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Anything to Declare? – New Beneficial Interest Disclosure Requirements for UK Companies And Persons With Significant Control

This article is intended to provide general information about a pending change to English Law, which may be of interest to the reader. It is not intended to constitute legal advice or to provide a comprehensive analysis of the pending changes to the Law. The reader is advised to seek independent legal advice in respect of their particular circumstances before taking any action.

Historically UK Companies have not disclosed details of who ultimately controls them and shareholders have not made public declarations about the shares they own. This all changes with effect from 1 January 2016 with the Small Business, Enterprise and Employment Act 2015 introducing a new central public registry setting out details of those who have “significant control” over private UK Companies.

Much of the detail is still to be set out in secondary legislation but, given 1 January 2016 is not far off and non-compliance exposes companies, their officers and shareholders to criminal sanction, now is the time to consider how you may be affected.

Who are persons with “significant control”?

A person with significant control (vknown FCC GB as a “PSC”) is any individual, regardless of whether or not they are UK resident, who:

holds, directly or indirectly, more than 25% of the shares or the voting rights in the company;
can appoint or remove a majority of the board of directors of the company;
exercises significant influence or control over the company; or
is a trustee of member of a firm that is not a legal person who meets one of the above conditions and has the right to exercise significant control or influence over the trust or the firm.

Such a person needs to be registered in the Company’s PSC Register along with certain required information: see “The PSC Register” below. company which is part of a group of companies may exercise significant control and fulfil the relevant criteria above and is called a relevant legal entity (“RLE”).

The UK Company’s Obligations

A UK company will be required to identify any registrable person or entity, serving notice on anyone it knows or reasonably believes to meet the “significant control” criteria or anyone it knows or reasonably believes may know the identity of someone who meets that criteria. The notice must state that the recipient has one month to comply with it, seeking confirmation as to whether the recipient needs to be registered and provide certain particulars, as described under “The PSC Register” section below.

These new disclosure requirements will mean that a wide range of entities, including UK property companies, portfolio companies and co-investment vehicles, which are UK private companies, will, from 1 January 2016, need to have a PSC Register, disclosing information about those who have significant control over them.

In April 2015 the Prime Minister wrote to the Chief Ministers of the Crown Dependencies (Jersey, Guernsey and Isle of Man) confirming the UK’s position is to create a publicity registry of beneficial ownership and in June 2015 the Government confirmed that it wishes to extend the PSC Register to cover limited liability partnerships. The clear message to all is that transparency of ownership is very much on the agenda with the aim of enhancing trust in business and tackling crime. This is just the beginning. The range and scope of entities caught by the new disclosure requirements is expected to be widened further in due course.

PSC/RLE Obligations

Each individual and relevant legal entity is under an obligation to identify themselves respectively as a PSC or RLE where they meet the appropriate criteria. Where the PSC/RLE knowshe is a PSC/RLE who is not on the register and has not received a notice from the UK company within one month of becoming a PSC/RLE, he must provide the relevant information to the UK company.

The PSC Register

The PSC Register will include the name, service address, residential address, date of birth, nationality, nature of the person’s control over the company, and date on which the person became registrable. However, not all this information will be publicly disclosed; for example the residential address will only be available to certain public authorities and the date of birth will only be disclosed where the UK company determines it will only keep a register at Companies’ House.

The UK company must also note the required particulars of any RLE in its PSC Register. Such information will include the corporate or firm name, registered or principal office, legal form of the entity and governing law, the register of companies in which it is entered, registration number, date on which it became registrable and the nature of the RLE’s control over the UK company.

The UK company must keep the register up to date and open to free inspection along with its other registers at its registered office or alternative location for inspection. PSC/RLE information will also need to be filed with Companies House once a year under the new confirmation statement. From April 2016 companies will have new options on keeping various registers, including in respect of PSC/RLEs, at Companies House.

Protection from public disclosure

A limited “protection regime” exists to exclude certain public disclosure for example withholding of residential addresses from credit reference agencies where the individual is able to demonstrate disclosure would expose that person to violence and/or intimidation.

The Government is currently considering the parameters of this “protection regime”. However, readers should not expect a significant widening of the “protection regime” or any significant options for preventing their identity being disclosed.

Penalties for non-compliance

Where a UK company fails to serve the appropriate notice, or take reasonable steps to investigate or obtain registrable information it, the company and every officer of the company in default will be liable to fine and/or up to two years’ imprisonment.

Failing to comply with PSC/RLE obligations, which includes being reckless in making or giving false statements, renders that person liable to fine and/or imprisonment of up to two years. Furthermore, where a PSC/RLE fails to respond to the initial notice, after sending a warning notice, the UK company may issue a restriction notice, preventing the recipient from selling, transferring or receiving any benefit from their interest in the company.

Wider implications

These include:

UK companies needing to update their corporate governance regime to include the new PSC requirements and ensuring their processes remain up to date.

Regulators, law enforcing agencies and tax authorities, both within the UK and abroad, will be able to utilize this information along with other interested parties. This may expose not only companies but also individuals and their business interests to closer public scrutiny.

Where individuals are UK non-resident this may require careful consideration of the laws and tax regimes across multiple jurisdictions in relation not only to existing business interests but also potential ones in the future.

Creditors and other parties may use the PSC Register when entering into transactions, requiring evidence of compliance along with appropriate warranties and indemnities.

The scope of restriction notices will be of particular concern. For the recipient of the notice this is a draconian measure interfering with his beneficial interest. Other shareholders could potentially seek to take advantage of the suspension in his voting rights, seeking to pass resolutions which are prejudicial to him. Creditors may potentially become alarmed that such a notice could be prejudicial to their interests in terms of repayment of loans and recovery where the company is in default. Query whether Banks may be more hesitant to provide mortgages without additional security and safeguards being put in place.

Conclusions and Next steps

There are many unanswered questions about this controversial new regime and secondary legislation still needs to be implemented to provide the details. The Government expects to issue detailed guidance in the autumn but this gives little time for UK companies, shareholders, creditors and other interested parties to consider the potential implications, let alone take appropriate action to ensure compliance by 1

January 2016.
August 2015

Ian Jackson and David Anderson
Sykes Anderson Perry Limited