From 6 April 2016, virtually every UK incorporated company, LLP and SE will need to keep a public register of those people with significant control over it. This includes trustee companies in relation to pension or employee benefit trusts. Consequences of a breach of the new requirements include criminal offences (including on officers in default) and, in certain circumstances, share rights being restricted. This briefing sets out a summary of the new regime and looks at its particular implications for corporate trustees (eg of a pension scheme or employee benefit trust).

Introduction

What is the new disclosure regime? In a nutshell, all UK companies, LLPs and SEs will (with some exceptions – see below) have to collect information about, and keep a publicly available register of, persons with significant control over them (a ‘PSC register’). This briefing focuses on the rules as they apply to UK trustee companies.

The obligations are in new Part 21A (Information About People with Significant Control), sections 790A to 790ZG of the Companies Act 2006, inserted by the Small Business, Enterprise and Employment Act 2015 and the underlying regulations and guidance.

Do the new rules apply to trustee companies? Yes, the new rules apply to all UK companies (save for those listed on a regulated market). There is no exclusion for companies acting as a trustee or for dormant companies. There are no special provisions in the legislation, even for trustee company structures including ( the case of pension trustees) some of the directors being elected (as 'member-nominated directors' or MNDs) by the pension scheme members – s243, Pensions Act 2004.

When do the new rules come into force? Companies will have to keep a PSC register from 6 April 2016. The register can be inspected by the public. Information from a company’s PSC register will start having to be filed with the UK registrar of companies, Companies House, annually from 30 June 2016 (and will be free to search). 

What do UK companies have to do? Broadly, a company:

  • must take reasonable steps to identify those persons with significant control over it (including giving notice to anyone whom it knows or has reasonable cause to believe is such a person, requiring them to confirm or correct any particulars);
  • may give notice to any person if it knows or has reasonable cause to believe that they know the identity of a person with significant control over it (or can identify someone likely to have that knowledge); and
  • must maintain an up-to-date PSC register and make it open to public inspection (even if no person has significant control over the company).

If the company fails to comply with these obligations, it and any officer in default commits a criminal offence, punishable by up to two years’ imprisonment or a fine.

Do any exemptions apply? Yes – notably, UK companies with securities admitted to trading on a regulated market (such as the Main Market of the London Stock Exchange) or prescribed market (such as AIM) do not need to keep a PSC register. UK companies with voting shares admitted to trading on a regulated market in any other EEA state, or on certain markets in the USA, Japan, Switzerland and Israel are also exempt.

However, the UK subsidiaries of such a listed company will need to keep their own registers (unless they are themselves exempt).

Who needs to be registered?

Individuals An individual is a ‘person with significant control’ (PSC) in relation to a company and, subject to certain exceptions (see below), must be registered if, very broadly, he or she:

  • has an interest in more than 25 per cent of the company’s shares or voting rights;
  • has the right to appoint or remove a majority of the company’s board; or
  • has the right to exercise (or actually exercises) ‘significant influence or control’ over the company.

Both direct and indirect interests and rights are caught and there are lots of rules about how interests are to be treated, eg if people have a ‘joint arrangement’ covering shares or rights, each will be treated as holding the combined shares or rights of both of them. As well as certain prescribed information about each PSC (eg name, address, nationality and date of birth), the nature and extent of the PSC’s control must be stated in the register.

What is ‘significant influence or control’? Statutory guidance was recently published for companies and for LLPs on what ‘significant influence or control’ means but this is indicative only and does not identify all the situations in which it might be found.

Entities must look at the facts of each particular case, but examples of situations which might constitute a right to exercise significant influence or control include some veto rights over decisions related to the running of the business or the appointment of the majority of the directors. This clearly could have implications for joint ventures and other corporate arrangements – although the guidance does state that veto rights over fundamental matters for the purposes of protecting minority interests are unlikely, on their own, to constitute significant influence or control.

Do only individuals need to be disclosed? No – some legal entities will also have to be named in the PSC register. Broadly, a company must first identify any ‘relevant legal entity’ (RLE). An RLE is defined as a body corporate or a firm which is a legal entity under the law by which it is governed and which:

  1.  would have been a PSC in relation to the company had it been an individual; and
  2.  is subject to its own disclosure requirements (ie broadly, if it is a listed company as described above, or a UK company which itself is required to keep a PSC register).

All RLEs must be included in the company’s PSC register, unless they are ‘non-registrable’, ie if the RLE only holds an interest in the company through one or more other legal entities over each of which they have significant control, and at least one of which is a RLE in relation to the company (as above, RLEs are subject to their own disclosure obligations). Note that an individual who is a PSC will also be ‘non-registrable’ if the same test is satisfied.

Sounds complicated – can you give me an example? Consider a very simple all UK group structure: a main market listed topco (A), a private limited company wholly-owned by A (B) and a private limited trustee company wholly-owned by B (C).

  • A does not need to keep a PSC register, but B and C do.
  • A will be named in B’s register.
  • B will be named in C’s register. A does not need to be named in C’s register, because it only holds its interest indirectly through B which is an RLE (ie subject to its own disclosure obligations).

What obligations do PSCs and RLEs have under the new regime? PSCs and RLEs must, for example:

  • respond to requests for information from companies; and
  • even if they do not receive such a request, they must proactively inform the company if they are registrable and supply the required particulars.
  • They also have a continuing obligation to inform the company of any relevant changes.

A failure to comply can be a criminal offence. In addition, in some circumstances share rights could be restricted.

Penalties

What are the penalties for failure to comply? There are potential criminal penalties for failure to comply with the various new obligations. This can apply to:

  • the company, if it fails to keep or maintain the PSC register (including sending notices) – ss790D and 790E; or
  • a PSC or RLE if he, she or it fails to respond to requests for information from the company or fails to inform the company that he, she or it should be in the PSC register or of relevant changes – s790G; or
  • a third party if he, she or it fails to respond to an information request from the company - s790H.

On conviction, a person is liable to imprisonment for a term not exceeding two years or a fine, or both. There is no maximum limit on the fine in England and Wales (there is a limit in Scotland or Northern Ireland).

Who can be prosecuted? The criminal offence can be committed by:

  • the company/PSC/RLE/third party for its failure to comply with the relevant obligation (or for knowingly or recklessly making a false statement in information supplied to the company); and
  • in the case of a failure by a body corporate (ie the company/RLE/third party), a relevant officer of that body corporate who is 'in default'.

Which officers can be prosecuted? For this purpose 'officer' includes any director, manager or secretary – s1121(2), Companies Act (CA) 2006. An officer is 'in default' if he or she 'authorises or permits, participates in, or fails to take all reasonable steps to prevent, the contravention' – s1121(3), CA 2006.

When might share rights be restricted? If a PSC or RLE fails to respond to requests for information, the company can (following the issue of a warning notice) impose restrictions on its shares (or certain of its rights) without a court order by serving a ‘restriction notice’. The effect of this is that, broadly:

  • any transfer of the shares or right is void;
  • no related rights can be exercised;
  • no payments may be made in relation to the shares or right (eg dividends); and
  • no new shares may be issued in relation to the shares or right.

A company can also impose these restrictions on the shares (or certain rights) of a person who fails to respond to information requests, even if their interest would not make them a PSC or RLE (and such a failure to respond may also be a criminal offence).

What if a person ignores these restrictions? A person commits a criminal offence if it takes certain actions knowing that a share or right is subject to restrictions (eg if it tries to transfer the share or right, or vote in respect of it). The company (and its officers in default) may also commit offences in certain situations (eg if the company issues new shares to a PSC or RLE in contravention of a restriction).

Trustee companies

Trustee companies (incorporated in the UK) are common in relation to pension trusts, but much less common in relation to employee benefit trusts. The three main ownership types are: 

  1. a trustee company wholly-owned by the employer (or company in the employer’s group);
  2. a trustee company owned by the directors (eg a company limited by guarantee); or
  3. an independent professional trustee company.

1. A trustee company wholly-owned by a company in the employer’s group: Here the relevant shareholder company will, if incorporated in the UK, be the RLE and so should be named in the trustee company’s PSC register. If the shareholder company is itself incorporated outside the UK, then it may not be an RLE and so further checks would be needed as to what should be entered in the PSC register.

A trustee company will be wholly-owned by an employer company if that employer (or its nominees) are the only shareholders in the trustee company.

2. A trustee company owned by its directors (eg a company limited by guarantee): Some trustee companies have as shareholders the individual directors of the trustee company (with shares or company membership transferring when the directors change). Here further analysis may be needed to check if any of the shareholders/members hold their interest on trust for someone else (ie as nominee) and whether the shareholders/members individually or collectively could be said to be PSCs and so need to be on the register.

3. An independent professional trustee company trustee: Here the sole trustee is an independent trustee company (ie not owned by the employer or the members of the trust). In this case the PSC of the independent trustee company will need to reflect its own ownership/control structure.

Is the principal employer also an RLE? Under the relevant trust (pension or EBT), the employer/principal employer could be said to have a significant influence on the trust’s activities (eg because it funds the trust or needs to give consent for some actions).

Often the employer/principal employer will be an RLE though its shareholding in the trustee company in any event (or through a right to appoint or remove a majority of the trustee company’s board of directors). But where it is not, then the position should be checked further to see if its powers under the trust mean that it could be a person with ‘significant influence or control’ over the trustee company and so need to be included in the trustee company’s PSC register as well.

There is statutory guidance on the meaning of ‘significant influence or control’ for this purpose, but it does not look at trustee companies specifically.

Will the Pensions Regulator look at the register? There may be cases where the Pensions Regulator (TPR) looks at the employer's PSC register to see if it gives details of potential targets for TPR's statutory moral hazard powers under the Pensions Act 2004. But the PSC test differs from the 'connected or associated' test applicable in moral hazard cases. Some persons in the PSC register will not be within the potential moral hazard net - but others will. Similarly, some persons who are connected or associated for moral hazard purposes will not be on the PSC register.

What goes into the register?

Information on individuals with significant control New section 790K of the Companies Act 2006 specifies the information to be entered on the company's PSC register in relation to a registrable individual who is a PSC. This comprises:

  • their name;
  • their date of birth;
  • their nationality;
  • the country or state or part of the UK where the PSC usually lives;
  • their service address;
  • their usual residential address;
  • the date the individual became a registrable PSC, (which will be 6 April 2016 for existing companies compiling their PSC register for the first time);
  • the specific condition or conditions for being a PSC that the individual meets with a quantification of their interest where relevant; and
  • any restrictions on disclosing the PSC's information that are in place.

Information on registrable relevant legal entities Under new section 790K of the Companies Act 2006, the following information in relation to a registrable relevant legal entity (RRLE) must be entered on the company's PSC register.

  • The entity's name.
  • The entity's registered address or principal office.
  • The entity's legal form and governing law.
  • The register of companies that the entity appears in (with details of the state) and its registration number.
  • The date that the entity became an RRLE in relation to the company (which will be 6 April 2016 for existing companies compiling their PSC register for the first time).
  • The specific condition or conditions for being a PSC that the RRLE meets, with a quantification of its interest where relevant.

What if there is no registrable information? Even if a company has no registrable PSC or RLE, it must still keep a PSC register and state that it has none (using prescribed wording).

Can the register include details of the trust structure? In some cases the registrable information may not give a very clear picture about the control of the trustee company or the influence in the underlying trusts. Some trust companies may want to add further information into the PSC register for information purposes (eg giving details of the trust company director structure and that the employer has various powers and consent requirements under the trust).

What about dormant companies? The PSC register obligation applies to companies even if they are dormant for accounting purposes.

Does the company need to verify the information from the PSC or RLE? The trustee company needs to take reasonable steps to find out if there is any person who is registrable under the PSC regime and (unless it already has the information – received from them in the case of individual PSCs) to give them a written notice requiring them to state whether or not they are registrable and to confirm or correct any particulars – s790D, CA 2006. The Government has produced template notices to use.

If the company already has the relevant information and this was provided by the PSC/RLE (or in the case of a PSC with their knowledge), then the company does not need to send a notice or wait for a formal reply from the PSC or RLE before compiling its PSC register – s790D(11), CA 2006.

Who can see the register? From 6 April 2016, the register must be available for public inspection and copying (in the same way as the register of members). From 30 June 2016, the PSC information must be filed by the company at Companies House with its annual confirmation statement (the new replacement for the annual return).

Residential addresses of individual PSCs need not be on the register kept at Companies House (but will be on the company’s own register). It is possible to apply to the Registrar of Companies for some protection against disclosure to credit agencies of residential addresses and part of the date of birth information. But this will only be granted in 'exceptional circumstances' resulting in a 'serious risk of violence or intimidation' – reg 25, Register of People with Significant Control Regulations 2016. This is a wider disclosure obligation than now applies to company directors. 

Further information

Where can I find more information?

See the links to the following:

Future EU changes

It is not just the UK that is increasing transparency in business ownership – EU wide changes are in the pipeline too.

The EU Fourth Money Laundering Directive will require all EU member states to hold central registers on company beneficial ownership from 2017. The UK PSC register regime will therefore have to be altered to implement the Directive (which means some additional UK entities will have to keep PSC registers) – something the UK government has said it will consult on later in 2016.