‘Transparency and Trust’: Proposed Changes to Company Law in the UK

by Dechert LLP
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On 25 June 2014, the Government published the Small Business, Enterprise and Employment Bill. It includes a wide range of measures designed to improve the legislative environment for small businesses and incorporates proposals published last year on enhancing transparency of UK corporate ownership and increasing trust. The changes, which cover a range of issues from access to finance for small business to prohibiting exclusivity clauses in ‘zero hours’ contracts, include proposed amendments to the Companies Act 2006 and the Company Directors Disqualification Act 1986.

The most significant corporate changes include a requirement for companies to keep a new public register identifying persons with significant control over the company (‘PSC register’) as well as a prohibition on the use of corporate directors by UK companies, subject to limited exceptions.

The requirement to keep the new PSC register will apply to all UK companies unless they are public companies which already report under the Disclosure and Transparency Rules. Individuals will be deemed to have significant control for the purposes of the register if they ultimately own or control more than 25% of a company’s shares or voting rights, or who otherwise exercise control over the company and its management. Companies will be required to take reasonable steps to identify individuals with significant control and to verify the accuracy of these records annually.

The restrictions on corporate directors will allow a grace period of one year from legislation coming into effect after which a corporate director will no longer be deemed a director. The Secretary of State will have the power to make regulations setting out exceptions to the general requirement that directors must be natural persons but no such exceptions are set out in the Bill.

Other corporate changes include:

  • The abolition of bearer shares with existing holders being required to surrender their shares to the company in exchange for registered shares within nine months.
  • Replacing the current requirement for an annual return with an obligation to confirm at least once in a 12 month period that all requisite information has been delivered to Companies House.
  • An extension of the general duties of directors to shadow directors to the extent they are capable of applying.
  • An expansion of the matters which a court must have regard to under the Company Directors Disqualification Act 1986 when determining whether a person is unfit to act in management of a company and an increase in the potential period of any disqualification.

While greater transparency and accountability are to be encouraged and these changes seem largely positive, the success and accuracy of the proposed PSC register will largely depend on the cooperation of individuals. While sanctions are available to the company to encourage disclosure, it remains to be seen how effective this will be and whether it will simply be an additional regulatory burden for companies to bear. The Government has indicated that legislation will come into effect by the date of the next general election in May 2015.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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