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UK proposals for disclosure of beneficial ownership
20/06/2014

Recent Proposals Affecting UK Companies and Trusts

The UK Government has provided further details of the proposed changes to enhance the transparency and the governance of UK registered companies.

The proposed changes can be summarised under the following heading:

Disclosure of Company’s Beneficial Owners

Corporate Directors

Directors Disqualification

Bearer Shares

1. Disclosure of a Company’s Beneficial Owners

It is proposed that on incorporation the initial shareholders will be required to provide information on the beneficial ownership of the company. There will then be a continuing obligation on the company to update the details, or confirm there has been no change, in the beneficial ownership at least every 12 months.

A company’s obligation to establish the beneficial ownership of its shares is also likely to be extended to private companies. They will be required to establish individuals who are ‘interested’ in its shares, a similar obligation to that currently imposed on public companies. If the proposals are adopted a beneficial owner will be obliged to disclose their details and how their beneficial interest is held. (We consider this proposal further under the separate heading below.)

The details of beneficial ownership will be available to the public through a central registry which will be established and maintained by Companies House. The company itself will maintain its own record, which will also be open to the public on direct application to the company concerned. There will be certain restrictions on the information the public will have access to, and will exclude private residential addresses, directors’ details. Certain individuals can apply for their details to be withheld from public disclosure, for example where there is a serious risk of intimidation or violence.

A beneficial owner, for these purposes, is considered to be the individual who ultimately owns or controls at least 25% of the shares or voting rights in the company or who satisfies the test of ‘otherwise exercising control’ over the company’s management. A 25%, or greater holding, divided between the friends and relatives of the ultimate owner will be aggregated, to prevent avoidance of the disclosure requirement.

Should the holding be through the means of a trust, the details of those who control the trust, ie the trustees and any others, must be disclosed.

The extent to which the public will be given access to details of trusts, shareholder agreements and limited liability partnership agreements, is currently being considered by the Government. The details of such agreements would usually remain confidential between the parties for reasonable commercial reasons.

Additional proposals set out in a Department of Business Innovation and Skills paper, suggest that private companies would be permitted to waive the current requirement to maintain their statutory registers at their registered office, subject to the condition that the statutory registers, including the proposed new register of beneficial owners, are maintained and kept up to date on the public register at Companies House.

2. Corporate Directors

The UK Government considers that the currently legitimate use of corporate directors obstructs transparency and can be used to conceal those individuals who own and run a company.

To bring UK practice into step with some European and jurisdictions elsewhere, which prohibit the use of corporate directors, the UK is likely to follow suit by prohibiting the use of corporate directors. However, the government appears to appreciate that in large corporate structures the use of corporate directors may be appropriate and is considering the issue further.

3. Directors Disqualification

The Government’s proposals broaden the scope of the current regime for the disqualification of directors, which will also have the effect of tightening the rules as to whom might be a director of a UK company.

At present, a court may disqualify an individual from being a director should it be demonstrated that the individual has by their conduct acted in such a way that they are unfit to manage a company, as demonstrated by the director’s breach of duty or other wrongdoing. The disqualification can be for a period of up to 15 years.

It is proposed that the courts, when considering an application to disqualify, can take into account the previous conduct of a director, ie if an earlier business of which he was a director has failed, and the director’s conduct overseas, if a director is convicted of a criminal offence outside of the UK, the foreign conviction could result in disqualification as a director in the UK.

Moreover, if a disqualification order is made against a director, the court may have the power to order the director to pay compensation to the victims of their wrongdoing.

Other proposals include the extension of the period in which proceedings to disqualify can be brought from two to three years and to permit company liquidators and administrators to assign  causes of action arising on liquidation or insolvency to a creditor or a third party.

4. Bearer Shares

Companies can no longer issue bearer shares and where such shares have been issued, we expect that they will be required to be cancelled within a fixed time after the legislation comes into force. It is likely that nine months will be allowed to cancel issued bearer shares and after this time a court order will be required for cancellation of the shares.

 

Disclosure of ‘Controlling’ Trust Beneficiaries

It has been the position of the UK government that the proposed registry of the beneficial ownership of companies should identify the trustee of an express trust as the beneficial owner. But in certain circumstances, beneficiaries may have to be disclosed as the beneficial owner, on the transfer of the company’s assets.

However, the initial proposal has now been extended beyond trustees and trust beneficiaries to include individuals who exercise ‘effective control’ over the trust. Such an individual will have to be disclosed on the company’s register of beneficial owners. The settlor and protector of the trust could both be considered as exercising effective control over the trust and would thus have to be disclosed.

The Department of Business Innovation and Skills considers the definition does not include beneficiaries who do not have control or ownership of the company. It also highlights that trustees will be required to obtain details on the parties to a trust including the settlor, beneficiaries and protector under the proposed revisions to the EU directive on money laundering.