Trust and transparency

The Small Business, Enterprise and Employment Act 2015 has introduced
the biggest changes to UK company law since the introduction of the Companies Act
2006 (CA 2006). The Act aims to make the UK
a more trusted and fair place to do business
by increasing the transparency behind the ownership and control of UK companies.
In addition to this, it aims to simplify companies’ statutory filing requirements. (The Act also proposes some key changes to employment
law, but this update focuses only on the corporate aspects.)

The Act has been discussed and debated since 15 July 2013, when the Department for Business, Innovation and Skills published a discussion
paper, ‘Transparency and trust: Enhancing the transparency of UK company ownership and increasing trust in UK business’, setting out its main proposals. Certain provisions of the Act have also been included as a result of the government’s consultation paper ‘Red tape challenge:
Company filing requirements’, which was issued
on 7 October 2014.

The Act received royal assent on 26 March 2015. There is a staggered implementation from this date up to and including April 2016, so companies need to be aware of which stage will be implemented and when, in order to understand what their responsibilities are at all times.

The five key areas covered by the Act are:

• Information on beneficial ownership;

• Bearer shares;

• Corporate directors;

• Filing requirements; and

• Changes to the directors’ disqualification regime.

Beneficial ownership

The most significant measure introduced is
the requirement for companies to keep a public register of persons with ‘significant control’ over the company (known as a PSC register).

A person with significant control over a company is defined as a person or persons who directly
or indirectly:

• Hold or control more than 25 per cent of the shares in the company (calculated by reference to the nominal value of the shares, or in the case of a company with no share capital, by reference to the company’s capital or profits);

• Hold or control more than 25 per cent of the voting rights in the company; or

• Are otherwise able to exercise significant influence or control over the company (guidance is expected to be published in October 2015 dealing with the meaning of ‘significant influence or control’).

Companies will be required to keep the PSC register at their registered office. Alternatively, companies have the option of keeping the information on the public register at
Companies House.

Bearer shares

Bearer shares are a form of securities where proof of ownership is provided by way of a certificate rather than the owner’s name being entered on a register of holders. These are relatively uncommon in the UK, not least because UK company law requires each company to keep an up-to-date register of members as part of its statutory obligations.

However, a company limited by shares could,
if authorised by its articles, issue with respect to any fully paid shares a share warrant stating that the bearer of the warrant is entitled to the shares specified in the warrant. As neither the model articles for private companies limited by shares under the CA 2006 nor table A to the Companies Act 1985 included such a power as standard, companies had to include a specific power in
their articles to enable bearer shares to be issued.

The Act introduces a prohibition against the creation of new bearer shares. Once these provisions have come into force, existing holders
of bearer shares will be required to cancel those shares or otherwise convert those bearer shares into registered shares. Such holders of bearer shares will have a period of no more than nine months from the date that the prohibition comes into force to voluntarily surrender their shares.

Companies will be obliged to give notice to the bearer shareholders within the first month of the surrender period and before the end of the eight-month period (if the shares haven’t been surrendered yet) notifying them of their obligation to surrender such shares.

For those who fail to surrender within the nine-month period, the company will have to apply to court for their cancellation.

Any companies that have authority in their articles of association to issue share warrants will be permitted to amend their articles of association for the purpose of removing such authority, without the need for a special resolution.

Corporate directors

The Act introduces a new requirement for all directors of a company to be natural persons. It is anticipated that the secretary of state for business, innovation, and skills will utilise his power to create some exceptions to the prohibition on corporate directors, but none have been set so far. The exceptions may be to allow a corporate director within a group where all the directors of the corporate director are natural persons themselves.

Companies will be prohibited from appointing any corporate directors. Any appointment made
in contravention of this section will be void and it will be an offence to breach the new provisions.

Existing corporate directors will automatically cease to be directors of a company one year after the new provisions come into force, which it is anticipated will be in October 2015.

Filing requirements

The existing requirements to file an annual return will be replaced with a new requirement to deliver to Companies House a confirmation statement
at least once in every 12-month period. It is anticipated that this will take effect from April 2016. The confirmation statement will set out
that the company has delivered to Companies House all the information it was required to provide in the period to which the confirmation statement relates.

The 12-month period will begin with the
day of the company’s incorporation, and each subsequent 12-month period will begin with the day after the end of the previous review period. However, a company may provide the confirmation statement at any time prior to the end of the 12-month period. If a company does provide
the confirmation statement early, the 12-month period will run from the day after the confirmation statement date.

The company will be required to check the company information held at Companies House and confirm that the details are correct and complete. If the company information is not correct then the company will be required to provide such revised information on the confirmation statement, including any change relating to:

• The company’s registered office;

• Details of directors, secretaries, and people with significant control;

• The company’s principal business activities; and

• The share capital of the company.

The Act also provides that the day of the date of birth of company directors shall be omitted from public inspection. The aim of this is to stop people’s identities being stolen. There will still be an obligation to provide the full date of birth to the registrar but the day element of the date of birth will not be available on any public record other than the company’s own register. The day element will not be omitted from any document that was registered by the registrar before the new provisions come into force.

Companies are currently required to notify Companies House of the appointment of a new director or secretary within 14 days of such appointment. The company must currently include with that notice the director/secretary’s consent to act. The obligation to include the director’s consent to act has been removed and replaced with an obligation by the company to provide a statement that the director/secretary has consented to act.

The Act also introduces a requirement for the registrar of companies to provide all new directors with a notice, as soon as reasonably practicable following their appointment, setting out the roles and duties of a director.

Directors’ disqualification

The Act introduces new provisions which give the secretary of state wider powers to apply to court for a director to be disqualified and to include convictions that the director may have which relate to certain offences abroad.

The court must also have regard to a wider range of factors when considering whether a director should be disqualified. This includes the right
to look into the director’s conduct in relation to overseas companies. SJ

Debbie King is a partner at Farleys