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This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

Business act reforms corporate reporting and introduces greater transparency as to who controls UK corporates
 Briefing 
Author
Kate Higgins & Nicholas McVeigh
Date
02 April 2015

Business act reforms corporate reporting and introduces greater transparency as to who controls UK corporates

Mishcon de Reya has been following with interest the progress of the Small Business, Enterprise and Employment Bill, and in particular its provisions relating to corporate reporting and corporate transparency. Now that the bill is an act, having received royal assent on 26 March, UK corporates (including LLPs) will need to start familiarising themselves with changes which are due to be implemented in stages between now and the summer of 2016, if the BIS provisional implementation timetable can be relied on. Changes to be aware of include: prohibitions on corporate directors and bearer shares, the introduction of a new system of annual reporting (to replace the annual return), reduced filing requirements and the much publicised introduction of "PSC registers". PSC (People with Significant Control) registers are new registers, which UK corporates will be required to keep open to public inspection. They will be required to disclose on the register those individuals who ultimately control them, looking up the corporate chain through corporate and other persons and legal entities, whether located in the UK or abroad.

In November last year, Mishcon de Reya hosted a debate which explored the tensions between legitimate privacy concerns on the one hand and the move toward greater corporate transparency heralded by the Bill on the other. Following the event, a report was published, along with blog posts on the topic. For a "key points" summary of the changes, see below.

PSC register

It is expected that UK companies and LLPs (other than certain quoted companies, which are already subject to similar obligations) will be required to keep a PSC register from January 2016. The act places an obligation on them to make enquiry (by serving notices) to obtain the information to enter on the PSC registers. In addition, there are obligations on persons qualifying as PSCs to give this information to the company/LLP and sanctions (including the potential for loss of rights attaching to shares) for non-compliance. A person will have "significant control" of a company if, broadly, one or more conditions are met: direct or indirect ownership of 25% in nominal value of the shares in a company; the right to exercise or control, directly or indirectly; the exercise of more than 25% of the voting rights in a company; the right, directly or indirectly, to appoint or remove a majority of the board; and (the anti-avoidance condition) other rights to exercise significant influence or control over the company. An expert working panel will draft statutory guidance on exactly what is meant by the expression "significant influence or control" (and it is expected that the guidance will be published in October this year).

With effect from April 2016, companies and LLPs will be required to file the information on their PSC register with Companies House; updated annual filing requirements will also be effective from then (see below).

Abolition of bearer shares

From 26 May 2015 (two months after the act received royal assent), the creation of bearer shares will be prohibited. From that point, bearer shareholders will have a nine-month period in which to voluntarily surrender their bearer shares for conversion into registered shares.

Prohibition on corporate directors

The act contains a ban on corporate directors. When it comes into force (expected to be October this year) newly appointed directors of UK companies must be natural persons, subject to certain exceptions. BIS is currently consulting on what those exceptions should be. Unless exempt, existing corporate directors will automatically cease to be directors one year later (i.e. expected to be October 2016).

Company filing regime changes

From April 2016, companies will no longer be required to file an annual return on a fixed date. Instead, they must make an annual confirmation statement (which can be delivered at any time, e.g. when they are making another filing) to the effect that they have delivered all the information required to be delivered to the Registrar of Companies for the relevant confirmation period or attaching updated information. Each confirmation statement will start the clock running again, so that the next confirmation statement will not be due for another year (though can be filed earlier). The aim is to avoid the duplication involved with, for example, filing a notice of change of directors and then having to file the same information again in the annual return.

The act also amends current company legislation so that from April 2016 a private company will be permitted to opt to keep on the public register held by the Registrar of Companies certain information that it currently keeps on private registers, including its register of members, PSC register, register of directors, register of directors' residential addresses, and register of secretaries.

Disqualification of directors for overseas conduct

As a result of changes that the act makes to the directors' disqualification legislative regime, the Secretary of State will have the ability to apply to court for a disqualification order on the grounds that a director has been convicted of certain offences overseas.

Reporting payment practices and policies

The act gives the Secretary of State power to impose on companies a duty to publish information about a company's payment practices and policies and its performance by reference to those practices and policies. BIS has now confirmed that this duty will apply to large private companies, large LLPs and large quoted companies, but not to small and medium quoted companies, as originally proposed. The duty to report will be a half-yearly one and will apply from April 2016.

Practical considerations

Some of the detail around the mechanics of how the new corporate law requirements summarised above will operate, and in particular the beneficial ownership disclosure regime, will follow in secondary legislation and the non-statutory guidance that will support the act. The working group that the government has established to oversee the development of this legislation and guidance is expected to publish its guidance in October this year. Companies and their advisers should then be better placed to assess the practical impact of the developments.

CONTACTS

Kate Higgins Nicholas McVeigh
Legal Director Professional Support Lawyer
T: +44 207 4407433 T: +44 207 4066259
E: kate.higgins@mishcon.com E: nicholas.mcveigh@mishcon.com