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Prohibition on corporate directors: what to expect

Posted on 23 September 2022

The Corporate Transparency and Register Reform White Paper, published in February 2022, confirmed the Government's intention to proceed with a wide range of reforms to Companies House and corporate transparency measures. The reforms focus on preventing corruption and organised crime, protecting individual and businesses from fraud and promoting economic growth.

One of the key reforms outlined in the White Paper was a ban on UK companies having corporate directors, subject to certain exceptions. With the laying before Parliament of the Economic Crime and Corporate Transparency Bill on 22 September 2022, the implementation of that prohibition appears to be imminent.

The UK's Companies Act currently requires UK companies to have at least one director who is a natural person; subject to that requirement, they can appoint corporate directors. The White Paper proposed a ban on companies having corporate directors, subject to a "principles based" exception. The principles based exception would allow a company to appoint a company as a director if:

  • all of that corporate director's directors are, in turn, natural persons; and
  • those natural persons have gone through a new identity verification process for directors (part of the Government's wider Register reform programme).

The mechanics of the prohibition were part of the Small Business, Enterprise and Employment Act 2015, although to date those provisions have not come into force. The Economic Crime and Corporate Transparency Bill amends and clarifies some of the provisions of the 2015 Act. In particular, it makes clear that even where a director's appointment becomes void as a result of the prohibition, both de facto and shadow directors will remain liable for any contraventions they make of legislation, notwithstanding that they have technically ceased to hold office by virtue of the void appointment as a director.

For existing companies who have corporate directors, there will be a transitional period of 12 months beginning when the prohibition comes into force.

The second reading of the Economic Crime and Corporate Transparency Bill is scheduled for 13 October 2022 and we await details of the regulations which will set out the details of the "principles based" exception. In the meantime, businesses whose company structures contain corporate directors are advised to consider the implications for their existing arrangements and take advice where necessary.

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