In June 2013 (see McDermott OTS here), we provided an update on proposals by the UK Government to establish a more rigorous transparent disclosure regime relating to ownership of UK incorporated companies, including their beneficial ownership. While the Department for Business, Innovation and Skills does not intend to issue a formal response to its 2013 discussion paper (Transparency & Trust) until later in 2014, it has confirmed its intention to create a publicly accessible central registry of company beneficial ownership information.
To Whom And in What Circumstances Would The Proposals Apply?
The proposed registry will contain information on individuals with an interest in more than 25 per cent of a company’s shares or voting rights, or otherwise control the way the company is run. This applies the same definition of beneficial ownership as the UK’s Money Laundering Regulations 2007.
For the purposes of the disclosure requirement, the 25 per cent threshold test would apply to aggregate holdings of persons acting in concert, or split shareholdings exercising collective control. For example, if a group of investors with dispersed shareholdings held an aggregate of 30 per cent of a company’s shares, and they had agreed between themselves to vote in the same way, they would be deemed to hold a disclosable beneficial interest.
The UK Government has not yet confirmed whether or not the new disclosure rules on beneficial ownership would apply only to private companies. They are considering extending the regime to limited liability partnerships, but it is likely that public companies listed on a regulated market will be exempted, owing to the existing disclosure regimes that apply to such companies. The implications for other entities, such as investment trust companies and trusts, are still unclear.
While the proposals are unlikely to extend directly to trusts, the policy paper does note that some company structures have trust shareholders. The current proposal would require any express trust that has an interest of more than 25 per cent of the shares or voting rights in a UK company to disclose the identity of the trustees as being beneficial owners. It is less clear whether or not the identity of the beneficiaries of a trust would also need to be disclosed in these circumstances.
BIS has made it clear that there ought to be an exemptions regime. The proposals so far, however, have only identified vulnerable individuals as a potential group for exemption.
The UK Government believes the new central registry of company beneficial ownership should be publicly available.
The model for beneficial ownership information will most likely follow the existing one for company shareholders i.e., the registry will hold details of the name and addresses of beneficial owners. The proposals reject more limited concepts of disclosure, such as only requiring companies to submit the information to the registrar and/or only allowing tax and other law enforcement authorities the right to access this information. The UK Government believes this is consistent with its policy to make “Britain a better place to invest and do business”.
Burden of Disclosure
Although the proposals intend to impose a requirement on companies to actively identify any beneficial owner or persons acting together who hold over 25 per cent of the company’s shares or voting rights, the final rules may go further by imposing a positive obligation on shareholders to notify a company if they are (or become) a beneficial owner. The current regime for listed companies is cited as a possible model.
This may prove to be an unpopular move. The consequences for shareholders who fail to disclose company ownership in listed companies, which are covered by the Disclosure and Transparency Rules (DTR Rules), include public censure and/or financial penalties that are imposed at the discretion of the Financial Conduct Authority.
It is unclear at this stage whether or not the tight timeframes to disclose ownership under the DTR Rules would also apply under the proposed new regime.
The UK Government believes greater transparency on issues such as actual beneficial ownership of companies is essential to creating a “stronger economy” that the public is confident to invest in. This should perhaps be balanced against creating a disclosure regime that imposes burdensome disclosure rules that dissuade use of UK corporate vehicles for doing business.
If the new proposals become law, private companies will need to engage actively with their shareholders to obtain and maintain necessary beneficial ownership information. Companies will face increased obligations for reporting and making information publicly available. Concerned investors may seek to avoid the consequences of this new regime by winding up existing UK companies and/or establishing corporate vehicles/structures outside the United Kingdom. This may affect the structure of both existing and future acquisition and investment structures.
It is likely that, by mid-2014, there will be greater certainty on the nature and extent of these new proposals. We will keep you updated as more information becomes available.