From 6 April 2016, UK companies and LLPs must keep a register of persons who have significant control over them (PSCs), with the requirement that, from 30 June this year, UK companies will have to send this information annually to UK Companies House.
The ramifications of non-compliance are significant. If PSCs fail to comply with these rules, their interest in the UK company in question may be frozen - meaning that they would be unable to receive dividends or transfer their shareholding. They will also have committed a criminal offence.
However, the intricacies as to how these requirements apply to trusts where the trust fund includes a shareholding of more than 25% in a UK company are not immediately obvious. For example, the terms of information that may be disclosed about the shareholder/s of trust companies (who may meet the PSC conditions where the trust company involved is not resident in the UK) are not clear. Neither are the terms relating to settlors and protectors and indeed any other person who possesses certain powers or exercises influence over the trust and its assets.
A PSC is, by definition, an individual and not a legal entity. However, where a qualifying (ie 25%+) shareholding in a UK company is owned or controlled by a legal entity, that entity’s details must be put on the PSC register if it is both ‘relevant and registrable’. An entity will only be registrable if it is a relevant legal entity (an RLE). A legal entity is an RLE only where:
- It keeps its own PSC register (ie it is a UK company or a UK LLP)
- It is subject to Chapter 5 of the Financial Conduct Authority’s Disclosure and Transparency Rules
- It has voting shares admitted to trading on a regulated market in the UK or EEA or on specified markets in Switzerland, the USA, Japan and Israel.
Most, if not all, non-UK resident trust companies will therefore not qualify as RLEs and, as such, are not registrable. In these circumstances, even though the trust company satisfies the 25%+ test in terms of shareholding and voting rights, details of the trust company cannot be entered on the PSC register. Instead, details of any individuals who have a majority stake in the trust company will need to be disclosed.
Again, if another legal entity is a shareholder in the trust company and is not an RLE, the ownership and control of that entity will need to be reviewed, with the relevant details disclosed, and so on.
In addition, in the context of trusts, a person will be a PSC if they have significant influence or control over a trust which, in turn, satisfies the conditions for being a PSC (or would if it was an individual). The accompanying statutory guidance states that the following powers would be indicative of such significant influence or control:
- The right to appoint or remove any of the trustees, except through application to the courts or as a result of breach of fiduciary duty by the trustees
- The right to direct the distribution of funds or assets
- The right to direct investment decisions of the trust or firm
- The right to amend the trust deed
- The right to revoke the trust.
Therefore, where a settlor or a protector (or indeed anyone else) has the ability to exercise any of the above powers in relation to an affected trust, details of that person may need to be disclosed. Where a legal entity possesses such powers and that legal entity is not an RLE, the same process regarding its ownership chain as mentioned above will need to be undertaken.
In light of the information that now needs to be held on UK companies’ PSC registers - as well as the information that will need to be disclosed to UK Companies House when submitting annual returns (which will be known as a Confirmation Statement going forward) after 30 June this year - trusts that may fall within the ambit of these new rules must be reviewed. This is to ensure that:
- all PSCs are identified (and those PSCs are informed as to the information that will need to be disclosed and, as such, will be publicly available)
- the appropriate disclosure obligations are complied with.
Given the potential complexity of the PSC rules, particularly in the context of trust ownership, it is vital that the appropriate advice be sought as soon as possible as criminal sanctions and financial penalties could arise as a result of non-compliance.