The Department for Business, Energy & Industrial Strategy has just issued a consultation paper calling for evidence on proposals for a new register showing who owns and controls overseas legal entities that own UK property or participate in UK government procurement. It is a signal that the UK government is serious about progressing its plans, announced last year, to increase the transparency around UK land ownership and to tackle corruption. If introduced, it would be the first of its type in the world.
With the UK being the leading destination for foreign direct investment in Europe, the consultation will be of interest to those non-UK entities that have invested in, or are thinking of investing in, UK land or that bid for certain contracts with the UK government. A full copy of the consultation can be found by clicking here.
Ten key points
- The proposal is to implement a system similar to the "people with significant control register" (the PSC Register), which has applied since 2016 to companies and LLPs incorporated in the UK. It is proposed that the definition of beneficial owner be aligned with the definition of a "person with significant control" contained in part 1 of Schedule 1A Companies Act 2006. This provides that a person is one with significant control if he/she meets one or more of the following conditions in respect of a UK company:
- directly or indirectly holds more than 25 per cent of the shares in the company;
- directly or indirectly holds more than 25 per cent of the voting rights in the company;
- directly or indirectly holds the power to appoint or remove a majority of the board of directors of the company;
- otherwise has the right to exercise or actually exercises significant influence or control over the company; or
- has the right to exercise or actually exercises significant influence or control over a trust or firm that is not a legal entity, which meets one or more of the above conditions.
- The proposals should not be confused with the requirements of the European Fourth Money Laundering Directive. The new register will go further and relate to all overseas companies (whether or not they are incorporated in the EU or are otherwise covered by the directive) and specifically link compliance to UK land ownership and the ability to bid for contracts with the UK government.
- Like the PSC Register, it is intended that the new register will be held by Companies House and that much of the information it contains will be publicly available (with limited exceptions proposed to protect people at risk of harm as a result of information about them being publicly accessible).
- All overseas legal entities that can hold properties or bid on central government procurement contracts are intended to fall within the scope of the new registration requirements (i.e. the requirements are not restricted to companies limited by shares).
- Overseas entities that hold properties through leases that are required to be registered and that were originally granted for a term of more than 21 years will also be required to comply with the new register.
- The proposals aim to prevent overseas entities buying or selling UK property without complying with the beneficial ownership registration requirements. Various suggestions are put forward to achieve this aim, including:
- overseas entities that already own UK property will be required to register their beneficial ownership and have a 12-month transitional period in which to choose either to do so or to dispose of their assets. At the end of that transitional period, if the overseas entity still owns a property but has not registered, it will be prohibited from selling that property or creating a long lease or legal charge over it; and
- where an overseas entity has not registered (irrespective of whether it already owns land in the UK) but enters into a new contract to buy land, either the transaction will be deemed completely void or provisions will be put in place preventing registration of that transfer at the Land Registry (meaning the overseas entity will not acquire legal title to the property).
- The proposals also affect overseas entities wishing to take part in central government procurement contracts valued at over £10 million. It is proposed that measures be put in place to ensure that beneficial ownership information is supplied before any contract is finalised. This may involve:
- Option 1: requiring the preferred supplier to provide beneficial ownership information as a condition of being awarded the contract;
- Option 2: excluding bids from entities that have not provided beneficial ownership information – this could result in a three-year exclusion from bidding for the contracting authority's contracts; and
- Option 3: treating bids without specified beneficial ownership information as incomplete or non-compliant and rejecting them on these grounds.
- Various other sanctions for non-compliance are being considered, including the possibility of making the following criminal offences:
- failing to provide information for the new register;
- failing to keep the information on the register up to date (the current proposal is for an obligation to update the information every two years); and
- knowingly or recklessly making a false or misleading statement when submitting information to the register.
- The consultation paper acknowledges the need to consider the effect of non-compliance by overseas entities on third parties, specifically their existing lenders. The paper acknowledges that a bank or other lender could be affected if it provides a loan to an overseas entity secured against a property in the UK and the entity subsequently fails to comply with the new registration requirements. Under the proposals, the overseas entity would not be entitled to sell, lease or charge the property. In such circumstances the suggestion is that the lender would still be able to enforce its security by repossession and disposing of the property. New lending against the property would, however, not be possible. It is likely anti-avoidance measures will apply to avoid beneficial owners circumventing the application of the registration regime by themselves taking a charge over the property as a means to repossess and dispose of it.
- The consultation closes at 5.00pm on 15 May 2017.