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Out-Law News | 22 Apr 2014 | 4:55 pm | 3 min. read
In its response to last year's consultation paper on ways to increase corporate 'transparency and trust', the government also confirmed that it would take forward a number of proposals to make it clearer to the public who really owns and controls companies. These include establishing a publicly-accessible central registry of UK companies' 'beneficial owners', preventing companies from acting as directors in the majority of cases and abolishing 'bearer shares, which are shares that can be transferred without having to register ownership.
"The UK is already an outstanding place to start and run a business," said business secretary Vince Cable in the foreword to the consultation response. "We have globally recognised high standards of corporate behaviour. But there is more we can and should do to ensure we maintain our position and increase trust in the UK business environment."
"We need business, investors and society to have trust in a system which holds accountable the minority who transgress, protecting the interests and reputation of the majority who do not. A lack of accountability - even a perception of a lack of accountability - can undermine faith in the legal framework which should protect the innocent majority when things go wrong," he said.
Those changes requiring primary legislation are to be taken forward "as soon as parliamentary time allows", according to the document. At the same time, the government has also announced that it will proceed with simplifications to company filing requirements, such as removing the need to file the same information with Companies House and HM Revenue and Customs (HMRC).
The paper proposes replacing the existing test for determining a person's fitness to act as a company director with a "new, broader and more generic provision" requiring courts and the Insolvency Service to take into account the materiality of a director's misconduct and the nature and extent of harm caused when deciding whether that person should be disqualified and, if so, for how long. Courts will also be able to take overseas misconduct into account, while the government will be able to seek a director's disqualification if it emerges that that person has been convicted of a relevant criminal offence overseas.
Other measures designed to "improve trust" in the UK disqualification regime set out in the paper include raising the time limit for initiating disqualification proceedings from two years from the first insolvency event to three years, and giving courts the power to order directors to compensate creditors that have suffered "identifiable losses" when making a disqualification order. The government has also committed to better integrating sectoral regulation with the director disqualification regime, and will allow the Insolvency Service to share investigatory information with other regulatory or enforcement bodies.
On the transparency front, the paper confirms the government's intention to ban 'bearer shares' which it states "permit a level of opacity incompatible with our ambitions for corporate transparency". Once bearer shares are prohibited, existing bearer shareholders will be given a set period of time to surrender their shares for conversion to registered shares. Companies will also only be able to use corporate directors in "low risk areas" where they can perform "a beneficial and legitimate business function", according to the paper.
As announced in November 2013, the government will make publicly available a planned central registry of companies' beneficial owners, meaning those that hold more than 25% of its shares or voting rights. The response paper confirms that this requirement will apply to all UK bodies corporate that currently register information on their members at Companies House, including limited liability partnerships. However, companies that comply with similar disclosure requirements under the regulatory regime of the Financial Conduct Authority (FCA) or relevant securities markets will be exempt.
Companies will be required to maintain details of beneficial owners' full names, dates of birth, nationalities, country or state of usual residence, residential addresses, service addresses and details of the beneficial interest. This register will be kept available for public inspection and accessible at Companies House, with the exception of residential addresses and full dates of birth. Companies will be able to apply to protect beneficial owners' full information from public disclosure in exceptional circumstances, and certain UK and overseas enforcement authorities will be able to access protected information held at Companies House.
The paper also confirms that the government will conduct and publish a review of the "efficacy and proportionality" of the new register within three years of its implementation. This review, which will be backed by a statutory duty, should include a public consultation element, according to BIS.