Out-Law News | 23 Jul 2013 | 3:56 pm | 3 min. read
A discussion paper published by the Department of Business, Innovation and Skills (BIS) sets out how the UK will implement its G8 commitment to a central registry of companies' beneficial owners. It also looks at ways of making company directors more accountable for misconduct or company failure, including the directors of banks.
"With a strong commitment coming from the G8, we're now shining a light on who really owns and controls companies in the UK," said Business Secretary Vince Cable.
"We're also proposing tough measures to beef up the system for holding directors to account if they don't play by the rules or take their responsibilities seriously. This will mean honest, hard-working directors are not disadvantaged and will give the public greater confidence that irresponsible directors will face consequences for their actions," he said.
At the G8 summit in June, leaders of the world's eight largest economies committed to keeping registers of who really owns and controls the companies operating in their territories, and to make this information available to national law enforcement and tax administration authorities. The agreement also encouraged countries to provide basic company and beneficial ownership information to authorities in other territories on request.
As announced before the summit, the UK plans to require companies to supply information about their beneficial owners to a central registry, to be maintained by Companies House. This registry would hold information on individuals who hold 25% or more of a company's shares or voting rights, or who otherwise control the way a company is run. For example, a number of individuals collectively holding more than 25% of the shares but agreeing to vote in the same way could be treated as one 'owner' for the purposes of the register, according to the paper.
BIS is seeking views on whether this information should be made public, what should be provided and how it should be updated. It is also considering extending the proposals to limited liability partnerships (LLPs), as well as companies. Public companies listed on a regulated market may be excluded from the new register, as they are already subject to stringent Financial Conduct Authority (FCA) disclosure rules.
The paper also proposes banning 'bearer shares', which are shares which can be transferred without needing to register ownership, and allowing companies to act as directors. It also sets out potential new measures to tackle the misuse of nominee directors, who do not play a part in the management of a company but are instead appointed and registered at Companies House on behalf of a true beneficial owner.
Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com, said that although the proposals would not have a significant impact on public companies that are already subject to disclosure rules, they would lead to a compliance burden for private groups and their shareholders.
"The information will be disclosable to HM Revenue and Customs and legal authorities, and may be made publicly available," she said. "Those who have legitimate reasons for wanting to keep their financial affairs private should make their views known as part of the consultation, since otherwise the preferred option is likely to be for the register to be published."
"HMRC hopes that the reforms will help combat tax evasion and money-laundering, but in practice they will have little effect until similar rules are applied widely to non-UK entities as well," she said.
The section of the paper that deals with director accountability considers whether regulators should be given greater powers to disqualify directors in specific sectors and seeks views on allowing courts to take more account of the "social impacts" of directors' actions. Proposals include extending the time limit for when a disqualification action must be taken against the directors of an insolvent company from two to five years in more complex cases; giving courts the power to order directors to compensate creditors when making a disqualification order; and offering disqualified directors education at the end of the disqualification period.
The paper also sets out the terms of reference of a review into the use of pre-pack administrations, which will report back early next year. The review will look at whether this mechanism encourages growth and employment and provides value to creditors. In a pre-pack sale, the business is marketed to a new buyer before the proposed insolvency procedure begins and sold immediately afterwards, in the majority of cases to 'connected parties' such as previous owners or managers. The practice has been criticised for not being transparent enough.