It might help the hon. Gentleman if I say two things. First, we are trying to widen the range of people who can give the statutory declaration. Secondly, two declarations have to be made at present. One is made by the first director, or secretary, of a company or by a solicitor engaged on the formation of a company, and it must be made or witnessed before a solicitor or commissioner of oaths. In other words, it cannot simply be made by the person or persons forming the company, and the statutory declaration cannot, seemingly, be made electronically. That is why the current Act explicitly provides for an electronic statement as an alternative. Currently, there are two different sets of requirements, which depend on the form of communication that is adopted.

Under clause 721 in part 29, which relates to the registrar of companies, it will be for the registrar to determine the form of the new statement of compliance and issues such as who can authenticate it. Such matters may be set out in the registrar’s rules  under clause 770. In other words, the details will, for the most part, be matters for rules established by the registrar of companies.

I think I have covered most of the points raised, and I hope that I have given sufficient assurances for the hon. Gentleman to feel able to withdraw his amendment.

Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

I thank my hon. Friend the Member for North-West Cambridgeshire (Mr. Vara) for pointing out that prevention is as important as penalties, if not more so. That is a central theme of the clauses dealing with the filing of documents. I have no doubt that the mechanics of the use of electronic filing will make the area more risky and more open to abuse, so the chance of fraud will be increased. The right hon. Lady said that a person can currently file online. I think that that is true, but in practice it probably applies to a small number of company formation agents. I have the feeling that the proposals are intended to broaden the use of electronic filing. That is not necessarily a wrong thing to do, but it will increase the risk of abuse.

Jim Cousins (Newcastle upon Tyne Central, Labour)

Can the hon. Gentleman tell the Committee whether the abuses to which he is drawing our attention are widespread, excepting, of course, that he anticipates they will become even more widespread in a purely electronic situation?

Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

My understanding is that the hijacking of companies, as I described it earlier, is becoming increasingly widespread. I do not have statistics. The Minister might have them, and if she does, I shall be grateful to hear them. It is increasingly common and very simple to do. All that one has to do is to go to Ryman’s get a couple of 288s—[Interruption.] I take the Whip’s point that I should not, perhaps, explain too clearly what to do. However, it is a simple procedure.

Jim Cousins (Newcastle upon Tyne Central, Labour)

I am grateful to the hon. Gentleman for that clarification, and no doubt we can look into the matter. I was not seeking an instruction manual.

Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

I shall not continue in that vein. I have made the point that there will be an increased risk. When the Minister spoke about the ways of dealing with it, she mentioned a few things that happen now, such as identifiers. If she and her Department put their minds to the issue, they might prevent future problems. On that basis, I beg to ask leave to withdraw the amendment.