BANKING AND FINANCE

ECCTA: Fundamental changes for companies and considerations for lenders: Practical points to note

The Economic Crime and Corporate Transparency Act 2023 (the Act) received royal assent on 26 October 2023. The Act represents a major overhaul of the UK government’s framework for tackling financial crime and has brought into force several significant changes. The Act will be implemented in stages via secondary legislation and accompanying guidance from Companies House will be essential to understand the full implications of some of the changes. However, in the meantime, companies and lenders should begin to consider those of them which are already in force, or which are imminent.

Some of the key changes due to be implemented incorporate various new responsibilities for new and existing directors / persons with significant control of a company and those filing on behalf of a company. These changes will have a knock-on effect on the due diligence process in financing transactions; including the initial enquiries made and the available snapshot of details of a prospective borrower or security provider down to the impact this may have on transaction timetables if a company’s details are not complete or compliant and need to be updated.

We outline below some key considerations / action points for lenders and borrowers alike to be aware of, as well as those areas where more clarity is required from Companies House in the context of finance transactions:

  • Various filing changes (for example, to the account filings for small companies and registers for directors, secretaries and people with significant control (PSCs) to be held on the public register): borrower companies need ensure that their filings are made on time, both to ensure that there is clarity in regard to the details of the company (or their group) and to ensure that they do not unintentionally trigger a breach of any representations/undertakings given by them in their lending documentation in respect of their ongoing compliance with applicable laws and regulations.
  • Additional powers of The Registrar: The Registrar will have additional powers granted to it, including the authority to question information submitted by companies and the ability to reject incorrect or misleading information provided to Companies House. To minimise the risk of a filing being rejected, double checking each filing or arranging for a second review of a filing may limit the risk of mistakes and rejected applications and companies should ensure up to date records are held.
  • Identity verification requirements (new and existing directors, PSCs and any person submitting information to Companies House will need to have their identity verified):This requirement (which is to be implemented later) poses various considerations for the persons that will need to be verified (whether that is officers or employees of the company or the Authorised Corporate Service Provider (ACSP) to the company). On grey area is the question around who will be able to, make filings on a company’s behalf at completion of a transaction which involves a change of ownership of a company.

Persons / entities that wish to be directors will not be able to act and perform functions as a director until their identity is verified and if they do so, directors will face disqualification. This is going to have an interesting impact on deal timetables. On transactions where an acquisition is being funded by debt, often the directors of the target group change at completion and immediately thereafter those target group companies will sign up to the debt finance documentation. It is likely that going forward, parties may need to factor in time for the necessary identity verifications to take place and reconsider the sequence and timetable around such completions. It remains to be seen how stringent the Registrar will be in respect of the timing of these identify verification requirements.

Another question mark arises around the process of registering security. Typically, this is done by the lender’s solicitor, but a question arises as to whether the changes to identity verification will now mean that the individual lawyer has to verify their own identify first or will it require that all law firms become ACSPs, bearing in mind the potential liabilities that are associated with the verification process.
Currently additional guidance as to the practical implementations in respect to some of these new requirements are awaited and further clarity is anticipated over the next year. We are keeping a close watch on the changes as we move through implementation of the Act and, and in particular, on how transaction timetables may be impacted and what additional diligence parties may need to carry out to make sure borrowers are complying with their enhanced obligations.

In the meantime, please let us know if you would like further information and advice in respect of the Act and a member of the team would be happy to assist.

About the authors


about the author img

Tyne Harman

Associate

Advises on a variety of debt finance and refinance matters, including acquisition, real estate finance and general corporate and commercial banking.

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