Author: Nicola Sharp
6 April 2017
3 min read
Regulations were laid before parliament in 2017 to extend criminal law to help improve smaller businesses’ cash flow by putting new obligations on larger companies.
This was just another example of criminal law being used to affect corporate behaviour – and carries with it risks for those who are unwilling or unable to comply.
The Reporting on Payment Practices and Performance Regulations 2017 and Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017, created two new criminal offences for larger companies who do not meet new standards of reporting their payment practices.
The Regulations require large UK corporates to file information with the government every six months regarding contracts for goods, services or intangible property; including standard payment terms, data on late payment of invoices and details about procedures for resolving payment disputes.
Any company or LLP can choose to make a report under the regulations. They will only face criminal liability for failure to make a report if they meet two of the three following criteria:
The first criminal offence under the Regulations is failing to submit a report of the necessary information to the government within 30 days of the end of the relevant reporting period. The first reporting period is the next financial year; which begins after April 6 this year.
Directors or designated members can be held to be personally liable for the criminal offence unless they can show that they took all reasonable steps to ensure compliance.
Another criminal offence created by the regulations is the knowing or reckless publication of a report that is misleading or false. This offence is not only relevant to senior company figures – it also covers third parties, such as lawyers, accountants or auditors.
Each offence is punishable by way of a fine on summary conviction at the magistrates’ court. They are the latest offences in a line that includes Money Laundering Regulations, failure to prevent bribery under Section 7 of the Bribery Act 2010 and the soon to become law Criminal Finances Bill: a line that uses the big stick of criminal liability to try and enforce ethical and responsible corporate behaviour.
Such liability leaves little “wriggle room’’ for the corporate or senior figure found wanting under such legislation. It places extra responsibility on corporates and individuals and has gone some way to placing compliance higher up the agenda.
Compliance is a word that may prompt, at best, mixed feelings, among many in business. There are those who view it as bureaucracy that takes up time, effort and cost while yielding little benefit.
But it is worth making the point that anyone who finds themselves falling foul of these regulations (or any others) will have done so because of a lack of compliance. Maybe then they will understand the value of compliance – even if it is too late for them to benefit from it.
At Rahman Ravelli, we have helped many companies devise and introduce compliance procedures to their workplace. The implementation of adequate procedures can be a challenge: it involves a complete understanding of all relevant legislation and an appropriate response to ensure that a company is acting within the law rather than breaching it.
This can seem daunting. If we look at these 2017 regulations, for example, they impose more obligations on companies, create new criminal offences and make individuals liable.
Ensuring that a company and all relevant individuals are acting legally, therefore, can be a challenge. But that challenge is almost impossible if strong, adequate compliance procedures have not been devised, introduced, publicised, regularly reviewed and maintained.
Any corporate that is subject to any regulations, you may need to seek expert legal advice regarding the best way to “design out’’ the potential for breaching them. Such an approach must involve devising procedures after examining how the company works and the potential for wrongdoing.
These 2017 regulations were, as we mentioned earlier, part of an ongoing attempt to use criminal liability to enforce good corporate behaviour.
There is now much less official tolerance of corporate wrongdoing. This means that prevention of wrongdoing has to be a company’s priority; otherwise the costs will be far greater than any expense involved in ensuring you are legally compliant.
Nicola is known for her fraud, civil recovery and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.