At the G8 Summit in June 2013 the UK government announced proposals to increase transparency in the ownership and control of companies.
BIS has now published a discussion paper on the subject which is open for consultation until 16 September 2013. The paper outlines a range of proposals to enhance the transparency of UK company ownership and increase trust in UK business to:
- Prevent illegal activity such as money laundering, tax evasion and terrorist financing.
- Enable investors and others to hold companies to account.
- Provide businesses, investors, employees and consumers with confidence that companies are acting fairly.
The paper contains the following key proposals:
BIS is considering simplifying the filing process for annual returns. At the moment, BIS is considering various options such as enabling companies to combine the annual return with the filing of annual accounts, and other means of reducing duplication of information required from companies by different government agencies. BIS intends to issue a full consultation in the autumn on this subject.
Registry of beneficial ownership
BIS is considering the creation of a new central registry of the beneficial owners of all UK incorporated companies. For these purposes, a beneficial owner is defined as an individual with an aggregate interest in over 25% of the shares or voting rights of a company or any individual who otherwise exercises control over the way the company is run, regardless of whether they hold shares in the company. The holdings of individuals acting in concert would be aggregated.
Companies will be required to hold the name and address of any beneficial owner and details of the shares in which they are interested. These details must provided to Companies House on incorporation and periodically thereafter. It will be an offence to knowingly or recklessly provide false or misleading information (following section 1112 of the Companies Act 2006).
Companies traded on the Main Market of the London Stock Exchange are likely to be exempt from filing this information since they are already subject to stringent disclosure requirements. BIS is considering whether there are any other types of companies that should be exempt and it is also considering whether limited liability partnerships should be included in the regime.
The consultation includes the question as to whether the registry information should be made public. BIS recognises this may give rise to legitimate concerns and there are other options to consider including restricting the information to certain law enforcement and tax authorities and other regulated entities. If the register will be made publicly available, there may be exemptions for vulnerable individuals.
Identifying beneficial ownership
Related to the previous point, BIS would like to extend the scope of Part 22 of the Companies Act 2006 (Information about interests in shares) to all companies so that they can identify their beneficial owners. To ensure that companies obtain this information, there is a proposed requirement for companies to identify any beneficial owner or persons acting together who hold over 25% of the company's shares (or voting rights) or a block giving equivalent control of the company, whether using the proposed extended statutory powers or otherwise. If the company is unable to identify a beneficial owner it will be able apply to the courts.
There is also a proposed requirement that beneficial owners must notify the company that they are a beneficial owner. This may be on a similar basis to the disclosure regime set out in Chapter 5 of the Disclosure & Transparency Rules of the FCA. Companies will need to make an annual public disclosure of the total number of shares and voting rights in order that individuals can calculate their percentage interest.
If interests are held by an express trust, BIS proposes that the trustee should be disclosed as the beneficial owner and asks whether the beneficiary should also be disclosed. There is also a proposal to extend regulatory investigative powers by utilising the provisions of sections 442 and 444 of the Companies Act 1985 which were not repealed by the Companies Act 2006 and remain in force.
Register of members
BIS will consider whether private companies can choose to make their company registers publicly available at Companies House instead of their registered office.
Abolition of bearer shares
Bearer shares are a way in which legal owners of the shares can conceal their identity. Transfer of the legal ownership of such shares is also possible without the need to change ownership details on the register of members. BIS proposes therefore to ban the creation of new bearer shares and to set a time period in which existing bearer shares should be converted to ordinary registered shares.
Nominee directors can be used to conceal who is really controlling the way that a company is run. Such directors are not defined or recognised in UK law. The paper sets out options regarding the use of nominee directors. These include increasing awareness that nominee directors are subject to directors' duties. In addition, or alternatively, the paper proposes that any director that enters into a legal arrangement to hand over responsibility for the management of a company to another individual must disclose the details to Companies House. A breach of this obligation could result in automatic disqualification from acting as a director. Another option may be to make it an offence for a director to enter into such an agreement.
BIS notes that it would need to consider exemptions where a document such as a power of attorney may be signed for legitimate commercial reasons. It also acknowledges that there can be legitimate commercial uses for nominee directors, such as where a parent company is represented on its subsidiary's board. BIS states that it does not intend to intervene in these circumstances.
A corporate director is a company or other entity having legal personality acting as a director of another company. Currently, the law only requires that companies have at least one director who is a natural person (i.e. an individual) and all other directors can therefore be corporate directors. BIS considers that the corporate director structure is open to misuse since they can be used to conceal beneficial owners in a complex corporate structure across multiple jurisdictions to facilitate illegal activity. Whilst BIS acknowledges that there are potentially legitimate reasons for their use, there is a strong case for banning corporate directors as is the case in Switzerland, Jersey and some US states.
Clarifying the responsibilities of directors in key sectors
BIS is considering whether directors' statutory duties should be amended for certain key sectors such as banking. For example, BIS proposes to create a primary duty for directors of banks to promote financial stability over the interests of shareholders. It also sets out proposals to allow sector regulators to disqualify directors in the relevant or any sector.
Disqualification of directors
BIS is considering whether the Company Directors Disqualification Act 1986 (“CDDA”) should be amended to include some additional factors that a court should take into account in disqualification proceedings when deciding whether to disqualify a director or when determining the disqualification period. The proposed new factors include: material breaches of relevant sectoral regulation; the nature of the creditors (including whether they are vulnerable) and the scale of their losses; the impact on wider society; and the director's previous failures.
Another option that BIS is considering is to amend CDDA to enable a disqualification to be tailored so that a director could be disqualified for different periods in respect of different types of companies.
BIS is also consulting on whether there should be a certain number of business failures beyond which there is a presumption that a director is unfit and should be disqualified.
The paper is suggesting that education or training (at the director’s expense) is offered to disqualified directors to help them to run a successful company in the future.
Compensation of creditors
The paper considers options to help creditors receive compensation where a director has been fraudulent or reckless.
BIS is seeking feedback on whether the time limit for disqualification proceedings in insolvency cases be extended beyond 2 years and, if so, whether the period should be 5 years, some other period or indefinite.
Extending overseas restrictions
BIS is proposing to make regulations to prevent an individual who is disqualified, convicted of a criminal offence or restricted in connection with managing a company overseas from being a director of a UK company. There is also a proposal to amend the CDDA to enable the Secretary of State to bring disqualification proceedings against any individual convicted of a criminal offence relating to an overseas company if this would appear to be in the public interest.
To view the discussion paper click here: