Corporate Law Update
- The Government provides some more detail on the forthcoming regime for registering beneficial owners of overseas entities that hold land in the UK
- Restoring a dissolved company back to the register did not have the effect of bringing a terminated contract back to life
- The Government has launched a new voluntary code aimed at promoting better access to tools and resources for female entrepreneurs
- The Government is consulting on reforms to the provision of statutory audit services following the CMA's recent market study
- A few other items of interest
Government hints at next steps for beneficial owner registration
The Government has responded to a Parliamentary report on its proposed Registration of Overseas Entities Bill. If passed, the Bill will require non-UK entities that own real estate in the UK to file details of their ultimate controllers and beneficial owners in a public register. An entity that fails to do this will be unable to sell, charge or otherwise deal with any real estate it owns in the UK.
The regime will also apply to overseas entities that wish to participate in UK public tenders.
The Bill is modelled substantially on the existing “PSC regime”, which requires UK companies and limited liability partnerships and certain other UK entities to keep a register of all persons who have significant control over them.
The Government has not decided to make any substantial changes to the proposed regime. However, it has confirmed the following:
- It will publish guidance to help overseas entities, persons dealing with overseas entities and facilitators to understand which kinds of entity will be within the scope of the regime.
- The new register should include an ability for users to flag suspicious or potentially incorrect information to Companies House.
- The Bill will not capture trusts that hold real estate, although it will capture overseas entities that act as trustees of land.
- However, the Government intends in due course to expand its existing Trust Registration Service (TRS) to trusts established outside the European Economic Area (EEA) which acquire real estate in the EU. Currently, the TRS requires trusts and their beneficial owners to be registered only if they generate a tax consequence in the UK and is open only to law enforcement agencies. The expanded register will be open to anyone who can show a “legitimate interest” in viewing it. HM Treasury is currently consulting on the expansion of the TRS.
- The conditions for registration will remain the same as those under the PSC regime. This is not surprising, as the two regimes are supposed to be aligned. As with the PSC regime, the Government will publish guidance on what amounts to “significant influence or control” over an overseas entity.
- Finally, the Government will consider requiring overseas entities to update their registration details before they dispose of real estate in the UK. Under the current bill, entities need only update their registration details annually. The Government intends the register to be operational in 2021.
Restoring a company did not revive a terminated contract
The High Court has said that restoring a dissolved company back to the register of companies did not stop a contract with the company from being terminated.
In Bridgehouse (Bradford No.2) v BAE Systems plc, a company (BB2) entered into a contract with BAE Systems to buy property owned by one of BAE’s subsidiaries.
Under contract terms, BAE could terminate the contract if certain events of default occurred, including if BB2 was struck off the register of companies or otherwise dissolved.
A few years later, BB2 was struck off the register of companies by Companies House for failing to file accounts. Two days after it was struck off, BAE served notice to terminate the contract.
Around three weeks later, an application was made for the “administrative restoration” of BB2 so that it could challenge BAE’s notice of termination. The application was granted and BB2 was restored.
When a dissolved company is restored to the register, the company is treated as having continued to exist as if it had never been struck off or dissolved. In other words, the purpose of restoration is to nullify the dissolution.
BB2 argued that, because it was treated as never having been struck off or dissolved, the trigger allowing BAE to terminate the contract never arose, and so BAE’s notice of termination was ineffective.
What did the court say?
The court disagreed.
The judge said that restoring a company to the register will only undo the “direct or automatic effects” of being removed from the register. But BAE’s termination of the contract did not flow or arise automatically from BB2 being dissolved. Rather, it arose out of BAE’s choice to end the contract and the steps it took to do so.
If restoring BB2 to the register had automatically brought the contract back to life, BAE’s right to terminate the contract on BB2 being dissolved would have been “deprived of effect”, and BAE would have been in breach of contract. This could not have been the parties’ intention.
What does this mean for me?
This is plainly the right decision. The point of treating a restored company as never having been dissolved is to avoid problems created by a “break” in its existence. It is not meant to destroy the contractual rights of third parties dealing with that company.
Although the case deals with “administrative restoration” (where a company is struck off by Companies House), the same principle applies when a company is restored following an application by a creditor or some other person with an interest.
The decision confirms that contracting parties will be able to rely on an express right to terminate their contract if the other party is dissolved, even if it is subsequently restored.
Treasury launches new code to support female entrepreneurs
The Government has officially launched its new Investing in Women Code. The aim of the Code is to advance female entrepreneurship in the UK by improving access to tools, resources and finance from the financial services sector.
The Code is voluntary. Organisations that sign up to it will be choosing publicly to make a number of commitments, including:
- To nominate a member of their senior leadership team to support equality in all transactions with entrepreneurs.
- To provide HM Treasury with a commonly-agreed set of data concerning all-female-led businesses, all-male-led businesses and mixed-gender-led businesses.
- To adopt internal practices aimed at improving the potential for female entrepreneurs to access the tools and resources they need to build and grow their business.
Initial signatories to the Code include Royal Bank of Scotland, Barclays, Lloyds Bank, Santander, TSB Metro, the Co-operative Bank, Nationwide and Bank of Ireland, venture capital firms Frontline and Episode 1, angel networks UK Business Angel Association and Angel Academe, and the British Business Bank.
Organisations wishing to sign up to the Code can find the sign-up form here.
Government consults on statutory audit reforms
The Department for Business, Energy and Industrial Strategy (BEIS) has published a consultation on the provision of statutory audit services in the UK. The consultation follows the recent market study by the Competition and Markets Authority.
Among other things, the Government is seeking views on the following:
- Should the new Audit, Reporting and Governance Authority (the ARGA) (which will replace the Financial Reporting Council) have power to set standards for audit committees when appointing auditors and to take action if audit committees fall short of those standards?
- How should the ARGA engage with shareholders when carrying out this role?
- Should FTSE 350 companies be required to commission a joint audit by both a non-Big Four firm and a Big Four firm (except for complex businesses)?
- Should FTSE 350 companies alternatively be allowed to appoint a sole non-Big Four firm to carry out their audit? If so, do these “challenger firms” have capacity to service the FTSE 350?
- What powers should the ARGA have to prevent Big Four audit firms from going into distress?
- Should audit firms put a formal “organisational split” in place between their divisions that provide audit services and those that provide non-audit services?
BEIS has requested responses by 13 September 2019.
- Insider dealing. A draft version of the Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 3) Regulations 2019 has been published, along with an explanatory memorandum. Among other things, they would ensure that, after the UK leaves the European Union, a person will still have a defence to the criminal offence of insider dealing if they engage in buy-back or stabilisation arrangements on an EEA or Gibraltar trading venue.
- Company audits. A draft version of the Statutory Auditors, Third Country Auditors and International Accounting Standards (Amendment) (EU Exit) Regulations 2019 has been published, along with an explanatory memorandum. Their main purpose is to ensure that, after the UK leaves the European Union, subsidiaries of EEA parent undertakings which are consolidated into their parent’s accounts can no longer exempt themselves from audit. They would be able to do so only if they are consolidated into a UK parent undertaking’s accounts.