The Small Business, Enterprise and Employment Bill, published in June 2013, has now received Royal Assent. The Small Business, Enterprise and Employment Act 2015 (the “Act”) materially reforms UK company law and therefore may have a part to play in influencing whether investors consider that “UK plc” is a welcome place to do business. A provisional plan by BIS suggests the Act will be implemented in phases, beginning two months after its enactment, and will be fully in force by April 2016.
One of the confirmed changes, which builds upon the Government’s statement at the G8 summit in June 2013 (echoed at the G20 summit in November 2014) and which is perhaps the most controversial, is the introduction of a central public registry of those individuals who have significant control of UK companies. The Act however covers a number of legal areas, including the UK’s insolvency regime and other company law changes, for example the introduction of an accelerated strike-off procedure and changes to the director disqualification regime. This note summarises only the following key changes and looks at what, if anything, companies should be doing now to prepare for them:
- new register of “persons with significant control” (the PSC register);
- abolition of bearer shares;
- abolition of corporate directors;
- abolition of annual returns; and
- new option to keep company statutory books at the central registry.
KEY CHANGES TO CONSIDER NOW
New PSC register – January 2016 (estimated implementation date)
The Act sets out the interests and the details which will be required to be included on the new PSC register. Broadly the Act requires details of those individuals (known as PSCs), who ultimately own or control more than 25 per cent of a UK company’s shares or voting rights, or who otherwise exercise significant influence or control over the company or its management (guidance on which is expected to be published in the autumn), to be included on a private and a public register.
The government has confirmed that the public register will be freely available online and searchable by individual name, as well as by company name.
The majority of UK companies, even those with simple shareholding structures will need to comply with the provisions or risk being convicted of a criminal offence (UK listed companies are broadly exempt). Likewise all shareholders (unless the company is exempt) will need to provide the required information to the company or risk being convicted of a criminal offence. There is no defence available to a company or shareholder for an inadvertent or slight breach of the provisions.
It is not yet clear how all of the provisions will be implemented. As mentioned above, guidance on determining whether an individual exercises significant influence or control is not expected to be published until the autumn making it difficult to consider the Act’s impact on transactional group structures. However, now the Act has received Royal Assent, companies and their shareholders may wish to start considering whether, applying the provisions in the Act that are in final form, they either have, or are, an individual who is deemed to exercise significant influence or control.
Abolition of bearer shares – May 2015 (estimated implementation date)
Bearer shares, shares that have been issued but where noone has been registered as the owner of the shares, will be abolished. No new bearer shares will be able to be issued and the legislation has been drafted so that companies which have issued bearer shares will be required to follow a detailed procedure to cancel any bearer shares that have not been converted into non-bearer shares. Ultimately this may require the company to apply to court. Companies should check their records now to ensure they can identify and contact those (if any) to whom bearer shares were issued. Once the provision is in force a prescribed procedure will apply which will require the conversion or surrender of shares within a fairly short timescale (the first notice must be sent within one month of the provision being effective).
Abolition of corporate directors – October 2015 (estimated implementation date)
Since 2008, all UK companies have been required to have a director who is a natural person (prior to that all directors could be corporate or other legal entities). The Act will require all directors to be natural persons. A door has been left open for the Secretary of State to exempt certain companies from compliance with this provision. Corporate directors may therefore (subject to the outcome of a consultation on possible exceptions) be permitted to continue to be appointed where the company is admitted to trading on a regulated or prescribed market or is a large private or public company operating in a group structure. Certain sectors may also be exempt. Companies may wish to start compiling a list of those group companies with corporate directors on their boards and give some thought, in principle, to which individuals may be appropriate replacements. Existing directors who are not natural persons will automatically cease to be directors 12 months after the provision is in force.
OTHER KEY CHANGES
Abolition of annual returns – April 2016 (estimated implementation date)
Companies will be freed from the requirement to submit an “annual return” (a snapshot of their shareholders, officers and capital on a given date each year). Instead companies will be required to confirm (or update where necessary) similar information at any time during a 12 month period, (the new “confirmation statement”). This slightly more relaxed approach to the annual return will, going forwards, be the principle method of conveying who is on the company’s PSC register. No action needs to be taken now.
New option to keep certain company statutory books at the central registry – April 2016 (estimated implementation date)
Companies will, with shareholder approval, have the option to stop maintaining, in part, their own sets of company books (which are currently either kept at their registered office or alternative nominated inspection location). Instead, companies will be able to elect to keep their registers of PSCs, members, directors and secretaries at Companies House. The obligation to maintain and update the information will remain as before but the company will no longer keep the records, instead the information will be sent to Companies House which will maintain the records. Enthusiasm for this option may be limited, at least for the register of members. As a matter of company law a person is not recognised as the legal holder of a share unless and until their name is entered on the register of members.
Where a company elects to no longer keep its own company books there may be some delay in being able to record changes to the register of members. Shareholders will not become members until the person’s name has been delivered to, and registered by, the registrar. In addition, companies will be obliged to safely retain the hard copy books covering the period before they elected to keep their records at Companies House. Companies need not take any action now and may feel that, bearing in mind the requirement to keep other statutory records, there is limited point in doing so.
As a number of commentators have noted and the UK Government itself expressed, the change to transparency of UK company ownership and control is significant and the UK is leading the way internationally. The UK is clearly pushing for “international recognition of the need for change” and “ambitious global outcomes”. Whether the UK will be considered a welcome market leader in this area will be seen over the coming months as the Act’s reforms are implemented.