Corporate Law Update
- More detail on disclosure of overseas entity beneficial ownership
- Parliament launches inquiry into pay in private businesses
- Director fined for sending false information to Companies House
The Government has published its response to its April 2017 call for evidence on the introduction of the new regime requiring overseas entities to publicly file details of their ultimate beneficial ownership (the “OEBO regime”).
What is the OEBO regime?
Under the proposed regime, overseas (non-UK) legal entities (“OLEs”) will need to disclose information about their ultimate beneficial owners and controllers to a public registry in the United Kingdom.
The regime will be modelled substantially on the UK’s existing regime for registering persons with significant control (PSCs) (the “PSC regime”). However, the OEBO regime will, in practice, require an OLE to provide details of its controllers only if it proposes to:
- acquire, hold or sell real estate in the United Kingdom; or
- participate in a public tender in the United Kingdom.
For more details on the OEBO regime, see our weekly update for the week ending 14 April 2017.
The key points coming out of the Government’s response are as follows:
- Who will be affected. The OEBO regime will apply to all “legal forms” that can hold property. This will clearly include all non-UK companies, but it will also capture any non-UK partnerships, associations, societies and trusts that have legal personality in their local jurisdiction.
OLEs will need to register their details with Companies House, which will then provide them with a registration number.
- Property caught by the regime. OLEs will be required to disclose their beneficial owners if they wish to acquire freehold land or registrable leasehold land. (Broadly, a lease needs to be registered in the UK if it is for more than seven years from the date it is granted.) In other words, an OLE will not need to disclose its controllers merely if it intends to acquire a very short lease.
The regime will operate by putting “restrictions” on the register for the land in question. The Land Registry will not register a transfer of land to an OLE unless the OLE can provide a registration number issued by Companies House. Similarly, the Land Registry will not register an attempt by an OLE to sell, lease or grant security over land without a registration number.
- Beneficial interests in land. Interestingly, the Government has decided not to subject transfers of beneficial interests in land to the OEBO regime. It believes this mechanism would be unworkable and could adversely affect innocent third parties.
This means that OLEs will be able to acquire beneficial ownership of land in the UK without needing to disclose their beneficial owners publicly under the OEBO regime. However, if the structure used to achieve this is a trust, there may still be an obligation to register the beneficiaries of that trust in the private register of trusts maintained by HM Revenue & Customs.
- Public tenders. An OLE will not automatically be required to provide its beneficial owner information when participating in a public tender. It will need to do so only if it is selected as the preferred bidder.
- Definition of “beneficial owner”. As expected, the test for determining whether someone is a beneficial owner of an OLE will be modelled on the conditions in the PSC regime. On this basis, a person will be a “beneficial owner” (and so the OLE will need to disclose his or her details) if he, she or it:
- holds more than 25% of the OLE’s share capital;
- holds more than 25% of the OLE’s voting rights;
- can appoint and remove a majority of the OLE’s directors;
- actually exercises, or has the right to exercise, significant influence or control over the OLE; or
- satisfies one of the above conditions by virtue of controlling a trust or partnership.
- Presumably, as under the PSC regime, it will be possible to register another legal entity in certain circumstances, rather than an individual. The OEBO regime will also employ the same approach as the PSC regime when looking at OLEs that do not have share capital or a board of directors.
- Information required. Again, as expected, the information OLEs will have to provide on their beneficial owners will be the same as that which UK companies are currently required to provide on their PSCs. If an OLE cannot give information on its beneficial owners, it will instead need to provide information on its “managing officers”.
- Protection from publication. The Government is still considering in what circumstances a beneficial owner will be able to apply to “suppress” his or her information from public view. It seems likely that the Government will allow this in the circumstances currently permitted under the PSC regime (i.e. where there is a serious risk of violence or intimidation as a result of being connected with the OLE). However, the Government has left the door open to expanding this to situations where the risk arises from being associated with the underlying property in question.
- Grace period. There will be an initial “grace period” during which OLEs will have time to identify their beneficial owners and comply with the regime. The Government has not yet decided how long this period will be, although we now know it will be longer than one year.
- On-going compliance. OLEs will need to update their registered beneficial ownership information at regular intervals. The Government has not yet decided how frequently this will need to be done, although it is clear it will now be more frequently than the original proposal of every two years. Failure to update the information will be a criminal offence.
The Government will now prepare legislation to implement the OEBO regime, which it intends to put before Parliament in Summer 2018. The regime is scheduled to go live in 2021.
The Business, Energy and Industrial Strategy Committee (a Select Committee of the House of Commons) (the “Committee”) has announced that it has launched an inquiry into executive pay and gender pay gap in the private sector.
(In 2015, the Committee launched a wide-ranging inquiry into corporate governance generally, including executive pay, which culminated in the Committee’s April 2017 report, as well as the Government’s Green Paper in November 2016 and its response in August 2017.)
The new inquiry will cover the following:
- Whether businesses are complying with gender pay gap reporting requirements and whether those regulations properly capture staff salaries
- Steps companies are taking to address gender pay gap and measures that could be taken against non-compliant companies
- What work is being done to simplify the structure of executive pay and pay reporting
- The role of remuneration committees, institutional investors and shareholders in curbing excessive pay, and the role of “clawback” provisions in recovering cash and bonuses where performance is poor
Specifically, the Committee has asked for views on the following aspects of gender pay gap reporting:
- Is the annual information related to pay that is required under the Equality Act 2010 sufficient? Should any further information be required?
- What is the extent of compliance? Is the information accurate?
- How effective are sanctions for not complying with reporting requirements
- What requirements (if any) should there be on companies to address gender pay gaps?
It has asked for views on the following aspects of executive pay:
- What progress has been made on implementing the recommendations on executive pay in the Committee’s April 2017 report?
- What improvements have been made to reporting on executive pay in the last 12 months?
- What steps have been taken by remuneration committees and institutional investors to combat excessive executive pay in the last 12 months?
- What further measures should be considered?
The deadline for submitting views on gender pay gap reporting is 10 April 2018. The deadline for executive pay is 8 May 2018.
Companies House has announced that a company director has been successfully prosecuted for providing false information to Companies House.
Under section 1112 of the Companies Act 2006, it is a criminal offence to deliver a document or make a statement to the Registrar of Companies that is misleading, false or deceptive in a material particular.
In this case, the director had incorporated a company in 2013 and listed former Business Secretary and now leader of the Liberal Democrats Vince Cable MP as a director.
Separately, in 2016, he incorporated a company with Baroness Neville-Rolfe (Minister with responsibility for Companies House), James Cleverly MP (now Deputy Chairman of the Conservative Party) and a fictitious Israeli national as directors.
In both cases, Companies House took action and the companies were dissolved.
The director in question was fined £1,602 and ordered to pay costs of £10,462.50 and a “victim surcharge” of £160. Companies House believes this is the first time an individual has been successfully prosecuted under section 1112.
Companies House has issued public guidance on its enforcement strategy. In general, it will use “lighter touch enforcement” to secure compliance with regulations. In this case, the decision to prosecute will no doubt have been informed by the facts that the offence in question was committed on more than one occasion and the director attempted to appoint individuals without their knowledge.