GENERAL CORPORATE

Small Business, Enterprise and Employment Act 2015 (“SBEE”) – revised details – 6 April 2016

SBEE requires details of those individuals with significant control over a company or LLP (known as PSCs) to be recorded on a register from 6 April 2016. A person has significant control if one of five specified conditions are met (detailed here).

Changes  to draft  rules  governing  companies’ PSC  registers

A revised statutory instrument (the “PSC Regulations”) was laid before Parliament this week, providing additional detail on certain matters covered more broadly in SBEE including: which companies will be outside the scope of the PSC regime; warning and restriction notices; and the PSC protection regime. The previous draft of the regulations was published in June 2015. The revised PSC Regulations largely either reflect those changes heralded by the Government’s response statement (published in December 2015) or provide additional clarity.

Changes include:

  • confirmation that the fee payable by someone requesting a copy of the PSC register will be £12 per request;
  • confirmation of which markets in the US, Japan, Israel and Switzerland will be considered to have equivalent disclosure regimes and therefore companies which would otherwise be within scope, but which are listed on those markets, will not be obliged to keep a PSC register. The same list is also relevant when determining whether a company can appear on a PSC register;
  • confirmation that if a person meets one of the first three conditions (i.e. they own or control more than 25 per cent of a UK company’s shares or voting rights, or exercise control over the company’s management) they will not also need to consider whether they meet the fourth condition (exercise significant influence or control);
  • clarification of which entities will be considered to be foreign limited partners (relevant when identifying who may be a PSC);
  • deletion of the provision which stated that where a restriction notice was withdrawn, rights accruing during the period it was effective were lost, which may lead to some uncertainty whether, for example, a dividend declared in that period is payable following lifting of the restriction;
  • minor changes to various protection from disclosure provisions; and
  • confirmation that the earliest date a person can be a PSC, for the purposes of entering information in the register, is 6 April 2016.

Formal draft regulations requiring LLPs to keep a PSC register

Draft regulations have now been published effectively transposing the PSC regime for companies to LLPs incorporated under the Limited Liability Partnerships Act 2000. This follows the Government’s repeated confirmation that the provisions requiring companies to keep a PSC register would be extended to LLPs on the same timetable as that applicable to companies. Helpfully all of the provisions are contained in one draft statutory instrument which:

  • sets out the timing of commencement of the relevant provisions. The obligation on LLPs to keep a PSC register mirrors the commencement of the PSC provisions for companies (i.e. the obligation to keep a register begins on 6 April 2016 and LLPs must provide the information to Companies House on or after 30 June 2016); and
  • amends the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 by incorporating the PSC provisions applicable to companies detailed in the Companies Act 2006 and the PSC Regulations, modified where relevant for LLPs. Therefore, whilst the parameters for qualifying as a PSC are broadly the same as for companies, certain modifications have been made where relevant. For example:
    • where a company must provide details of those who ultimately own or control more than 25 per cent of its shares, an LLP must provide details of those with a right to share in more than 25 per cent of surplus assets on a winding up;
    • where a company must provide details of those who hold more than 25 per cent of the voting rights in the company, LLPs must provide details of those who hold more than 25 per cent of the rights to vote on those matters which are to be decided upon by a vote of the members of the LLP; and
    • where a company must provide details of those with the right to appoint or remove a majority of the board, the LLP must detail those with the right to appoint or remove the majority of the persons who are entitled to take part in the management of the LLP (which includes those with a right to appoint or remove those who hold a majority of the voting rights at meetings of the LLP’s management body).

Identifying PSCs - publication of draft guidance on who is a person with “significant influence or control” (“SIOC”)

A person has significant control if one of five specified conditions is met, the first three of which are detailed above. The remaining two conditions require a person to have SIOC either over the company or LLP (“Condition 4”) or the activities of a trust or firm which would, if deemed to be an individual, meet one of the conditions (“Condition 5”).

BIS has now published draft statutory guidance for companies and LLPs on the meaning of SIOC (the “SIOC Guidance”) which must be considered when determining whether an individual meets the conditions for being a PSC. ICSA, which chaired a working group drawn together by BIS to develop guidance, previously published draft guidance for comment in December 2015. The SIOC Guidance broadly reflects that previous draft guidance (summarised here) and provides a non-exhaustive statement of what constitutes SIOC and details those who will not ordinarily be considered to exercise SIOC. A few of the more notable differences between the drafts published last year and those recently published are summarised below.

Condition 4 – SIOC of a company:

  • the examples of where a person has absolute decision rights related to the running of the business and therefore may exercise SIOC have been extended to include the appointment or removal of the CEO and the granting of options under a share option or other share based incentive scheme;
  • clarification that absolute veto rights over the appointment of the majority of directors is measured not by the number of directors but by those who hold the majority of voting rights;
  • clarification that a person with day-to-day management and direction of the company must be “significantly” involved in order to exercise SIOC;
  • extension of the examples of absolute veto rights a person may hold for the purposes of protecting minority interests in the company, which will be unlikely to constitute SIOC, to cover a fundamental change to the nature of the company’s business as well as clarifying that dilution of share rights includes establishing share option schemes; and
  • the addition of “investment manager”, “tax adviser”, an employee group representing employee interests in an “employee-owned company” and professional standard bodies to the “safe harbours” (now described as “excepted roles”) where a person may not, generally, be considered to exercise SIOC.

Condition 4 – SIOC of a LLP:

  • the examples where a person has absolute decision rights over decisions related to the running of the business of the LLP and therefore may exercise SIOC have been extended to include amending the LLP agreement;
  • extension of the examples of absolute veto rights a person may hold for the purposes of protecting minority interests in the LLP, which will be unlikely to constitute SIOC, to cover diluting profit share or other financial interests and requiring additional capital contributions; and
  • extension of the safe harbours broadly in line with those for companies.

Condition 5 – SIOC of trusts and partnerships:

  • the guidance for both companies and LLPs has been amended to clarify that this condition is only relevant where a trust or firm meets one of the other conditions and a person “other than the trustees or members of the firm” has the right to exercise or actually exercises SIOC. Consequently the SIOC Guidance no longer refers to trustees as an example of those likely to exercise SIOC of a trust;
  • additional wording has been included in relation to the examples of those with a right to exercise SIOC over a trust or firm to clarify its application to firms; and
  • specified “safe harbours” under Condition 5 have also been extended to include “investment manager”, “tax adviser”, and an employee group representing employee interests in an “employee-owned company or firm”.

The SIOC Guidance for companies has been presented to Parliament and will be adopted with effect from 6 April 2016 unless Parliament resolves otherwise within 40 days. The SIOC Guidance for LLPs has also been published but is not able to be laid before Parliament until 6 April and therefore will not officially come into effect until 40 days after that date.

Impact - the draft regulations and statutory guidance published this week are expected to be final, or near final, drafts. Those entities within scope, and their members, may therefore wish to consider whether they have, or are, an individual who is deemed to exercise significant control. The obligation to keep a PSC register commences on 6 April, and from that date it must also be available for inspection on request by any person. The majority of companies and LLPs will need to comply with the provisions or risk being convicted of a criminal offence (listed companies are broadly exempt). Likewise all shareholders or persons with significant control (unless the company is exempt) will need to provide the required information to the company or LLP or risk being convicted of a criminal offence. There is no defence available for an inadvertent or slight breach of the provisions.