Companies House is now issuing Penalty Warning Notices to overseas entities that have not yet registered on the Register of Overseas Entities (ROE). The ROE was created by the Economic Crime (Transparency and Enforcement) Act 2022 to improve transparency of ownership of UK property by overseas entities and this is a clear reminder of the importance of registration.
What does a Penalty Warning Notice say?
The nature of the warning notice is unmistakable and features a large red text box containing the words “Overseas Entity – failure to register penalty warning notice” at the top.
The letter states that the named overseas entity “…has been identified as owning land in the UK and was required to register with Companies House by 31 January 2023. It failed to do so, and as at the date of this notice it has still not been registered. This means the entity and any of its officers in default may have committed an offence under the Economic Crime (Transparency and Enforcement) Act 2022 – Paragraph 5 of Schedule 3 for land registered in England and Wales, and paragraph 10 of Schedule 4 for land registered in Scotland.”
What are the consequences if an offence has been committed?
The notice states that “where satisfied that an offence has been committed, the Registrar can issue a financial penalty. This may have serious consequences for you and the property.”
The letter refers recipients to the framework which explains how Companies House will use its enforcement powers in relation to the Register of Overseas Entities. The guidance states that;
“Companies House will use a consistent and proportionate approach to enforcement.
This will include, where necessary:
- Restrictions on properties
- Issuing civil financial penalties
- Prosecution of criminal activity”
What does the framework say about financial penalties?
The framework says that the Registrar may impose a civil financial penalty when satisfied beyond reasonable doubt that an offence has been committed. Depending on the offence, this can be:
- A fixed penalty
- A daily rate penalty
- A combination of both
What is a Warning Notice?
The Registrar may issue a warning notice if it suspects an offence has been committed. This will outline:
- The grounds for suspecting an offence has been committed
- That a person may email or write to Companies House within a period set out in the notice, which will be at least 28 days
- A warning that the Registrar may issue a penalty if a person does not contact Companies House within the period in the notice, or if it does not accept the explanation provided
Can an entity contest the warning notice?
The notices give the overseas entity 28 days to register and to explain why it believes an offence was not committed and anything else to be taken into consideration. If it does not comply with the notice, it may be liable for a financial penalty. There is a stark warning that the Registrar may issue a penalty if the entity does not contact Companies House within the period in the notice, or if it does not accept the explanation provided.
How much are the financial penalties?
The penalty amount will be set out in a Penalty Notice and the framework advises that “the Registrar will assess the culpability and the harm involved in each case.” It says that the Registrar will consider several factors when determining the penalty amount including any representations made by the entity or individual. The sums may be significant and related to the value of the property portfolio.
Was this enforcement action signposted?
In June 2023 Companies House published a blog post “Register of Overseas Entities: where we are now”, clearly stating its intention to issue financial penalties. The following is an extract from the blog post:
We’ll soon be issuing financial penalties to those who have not registered on the Register of Overseas Entities. We’ve published guidance on GOV.UK to explain our approach to financial penalties and other enforcement measures.
Overseas entities that have not registered with Companies House already face restrictions on selling, transferring, leasing or raising charges against their property or land. Overseas entities also cannot buy any new UK property or land without an Overseas Entity ID.
We're looking forward to implementing these important next steps for the Register of Overseas Entities, and we’ll publish more updates on our channels soon.”
What should you be doing now?
The ROE requires all overseas companies (or similar legal entities) governed by the law of a country or territory outside the UK that own UK freehold land or property or who are tenants of a lease of more than seven years in length (residential or commercial), to declare their “beneficial owners” or “managing officers”. The Economic Crime (Transparency and Enforcement) Act 2022, which prescribes the ROE registration requirements, also imposes a duty on overseas entities to file updated statements annually.
As stated in our previous newsletters on the subject, we urge all overseas entities to check whether they are required to register and if so, to do so urgently. For those who have already registered, we remind you of your obligation to provide timely update statements.
How 3CS can help
Our team of corporate and commercial lawyers and consultants have both domestic and international expertise and offer a full range of corporate, commercial and property-related legal services including ROE. 3CS is an authorised UK verification agent, and our London-based team has considerable experience in dealing with overseas companies and international group structures and can assist with registration and the verification process required for compliance. 3CS can also report on the potential impact of the Act on any pending property transactions.
If you have any questions regarding the ROE requirements, registration, update filing or would like assistance dealing with Companies House please get in touch with your usual 3CS contact.