The Small Business, Enterprise and Employment Act 2015 (SBEE) 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. One of the confirmed changes, which is perhaps the most controversial, is the introduction of a central public registry of those individuals who have significant control of UK companies. This note summarises the following key changes, all of which are expected to be implemented by October 2016 and looks at what, if anything, companies should be doing now to prepare for them:
- abolition of bearer shares
- new register of “persons with significant control” (the PSC register);
- abolition of corporate directors;
- new reporting of company payment practices and policies;
- confirmation that shadow directors are bound by the same duties as appointed directors;
- accelerated strike off procedure;
- abolition of annual returns;
- new option to keep company statutory books at the central registry;
- disqualification of directors; and
- changes to information filed at Companies House.
KEY CHANGES TO CONSIDER NOW
Abolition of bearer shares – in force
Bearer shares, shares that have been issued but where no- one has been registered as the owner of them, have been abolished. No new bearer shares can be issued and companies with existing bearer shares are now required either to convert those shares into non-bearer shares or cancel them within a fairly short timescale following a prescribed procedure. Any bearer share remaining by 26 December 2015 can no longer be transferred (any purported transfer is void) and has no rights attaching to it (including voting rights and rights to a dividend/ distribution).
Companies should check their records now to ensure they have identified and contacted those (if any) to whom bearer shares were issued. Companies which still have bearer shares on 26 February 2016 will be required to apply to court to cancel them. Failure by a company to follow the prescribed procedure for dealing with bearer shares is an offence. In the context of a proposed acquisition, target companies’ share history should be closely reviewed to ensure any outstanding bearer shares are identified. A company with outstanding bearer shares will not be able to be struck off.
New PSC register – April 2016 (maintenance of register), 30 June 2016 (publication on central register)
SBEE sets out the interests and the details which will be required to be included on the new PSC register. Broadly, SBEE 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. The Government has confirmed that limited liability partnerships will also be required to keep PSC registers.
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 SBEE’s impact on transactional group structures. However, now timing of implementation of the provisions has been confirmed, including their application to LLPs, those entities within scope and their members may wish to start considering whether they have, or are, an individual who is deemed to exercise significant influence or control. To read more about the content of, and procedure for compiling, the register, please click here.
Information about gender pay gaps – March 2016
No later than 25 March 2016 SBEE requires regulations to be made requiring businesses, within scope, to publish information showing whether there are differences in the pay of male and female employees. It is expected to apply to all businesses with 250 or more employees. To read more about this provision and other employment law changes introduced by SBEE, please click here.
Reporting of company payment practices and policies - April 2016
SBEE envisages that large companies (those that are not defined as ‘small’ or ‘medium’ under the Companies Act 2006) may be required to publish details of their business to business payment practices. BIS confirmed (under the coalition government) that companies will be required to report twice yearly and publish the report on the company’s website (an indicative format of which has been published). Large companies are expected to be required to disclose a number of provisions including:
- payment terms;
- average time taken to pay;
- the proportion of invoices paid beyond agreed terms;
- the proportion of invoices paid in 30 days or less, between 31 to 60 days, beyond 60 days; and
- any late payment interest owed and paid.
OTHER KEY CHANGES
Shadow directors bound by same duties as appointed directors – in force
Historically there has been some uncertainty about the extent to which directors’ fiduciary duties applied to shadow directors. A shadow director is a person in accordance with whose directions or instructions the directors of the company are accustomed to act. The person is not held out to be a director and does not claim to be one. SBEE has now clarified this uncertainty. From 26 May 2015 the Companies Act 2006 is amended to state that directors’ general duties apply to a shadow director of a company where and to the extent that they are capable of so applying.
Accelerated strike off procedure – October 2015
SBEE will enable a company to be struck off the register slightly faster. Amendments include:
- in the case of a company which is being wound up and which fulfils certain criteria, the company will be struck off after two (not three) months of the date of the Gazette notice; and
- where a company applies to be struck off the register, the company can be struck off after two (not three months) from date of publication of the Gazette notice.
Disqualification of directors – October 2015
SBEE will extend the scope of the directors’ disqualification regime by amending the Company Directors Disqualification Act 1986. It will widen the grounds to make disqualification orders, including a new ground relating to overseas convictions and mismanagement and allow a compensation order to be made against a disqualified director if their conduct caused loss to a creditor of an insolvent company. The period of time for applying for disqualification of an unfit director of an insolvent company will be increased from two to three years.
Changes to information filed at Companies House – October 2015, December 2015 and April 2016 (as indicated)
Director and secretary consent to act – October 2015
SBEE will remove the requirement that a director provide formal consent to act as a director and replace it with an obligation on the company to make a statement that the appointee has consented to act. It will also require the registrar to send a notice to newly appointed directors notifying them of their appointment and include information about the office and duties of a director. Any person appearing on the public register as a director will, from December 2015, be able to apply to have their name removed if they did not consent to act.
Registered office disputes – December 2015
SBEE will enable regulations to be made requiring the registrar, on application, to change a company’s registered office if the registrar is satisfied that the company is not authorised to use the address.
Date of birth – October 2015 (directors); June 2016 (PSCs)
The day (but not the month or year) of the date of birth of all company directors and PSCs will be omitted from the information on the register available for public inspection. The provision is subject to certain exceptions, for example where the date of birth was contained in a document that was registered before the provision came into force.
Statement of capital – June 2016
SBEE will also alter the content of statements of capital. Companies will no longer be required to include the amount paid up and unpaid on each share. Instead, companies will be required to specify the aggregate amount unpaid on the total number of shares.
Abolition of annual returns – June 2016
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 – June 2016
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 using this facility.
Abolition of corporate directors – October 2016
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). SBEE will require all directors to be natural persons, subject to certain potential exceptions which have yet to be confirmed. 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.
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 EU’s Fourth Money Laundering Directive, echoing the PSC provisions in the UK’s SBEE, will amongst other things, oblige EU member states to maintain central registers listing information on the ultimate beneficial ownership of corporate entities. The directive, although now in final form, need not be implemented in member states until 26 June 2017. Whether the UK will be considered a welcome market leader in this area will be seen over the coming months as SBEE’s reforms are implemented.