Legal Updates

Reforms for UK Companies: The Small Business, Enterprise and Employment Act 2015

Written by Fola Sanu
01/04/2015

The Small Business, Enterprise and Employment Act 2015 (the New Act) received Royal Assent on 26th March 2015 and is now in force. The New Act will to bring about reforms in stages, over the course of the next 14 months.

The reforms will impact compliance obligations for UK companies. Many provisions of the New Act will result in consequential and related amendments to various existing legislation – the Companies Act 2006 (CA 2006), Company Directors Disqualification Act 1986 (CDDA 1986) and the Insolvency Act 1986, amongst others.

The overall aims of the reforms are increased transparency in the running and control/ownership of companies, simplified filing processes and, the improved accuracy and integrity of the public register.

Set out below is a summary of the reforms, now in force or, due to come into force shortly,  which will have a direct impact on companies and directors.

1. Requirement to obtain information and keep for inspection, a Register of Person/ People with Significant Control ‘PSC’);

2. Abolition of Bearer Shares/Share Warrants to Bearer;

3. Abolition of corporate directors;

4. Application of statutory directors’ general duties to shadow directors;

5. Appointment of directors – registration  and disputes;

6. Informing directors in their statutory duties;

7. Directors’ disqualification;

8. Alternative method of record keeping for private companies; and

9. Filing requirements.

1. PSC AND PSC REGISTER

Who is a PSC?

A PSC is the ultimate owner or controller (an individual or legal entity) of 25% or more of a company’s shares or voting rights or, who otherwise exercises control over a company or its management. PSCs may be “registrable” or “non-registrable”.

PSC Register

Both companies and “registrable” PSCs now have new compliance obligations.

Companies will be required to:

· Investigate and obtain information  – they must take reasonable steps to identity potentially, “registrable”  PSCs

· Keep a PSC Register, which would include the PSC’s name, service address, usual residential address, country of residence, date of birth, nationality and details of interest (date and nature of control) in the company;

· Update the PSC Register when the company knows or it might reasonably be expected to have known of a relevant change in connection with its PSCs;

· Provide, along with initial incorporation documents delivered to Companies House,  a statement of PSCs; and

· Update the initial statement annually.

“Registrable” PSCs will be required to:

· Supply the relevant information to companies in connection with which they are PSCs;

· Notify the company of any changes in their status.

The PSC register subject to will be open to inspection by the public.

Private companies will have the option to elect to have PSCs’ information kept on the “Central Register” kept by the Registrar of Companies instead of maintaining one themselves. If a private company elects to maintain records on the Central Register, it must make a note in its historic PSC Register, as maintained up to the date of such an election, that an election is now in force and that the Central Register is kept by the Registrar. Companies will be required to notify the Registrar of any changes to the PSCs and associated information.

Certain aspects of the Central Register, such as the residential address of PSCs will be suppressed (in the same manner as directors’ residential addresses).

Exempt companies

Companies/issuers that are publicly traded to which the Disclosure and Transparency Rules sourcebook of the Financial Conduct Authority (FCA) applies (DTR5 issuers), or a subsidiary of a company which is required to maintain its own PSC register or, a subsidiary of a company to which DTR5 applies are exempt from the requirement to keep a PSC  register.

Companies of any other description, as specified by the Secretary of State in regulations are also exempt.

2. ABOLITION BEARER SHARES/ SHARE WARRANTS TO BEARER

Companies are now prohibited from issuing bearer shares or share warrants to bearer.

Directors will have automatic authorisation, without members’ approval, to amend the articles of association in respect of any existing provision relating to warrants.

Existing warrant/bearer shareholders will be required to surrender them in exchange for registered shares within 9 months of the commencement of the relevant provision.

Bearer shares and warrants not surrendered and exchanged for registered shares within the stipulated timeframe will be cancelled and the company will have to pay any consideration in respect of such bearer shares or warrants to the Court.

A company with bearer shares will not be able to apply for voluntary striking off.

3. ABOLITION OF CORPORATE DIRECTORS

There is now a general prohibition of corporate directors – one company acting as a director of another company.  The Secretary of State is however granted powers in the New Act to make exceptions to this rule. The idea being that such exceptions be limited to circumstances where the appointment of a corporate director will be significantly beneficial to a company and present a low risk.

4. APPLICATION OF STATUTORY GENERAL DIRECTORS DUTIES TO SHADOW DIRECTORS

The codified directors’ duties in CA 2006 will now apply to shadow directors where and to the extent that they are capable of being applied. CA 2006’s definition of shadow director is to be clarified/expanded as to what does not fall within it – “directions or instructions given in the exercise of a function conferred by or under legislation is not sufficient to meet the definition, nor is any guidance issued by a Minister of the Crown”.

5. APPOINTMENT OF DIRECTORS – REGISTRATION AND DISPUTES

The New Act introduces amendments to the requirement for the directors’ consent to act. In its place, the company must provide a statement confirming that a prospective director (at incorporation or subsequent appointments) has consented to act. This applies to secretaries as well.

It also introduces, a mechanism whereby a director, who has been registered, but has not consented to act, can apply to have information about himself removed from the public register.

6. INFORMATION FOR NEW DIRECTORS

Companies House (The Registrar) has a new duty – to inform newly appointed directors of their role, duties and the effect of the New Act on them and their companies. It has already started sending out letters to companies, advertising free awareness session for directors, which will commence in May 2015.

7. DIRECTORS’ DISQUALIFICATION

The New Act inserts amendments in CDDA 1986, allowing the Secretary of State to apply for a director’s disqualification, in cases where such a director has been convicted overseas of certain offences in connection with the running and management of companies, where such offences have corresponding indictable sanctions in the UK.

In relation to the matters to which the court must give regard when considering a director’s disqualification, CDDA 1986 has been expanded to include among others, the director’s conduct in relation to overseas companies.

8. ALTERNATIVE METHOD OF RECORD KEEPING FOR PRIVATE COMPANIES

Private companies will have the option to dispense with keeping/maintaining certain statutory registers. Instead, the information required in the registers can be maintained on the Central Register at Companies House.

The registers which a company may elect to maintain centrally include, registers of members (all members must consent to the election); register of directors, register of directors’ residential addresses, register of secretaries and as mentioned earlier, register of PSCs.

9. FILING REQUIREMENTS

The requirement to file an annual return will be replaced with a new requirement to file an annual “Confirmation Statement” – at Companies House. The Confirmation Statement will allow companies the flexibility of checking, updating (including the delivery of updates) and confirming the required information at any point in the year. It must cover a period no more than 12 months and must be filed within 14 days of the end of the period.

OTHER CHANGES

· Statement of Capital – the financial information contained in this section of the relevant forms is to be simplified. The requirement for the amounts paid and unpaid on each share will be removed.  All that will be required is the “aggregate amount (if any) unpaid on those shares (whether by account of their nominal value or by way of premium)”. That is, companies only need to show the total (including nominal value and any premium) unpaid on the total number of shares (as opposed to each share).

· Rectification/removal of inaccurate/ unauthorised registered office address information – the Secretary of State may make regulations requiring the Registrar to change the registered address of a company if he is satisfied that the company is not authorised to use the address.

· Suppression/partial suppression of directors’ and PSCs’ day of birth from the full date of birth information – an attempt to counter identity theft. However, this will not apply where a full date of birth was furnished prior to 26th March 2015 – before the new rules came into force or, where the company elects to have its register of directors and PSCs held centrally.

· Accelerated strike-off and dissolution regime – the timescales for removing defunct companies from the public will now be expedited.

WHAT NEXT?

The implementation plan published by the Department for Business, Innovation and Skills (BIS) indicates a phased process, commencing immediately, through to April 2016.

· First, is the abolition of bearer shares and the commencement of a nine month surrender/conversion period.

· Next, the abolition of corporate directors, powers to rectify inaccurate/unauthorised use of register address; provisions relating to disputes of directors appointments and expedited strike-off and dissolution regime are expected to come into force in October 2015.

· The implementation of the requirements in relation to obtaining information and PSCs and keeping of the relevant register are expected in January 2016.

· Lastly, provisions relating to the statement of capital; confirmation statement (in place of annual return); filing PSCs information at Companies House and election by private companies to maintain information on the Central Register are expected to come into force in April 2016.

Comment:

The New Act has implications for various existing legislation – notably, the CA 2006, CDDA 1986 and the Insolvency Act 1986, in relation to companies and directors.  There will be a need for various secondary legislation in order to fully implement a number of the provisions, where the New Act grants the Secretary of State the power to make such regulations.

As quite a few companies already obtain information in relation to a beneficial ownership in compliance with existing Anti-Money Laundering (AML) regulations, it may not be too big a leap to record such information in a new register – PSC register. However, the requirement may highlight the difference and issue between obtaining the data for AML compliance purposes and the actual maintenance of a dedicated register.

On the face of it, the prospect of maintaining a Central Register at Companies House appears appealing as it takes the burden off the company and its officers in a sense. However, the information on the Central Register is only as good as the data maintained by a company provided to the Registrar. So, from a house-keeping perspective, it would still be prudent for companies to maintain records of events/transactions as they occur in order to monitor the changes to the relevant information in the intervals between filing. Such records would also be good back-up/reference material and ensure that the information on the Central Register is as current as  possible.

The simplification of the processes for removing an unauthorised registered office address from the register and, for a director to apply for the removal of material about himself where he has not consented to act or his appointment is in dispute would be very helpful, particularly to providers of registered office address services.

Overall, it remains to be seen how the new provisions work in practice.

(a) The Company and Business Names (Miscellaneous Provisions) Regulations 2009 (S.I. 2009/1085); (b) The Company, Limited Liability Partnership and Business Names (Miscellaneous Provisions) (Amendment) Regulation 2009 (S.I. 2009/2404); (c) The Company, Limited Liability and Business Names (Public Authorities) Regulations 2009 (S.I. 2009/2982); (d) The Companies (Trading Disclosures) Regulations 2008 (S.I. 2008/495); and (e) The Companies (Trading Disclosures) (Amendments) Regulations 2009 (S.I. 2009/2615).
(a) European Economic Interest Grouping Regulations 1989 (S.I. 1989/638); (b) The Transport Act 2000, s.56 (5)  (as amended); (c) Schedule to the Enterprise Act 2002 (Part 8 Domestic Infringements) Order 2003 (S.I. 2003/1593); (d) the Registrar of Companies and Application for Striking Off Regulations 2009 (S.I. 2009/1803); and  (e) Paragraph 1 of Schedule 6 to the Investment Bank Special Administration Regulations 2011 (S.I. 2011/245).

 

 

 

 

 

Contact the Author

Fola Sanu

Gordon Dadds