Conducting business through a company provides tremendous benefits. The price to be paid for these benefits is disclosure – companies are required to disclose substantial amounts of information, with much of this information being disclosed to Companies House. Every day, suppliers, creditors, potential investors, credit agencies and other persons utilise information provided by Companies House to make informed commercial decisions. It is therefore vital that when Companies House records this information into the register of companies, that it is recorded accurately, with the recent case of Sebry v Companies House providing a stark example of the disastrous consequences that can occur if information is incorrectly recorded.
The case concerned two companies with very similar names. Taylor & Sons Ltd was a successful Cardiff-based company, whereas Taylor & Son Ltd was a Manchester-based company that was experiencing financial difficulties and was wound up in January 2009. Companies House received the winding up order in February 2009 but it was wrongly recorded on the register against Taylor & Sons. The results of the error were catastrophic. Given that Companies House sells information to credit agencies, and anyone can sign up to receive email updates on any company via Companies House’s Monitor service, news of Taylor & Sons apparent liquidation spread very quickly. Suppliers terminated their contracts, creditors refused to provide any more credit, and key customers cancelled their orders with the company. In April 2009, the company entered administration and over 250 employees lost their jobs. Mr Sebry, Taylor & Sons’ managing director, commenced proceedings against Companies House and the Registrar of Companies for negligence and breach of statutory duty.
The case was heard by Edis J in the High Court, with the key issue being whether or not Companies House owed a duty of care to the company. In finding that Companies House did owe a duty of care, Edis J stated that:
“It appears to me that where the Registrar undertakes to alter the status of a company on the Register which it is his duty to keep, in particular by recording a winding up order against it, he does assume a responsibility to that company (but not to anyone else) to take reasonable care to ensure that the winding up order is not registered against the wrong company.”
For two reasons, this duty is a narrow one. First, the duty only arises in relation to the recording of information, and does not extend to verifying the accuracy of information received. Second, the duty is only owed to the company whose records are being amended, and does not extend to third parties who may rely on such information. As this was a preliminary judgment, Edis J did not consider the issue of damages – this will be resolved at a later date, but it was widely reported that the claimant was seeking damages of £8.8 million. Companies House has been given permission to appeal.
Sebry is an important case as it is the first case to establish that Companies House does owe a duty when registering information provided to it. However, it is important to note that cases such as Sebry will be very rare due to the narrowness of the duty imposed. Another factor that will reduce the likelihood of such claims is that Companies House rarely makes errors. The investigation conducted by Companies House in the wake of the Taylor & Sons error revealed that 99% of information recorded is free of errors. Whilst this is a low error rate in percentage terms, given the sheer number of filings that need to be made to Companies House, even a 1% error rate represents a notable amount of information and, as Sebry indicates, even a single seemingly minor error can have disastrous consequences.
Irrespective of whether an appeal is lodged or is successful, Companies House will doubtless exercise more vigilance when updating the register, which will likely result in more company returns and filings being rejected. With nearly 3.3 million companies on the register, there are likely to be many companies with very similar names (for example, there are currently 21 companies on the register with the words ‘Taylor’, ‘Son’ or ‘Sons’ in their name). Coincidentally, five days after the judgment in Sebry was handed down, new legislation came into effect that will actually make it easier to create companies with similar names to existing companies. The Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015 substantially reduces the list of words and phrases that can be disregarded when determining whether a company has a name that is the same as another. Accordingly, it will become even more important for Companies House to ensure that it is registering information against the correct company, especially as, in June 2015, Companies House announced that it was making all public information on the register available online free of charge. The likely effect of this will be that more people will rely on the information contained in the register, thereby increasing the importance of accurate registration of information, lest the disastrous events of Sebry be repeated.
This post was originally published in May 2015 as part of the OUP Blog.