The UK Government is pushing to improve transparency and safeguard trust in commercial transactions. A major part of this effort is the introduction of the Small Business, Enterprise and Employment Act 2015 (the SBEEA) which received Royal Assent on 26 March 2015.
The SBEEA sets the foundations for a wide range of reforms to current law and introduces new practices. Key changes include:
- New grounds for the disqualification of directors to include overseas convictions and mismanagement;
- A prohibition on corporate directors, which, subject to certain exceptions, is expected to apply from October 2015;
- A requirement for unquoted companies to keep a public register of people with significant control which is due to apply from January 2016 and a duty to disclose the details of such people to Companies House on an annual basis from April 2016;
- The ability for private companies to keep their statutory registers at Companies House, from April 2016; and
- The introduction of annual “confirmation statements” in place of annual returns due to take effect as of April 2016.
Perhaps the most contentious change is the introduction of a public register of individuals who have “significant control” (PSCs) over unquoted UK companies.
Register of Persons with Significant Control (PSC Register)
Under the current timetable, from January 2016 unquoted UK companies must take steps to identify PSCs, maintain a PSC Register and keep the register up to date. Similarly, all PSCs must, individually, supply information to the company.
Under the SEBBA, companies will be required to make their PSC Registers publicly available, at all times, to members of the public who request it for a proper purpose. A company’s refusal to comply with a request for a copy of the PSC Register will be a criminal offence, unless the company has obtained a court order which directs that it must not comply with such a request.
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By April 2016 it is anticipated that an annual requirement for each company’s PSC Register to be disclosed to Companies House will come into effect (thereby making a snapshot of the PSC Register available to the general public without request).
The scope of persons registrable as PSCs is not yet clear. Under the most straightforward test, an unquoted UK company is required to identify each person who (directly or indirectly) holds or controls more than 25% of its shares or voting rights; or has the power to appoint a majority of the company’s board. However, to complicate matters, a company’s duty also extends to the identification of persons who exercise, or have the right to exercise, significant influence or control over it; or over the activities of a trust where that trust is a PSC.
At the time of writing the meaning of “significant influence and control” has not yet been determined and, as such, it is recommended that company secretaries and directors pay close attention to government guidance due to be published in October 2015 or otherwise seek professional advice.
Failure to comply
Where a company fails to comply with its duty to take steps to identify PSCs or fails to take steps to keep the information contained in the PSC Register up to date, a criminal offence will be committed by the company and its officers; such offences will be punishable by imprisonment or a fine.
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Importantly, where a person who has a relevant interest in the company fails to supply certain information to the company, the company may impose sanctions against them. Such sanctions may include restrictions on the person’s voting rights and restrictions on the person’s right to transfer shares and breach of such restrictions will also be a criminal offence with the same consequences as above.
Content of the register
The particulars to be included in the PSC Register include the name, service address, country or state in which the individual is usually resident, nationality, date of birth, usual residential address, date on which the person became a PSC and the nature of the PSC’s control over the company. However, a PSC’s usual residential address will not be made publicly available.
It is also expected that PSCs will be able to make an application to suppress the PSC’s information from public disclosure, however the circumstances in which such an application will be successful are likely to be limited to circumstances where there is ‘serious risk of violence or intimidation as a result of the company’s activities’.
It is strongly recommended that companies, particularly those with complicated corporate structures, start work on identifying their PSCs and develop processes needed to create and maintain their registers now. Noting that guidance on the meaning of “significant interest and control” is not expected until October 2015, the timetable for compliance with the establishment of a PSC Register, by January 2016, may be tight.
Going forward it will be interesting to see whether these requirements are extended to limited liability partnerships and whether the introduction of the PSC Register will have any appreciable impact on the use of UK based corporate structures.
Mehboob Dossa is a partner and Alan Holliday is an associate at international law firm McGuireWoods
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