This week we look at changes to the PSC regime that have just come into effect, including the extension of the regime to more types of company and to Scottish partnerships. We also look at a case where a company's constitution provided for different weighting of voting rights depending on whether the vote was held at a general meeting or by way of written resolution
Changes to the PSC regime come into effect
On Monday 26 June 2017, changes to the regime for recording persons with significant control (PSCs) (sometimes known as the beneficial ownership register) came into force. The Government published the relevant regulations on 23 June 2017 and 26 June 2017, giving little time to prepare.
In summary, the key changes to the regime are as follows:
- AIM and NEX Growth companies are generally now subject to the PSC regime. Specifically, this affects companies whose voting shares are admitted to a prescribed market but not an EEA regulated market or a market listed in the PSC Regulations 2016.
- Some other companies are now subject to the regime. This principally affects companies incorporated under a private or special public Act of Parliament or under Royal Charter.
- These companies must start investigating their PSCs now using their statutory powers under the Companies Act 2006. However, they are not required to keep a PSC register or make public filings at Companies House until 24 July 2017.
- Scottish partnerships are now subject to their own PSC regime. This affects all Scottish limited partnerships and certain Scottish general partnerships. These partnerships must start investigating their PSCs now and file details publicly at Companies House from 24 July 2017. However, they do not need to keep a separate PSC register.
- Entities must now file PSC information at Companies House within 14 days, rather than annually. For companies and LLPs, the 14-day period begins on the date they update their PSC register. For Scottish partnerships, it begins when all required particulars have been confirmed.
Companies and LLPs already subject to the regime should notify Companies House by 9 July 2017 of any changes to their PSC register since their last confirmation statement. Companies new to the regime and Scottish partnerships should make filings from 24 July 2017.
- From 24 July 2017, Scottish partnerships subject to the regime must file an annual confirmation statement at Companies House (similar to that for companies).
- PSCs of entities that are new to the regime can apply to restrict their details from public view. If unsuccessful, they have 12 weeks to dispose of their control to avoid appearing on the register.
- Companies House may now disclose protected information to credit institutions and financial institutions meeting certain conditions for the purposes of their client due diligence procedures.
The Government has also updated its guidance on the PSC regime to take account of these changes.
We have produced a more detailed note on the changes to the PSC regime, including what steps to take next, which can be found here. We are also proposing to issue a separate note on the implications of the new PSC regime for Scottish partnerships. In short:
- AIM companies, NEX Growth companies and other "prescribed market" companies should check whether they are now subject to the PSC regime and (if they are) start investigating their PSCs.
- Entities already subject to the regime should check whether they have amended their PSC register since their last confirmation statement and (if they have) file details at Companies House.
- Scottish partnerships should check whether they are subject to the new regime and (if they are) start investigating their PSCs. This will involve reviewing their partnership agreement to check the allocation of capital, voting and profit share rights.
- Groups containing Scottish partnerships should review their structure to see what changes need to be made to the PSC register of each entity in the structure.
The Government's original consultation stated that the PSC regime would also need to be extended to other entities, including open-ended investment companies (OEICs), building societies and other kinds of society, and charitable incorporated organisations (CIOs). We have not yet seen any regulations extending the PSC regime to these kinds of entity but will report on this as and when it happens.
Court finDs company had two different voting regimes
In Puzitskaya v St Paul's Mews (Islington) Ltd , the High Court found that the number of votes a company's shareholders could cast was different depending on whether the resolution was proposed as a written resolution or at a general meeting.
Traditionally, where shareholders of a company needed to vote on a matter, they did so at a general meeting. Voting can be conducted on a show of hands, but often it is done by a "poll vote". The basic position is that, on a poll vote, each shareholder has one vote for each share he or she holds. However, companies can change this position in their constitution to create weighted voting rights.
Since 1 October 2007, all private companies have been able to pass shareholder resolutions by way of "written resolutions" under a statutory regime in the Companies Act 2006 (the "Act"). It is not possible to displace this regime, but it is still possible to weight votes on a written resolution, as for a poll vote.
However, the Act envisages that votes will not be weighted differently depending on whether a resolution is put to a poll at a general meeting or proposed as a written resolution. Section 285A of the Act states that, if a company's constitution tries to do this, the parts that weight votes on a poll are void.
The company in this case ("SPM") was a property management company. Its constitution stated that, on a poll vote, every member had one vote, regardless of how many shares he or she held. This appears to have been designed to reflect the fact that each resident was to have an equal say.
However, as SPM had been incorporated in 1988, before the statutory written resolution regime in the Act came into effect, its constitution did not set out the position for written resolutions.
A corporate shareholder ("SPMIL") managed to acquire multiple shares in SPM. It then circulated a written resolution to amend SPM's constitution, claiming that, under the statutory regime, it was entitled to one vote for each share it held, and that it therefore had sufficient votes to pass the resolution alone.
One of the residents brought legal proceedings, claiming that the reference in SPM's constitution to poll votes also applied to written resolutions and so SPMIL had only one vote on the resolution.
Surprisingly, the court agreed with SPMIL. Although the judge acknowledged the resident's arguments, he said that SPM's constitution was sufficiently unambiguous and he was not able to read it as also applying to written resolutions.
Perhaps even more surprisingly, he decided that section 285A did not apply. This is because section 285A applies where a company's articles provide that a member has "a different number of votes" on a written resolution from on a poll vote. However, SPM's articles did not mention written resolutions, so, on the judge's reasoning, they didn't make any provision for different votes.
So, although SPMIL had only a single vote on a poll, on a written resolution it had 89% of the votes.
The decision is difficult to reconcile with what seems intuitively to be the correct position. Although the judge applied fairly orthodox principles when reading SPM's constitution, it seems odd that the number of votes a shareholder has can differ purely based on the procedure used for passing a resolution. In particular, this seems to fly in the face of section 285A, which is designed to prevent precisely this.
In this case, the issue was magnified because the company was incorporated in the 1980s and so its constitution did not anticipate the new statutory written resolution regime. However, in theory, the same issue could arise even for companies incorporated more recently. Any company may fall foul of this decision if its constitution weights votes on a poll but not specifically on a written resolution.
Companies, particularly older ones, should check their articles of association for weighted voting rights and ensure they apply either to resolutions generally or that they cover both poll votes and written resolutions specifically. If they don't, they should be amended to align voting under the two procedures.
This may be especially relevant for joint venture companies and for companies with private equity or venture capital investors, which often provide for weighted voting in certain or all circumstances.