Corporate Law Update
- New guidance on complying with the UK’s national security screening regime
- The Government publishes responses to its consultation on allowing corporate redomiciliation into the UK
- The Government publishes its statutory review of the invoice payment practice reporting
- The FCA publishes its latest strategy and business plan and consults on fee increases
The Government has published new guidance on how to comply with the UK’s national security screening regime (set out in the National Security and Investment Act 2021) and what to do in response to Government orders and notices.
The guidance will be of use to anyone who is proposing or undertaking an acquisition that may garner Government scrutiny, or which may need to be notified, under the regime.
The key points arising out of the guidance are set out below.
- Parties should engage openly, fully and in good time to demonstrate compliance, including by providing information requested by the Investment Security Unit (ISU) to support assessment of acquisitions or to verify compliance with orders.
- If the Government requires further information, it may issue an information notice. The notice will set out why the information is required, how it should be provided, a time limit for doing so, the potential consequences of not complying and a contact point for the ISU.
- The Government may need to hear from people involved in an acquisition. This will be required through an attendance notice, setting out the time, place and purpose of the meeting. Attendance is mandatory. The ISU may decide at their discretion that a meeting can be held virtually. The notice will state what the recipient needs to do and provide ISU contact details.
- The Government may issue an interim order at any time during the assessment period. This might prevent the exchange of confidential information or access to sensitive sites or assets. An interim order will set out how to demonstrate compliance. The Government will send interim orders by email. It will not routinely make interim orders public.
- The Government may impose a final order to mitigate national security risks. This may include placing conditions on an acquisition, or unwinding or blocking a transaction completely. The Government will tell relevant parties why it has decided to impose a final order.
- A final order may include structural conditions (e.g. excluding parts of an entity or certain assets from an acquisition or requiring Government approval of proposed business locations) and behavioural conditions (e.g. regular on-site security inspection or interviews with staff). Like interim orders, a final order will set out how to demonstrate compliance with its conditions.
- The Government will publish information on each final order it makes (including the persons it applies to, the start date and a summary) on the gov.uk website, but not the order itself. Subjects of a final order may be required to keep some or all of the order’s terms private.
- Parties should provide a primary point of contact for all matters relating to complying with a final order (such as a compliance officer, company secretary or other responsible officer) and an alternative contact.
- A party should inform the ISU without delay of any changes that may affect compliance, or their ability to demonstrate compliance, with an order or notice. This includes any changes in the nominated primary point of contact, as well as substantive compliance matters.
- The Government will monitor compliance with orders. Examples of potential compliance requirements include providing the ISU with regular statements of compliance, meetings between the ISU and senior staff responsible for compliance, providing evidence of structural changes required by an order, allowing site visits to verify compliance, and appointing a third-party technical assessor to report to the ISU on compliance.
- The Government will consider enforcement action where necessary to ensure compliance. This includes where a person deviates from the terms of the compliance schedule in an order, fails to submit evidence of compliance when required, demonstrates “obstructive conduct” or submits late or incomplete statements of compliance.
- In some cases, the ISU may initially take action short of imposing a penalty to address non-compliance. This may include reminders or warning letters, requiring remedial action to secure compliance, implementing an improvement plan. For continued non-compliance, however, the Government will move to levying a monetary penalty.
- The Government will consider seriousness when deciding the level of monetary penalty. Factors contributing to a more serious penalty include multiple contraventions, negligence, fraud and intentional circumvention. Penalties may be adjusted to remove any financial benefit obtained from committing an offence, as well as any other aggravating and mitigating factors.
- The Government may refer suspected offences to the police for criminal investigation, but usually only in the most serious cases. If it does this, decisions over investigation, charging and prosecution rest with the police and the Crown Prosecution Service.
- Parties can appeal a penalty, its amount or the period for payment. Interim and final orders cannot be appealed, but a party can ask the Government to consider varying or revoking one. In addition, a party can apply for a judicial review of a decision to impose an interim or final order, although the period of time for doing so is limited by the Act.
The Government has published a summary of responses to its recent consultation on corporate redomiciliations.
Under the consultation paper, published in November 2021, the Government proposed to introduce a regime to allow companies incorporated outside the UK to “redomicile” by changing their place of registration to the UK. For information on the consultation, see our previous Corporate Law Update.
What was the response?
The Government received 40 responses to the consultation. Around 80% of respondents supported a new redomiciliation regime. However, they also expressed some reservations about how effective such a regime might be in practice. The key points are set out below.
- Many respondents felt that merely creating a regime would not attract overseas companies to the UK. Rather, the wider business environment would be the main driver for inward redomiciliations.
- Respondents agreed that any regime should be flexible but balance simplicity of design with sufficient rigour and appropriate checks.
- A majority supported a regime permitting redomiciliation both into and out of the UK, citing issues of reciprocity with other jurisdictions and the increased attractiveness that comes with knowing a company can migrate back out in the future. However, respondents felt that a company that redomiciles in the UK should need to wait a period of time (the summary suggests three years) before being able to redomicile back out.
- Most respondents agreed that the ability to redomicile between UK nations would not have a significant impact on a decision to redomicile in the UK, although some felt this approach was inconsistent with allowing overseas companies to choose where to redomicile within the UK.
- There was general support for treating redomiciled companies the same as a UK-incorporated companies for tax purposes, rather than creating a new category or distinct tax treatment for redomiciled businesses.
- An overwhelming majority of respondents said that there was no need for an incoming company to show that it was of “economic substance” or meet a minimum turnover or size test, although some sounded a note of caution that redomiciled companies may exist only on paper and so be of limited benefit to the UK economy.
- Respondents generally felt that the regime should be available to all kinds of bodies corporate incorporated overseas, provided they can convert into a compatible form of UK entity.
What happens next?
The Government intends to introduce a redomiciliation regime to allow companies to move their place of registration to the UK. The paper does not explicitly state whether the Government intends to legislate for redomiciliation out of the UK to other territories.
The Government will now continue to refine its policy, considering the points raised by respondents to the consultation and engaging publicly as appropriate.
The Government has published a statutory review of the UK’s current payment practices and performance reporting regime.
Under the regime, large UK companies and limited liability partnerships (LLPs) must publish a half-yearly report setting out their practice for paying supplier invoices, as well as statistics for actual payment performance over the preceding year. The regime applies to most contracts for the supply of goods, services and intellectual property to the entity’s business.
The review follows a call for evidence published in November, through which the Government asked for comments on how the regime is working in practice to decide whether to extend it beyond its current lapse date of 6 April 2024.
For more information on that call for evidence and background to the reporting regime generally, see our previous Corporate Law Update.
What has the Government concluded?
In short, the Government is satisfied that the regime is delivering its objectives by bringing greater transparency and symmetry to the payment practices and performance of large businesses. However, it believes more needs to be done to increase awareness of the regime and ensure compliance.
As a result, the Government will consult on the regime again to decide whether to extend it beyond 6 April 2024. However, it is worth noting that the Government has not been able to identify a “less regulatory means of achieving the policy objectives” of the regime.
The review also contains some interesting analysis based on reporting under the regime.
- Over the four complete years in which the regime has been in force (2018 to 2021), 50,000 reports have been filed, with the annual number now settled at just over 12,200.
- The annual average time to pay an invoice has remained stable at 37 days.
- In 2021, on average, businesses paid over half (56%) of invoices within 30 days, less than a third (30%) between 31 and 60 days, and 14% later than 60 days.
- In 2021, businesses that were signed up to a payment code paid their suppliers, on average, 24% faster than those that were not. They also showed a year-on-year reduction in average time to pay, whereas time to pay for businesses not signed up to a code remained unchanged.
The Financial Conduct Authority (FCA) has published its three-year strategy for 2022 to 2025, which sets out the key areas on which the FCA intends to focus over the next three years.
The FCA has also published its business plan for 2022/2023. The business plan explains the FCA’s work programme for the forthcoming year, which will include reducing financial crime (including unauthorised financial promotions), taking assertive action over market abuse, pursuing high-quality climate and sustainability disclosures, reforming the regulation of the UK’s capital markets, and shaping digital markets.
The FCA is also consulting on its annual fee increases. As a general rule, the FCA is not consulting on application fees for vetting documents (such as prospectuses) at this stage. Rather, it will consult again in April 2023 on proposed rises to the ten standard pricing categories, with a view to uprating fees with effect from July 2023.