Through the looking glass

Gone are the days when nominee shareholders or shares held in trust could discreetly protect those running private companies who, for one reason or another, would prefer anonymity.

Rules on persons with significant control (PSC) and significant influence or control (SIOC) are now here to create further challenges for corporate lawyers to address.As of this month, we must remind business clients that every corporate registered in England and Wales has a duty to maintain a PSC register detailing the individuals who are the ultimate beneficial owners and controllers, to ensure that they are identified and that the details of holdings are made public.The requirement was introduced by the Small Business, Enterprise and Employment Act 2015 and new provisions in the Companies Act 2006, with the aim of combating tax evasion, money laundering, and terrorist financing through transparency of ownership.

This primary legislation is supported by the Register of People with Significant Control Regulations 2016. The
apparent thoroughness of the legislation is to ensure that no opportunities are left to find a creative way around the requirements.

Who is a PSC?

A PSC is someone who satisfies one or more of the following
five tests:

• Someone who directly or indirectly holds more than 25 per cent of the nominal share capital;

• Someone who directly or indirectly controls more
  than 25 per cent of the voting rights;

• Someone who is directly or indirectly able to control the appointment or removal
  of a majority of the board
  of directors;

• Someone who does not meet one of the first three conditions but who actually exercises or has the power
  to exercise SIOC over the company; or

• Someone who actually exercises or has the right to exercise SIOC over a trust or firm that meets one of the four conditions above.

The onus is on the company to make enquiries, and, in the absence of satisfactory replies, the board has the power to disenfranchise the shareholder until the information is provided.

There is some relief in that the rules recognise safe harbours for lawyers and other professional advisers; major suppliers, customers, or lenders engaged in third-party commercial agreements; employees
acting in the course of their employment; and directors, even if they have a casting vote.

But the object remains simple and clear: the government is determined to demonstrate that it has required transparency from UK corporates ahead
of the fourth EU Anti-Money Laundering Directive, which comes into force in June 2017.

Public register

Companies need to record the name, residential address, and date of birth of the PSC (subject to certain exceptions).

The register has to be kept at the company's registered office address and the information notified to Companies House.

Inevitably, some individuals will be worried about their details being available on the public register; however, safeguards have been built in to protect residential addresses (service addresses can be used) and only the month and year of birth will be disclosed.

Moreover, information relating to individuals who can demonstrate that they feel threatened by violence or intimidation can be kept off the public register (one wonders whether that in itself will become a badge of honour).

Interestingly, the concept of significant influence may also catch founders or entrepreneurs, who, even though they may have let go of the reins and only maintained a modest shareholding, are still the public persona of the company.Where a company is part of group, fortunately only the holding company needs to maintain a PSC register containing the full details. Subsidiary companies can simply indicate that they are part of a group structure, so long as the information on the ultimate holding company's file is available.

It is worth mentioning that the rule will not apply to overseas companies operating in the UK. This has led to the suggestion that British companies are being put at a commercial disadvantage.

Moreover, one can expect the government-issued guidelines, which provide non-exhaustive guidelines to assist corporate and their advisers, to be updated from time to time.

It has to be stressed to clients that the onus is upon the directors of the corporate to make the proper enquiries, and that failure to do so can result in criminal sanctions, including fines and imprisonment.

Perhaps surprisingly, at this stage there do not seem to be any criminal sanctions for persons who fail to make the appropriate disclosure; the onus is on the companies to make all appropriate enquiries, including utilising the power provided to them to serve notices on third parties to disclose details of the ultimate owners.

The challenge for practitioners is going to be in serving up advice to corporate clients as to the steps they are going to need to take urgently, in a way that does not appear to be us simply acting as unpaid government officials, looking to root out information that the clients would previously have regarded as perfectly normal to remain private.

Jonathan Silverman is the senior partner at Silverman Sherliker www.silvermansherliker.co.uk