The UK Government, in particular its Department for Business, Innovation and Skills (BIS), has recently published a response to its “Transparency & Trust” discussion paper, in which it had sought views on transparency in corporate ownership and control. The discussion paper was published last year in July 2013, following the G8 Summit in June 2013 during which it was agreed that reforms to ensure sufficient visibility of the ownership and control of companies were required (for details see our corporate e-bulletin 2013/16 published last year). The main policy decisions set out in the response paper are summarised in this post.
Timing of changes
A number of the proposed changes will require primary legislation to amend existing law, and are thus dependent on the availability of Parliamentary time. In the meantime, the Government invites views on the policies set out in the response.
Disclosure of companies’ beneficial ownership
A public register of companies’ beneficial owners will be created. The key features of the proposed regime are:
- Entities subject to the regime – The regime will apply to UK companies (public and private) and limited liability partnerships.
- Exemptions for traded companies and groups – Companies which comply with the UK Disclosure and Transparency Rules in relation to disclosure of interests in shares (DTR5), or who have shares listed on a regulated market subject to equivalent disclosure requirements, will be exempt from the regime. If a company is the subsidiary of a parent company which either maintains its own beneficial ownership register or is exempt from doing so (because for example it is subject to DTR5), the subsidiary will not be required to maintain a register of the beneficial owners of its parent. It will be sufficient for it to record that it is owned by the parent.
- The meaning of beneficial ownership – Beneficial ownership for these purposes will have the same meaning as it has in the anti-money laundering context, that is those who own or control more than 25% of a company’s shares or voting rights, or who otherwise exercise control over the company or its management.
- Creating and maintaining the register – Companies will have to create and maintain a register of their beneficial owners. Those with a qualifying beneficial interest in the company will be required to disclose that to the company, and update the information as and when it changes. The provisions of section 793 of the Companies Act 2006, which enables public companies to require shareholders to confirm their interests in the company’s shares, will be extended to all companies and LLPs subject to the regime.
- The contents of the register – The company will have to include on the register similar information to that which it holds on its directors, such as name, address, date of birth and nationality of the beneficial owners.
- Access to the information – It is proposed that the company will have to make its register available for public inspection (with the exception of residential addresses) and provide the information to Companies House where it will be publicly available (except the address and date of birth of the beneficial owner).
The creation of new bearer shares (where ownership is dependent on possession of a physical document rather than a register) will be prohibited. Existing holders of bearer shares will be required to surrender their shares for conversion to registered shares within nine months of the prohibition coming into effect (and their rights to receive dividends and vote will be restricted until they do so). At the end of that period, companies with any bearer shares remaining will be required to apply to court to cancel the shares.
Corporate directors (that is, the use of a company as the director of another company) will be prohibited, subject to certain limited exemptions, for example for group structures involving large listed companies and large private companies and for charities and FCA-authorised open-ended investment companies.
In its original discussion paper, BIS said it wanted to reduce “opaque control” over companies through nominee directors and proposed, amongst other things, introducing a registration regime for such directorships and making it a criminal offence for a director to take formal legal steps to divest their powers. In the response paper, BIS says it is not proceeding with these proposals. However it intends to increase awareness of directors’ duties, and in particular the potential for breaching them when acting as a front person.
BIS says it will consider increasing the accountability of individuals who control a single director (or several directors) by bringing them into the scope of legal liability, and potentially applying directors’ duties to those who control directors.
Directors’ disqualification regime
The directors’ disqualification regime will be overhauled. The court will be required to take account of a broader range of factors, including any breach of directors’ duties, breaches of any regulatory regime and any overseas misconduct, when considering the disqualification of a director.
Compensation for director misconduct
Causes of action that arise on an insolvency and which may currently only be pursued by an insolvency office-holder (for example for fraudulent or wrongful trading) will be allowed to be sold or assigned to another party, to increase the chances of action being taken against miscreant directors for the benefit of creditors. The Secretary of State will also be able to apply to the court for a compensation order against a director who has been disqualified where creditors have suffered identifiable losses from the director’s misconduct.
No change in directors’ duties for banks
The Government has decided not to proceed with its original proposal to introduce a primary duty for bank directors to financial stability over the interests of their shareholders. It says that it is more appropriate for the duties set out in the Companies Act, and in particular the duty to promote the success of the company in section 172, to apply to all directors.
The response paper is available on the gov.uk website.