The government's recent discussion paper on "Transparency & Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business" has thrown off some interesting issues.1 The proposals mooted are intended to enhance corporate transparency by improving the ability to know who really owns and controls UK companies.  Whilst one needs to appreciate that a lot of political noise contaminates the issues under consideration there are four areas which we consider to be of particular note.

Register of beneficial ownership

David Cameron has championed the disclosure of beneficial ownership at the G8 summit in June this year.  The intended beneficiaries of such additional disclosure are intended to be taxation authorities.  However, there is a powerful argument that it is the companies themselves who should have the right to know who their beneficial owners are.  At present, under English law, this right only exists for public companies in respect of their equity owners.  However, we think that the debate on this point should be focussed upon giving rights to all companies and extending these rights to allow a company to discover who owns both privately held shares and traded debt securities.

Whilst it is appreciated that certain regulatory authorities should be given access to certain information in the hands of a company, it is not the responsibility of a company to become the policeman of its shareholders and we do not believe that any benefit would be achieved by having a public register of beneficial ownership of companies.

Corporate directors

In the run up to the Companies Act 2006 a debate was held in relation to corporate directors and it was concluded that these continue to be useful in many instances but it should not be possible for a company to have no real persons on its board.  However, the Department for Business Innovation & Skills (BIS) has now re-opened the issue and is considering completely prohibiting corporate directors of UK companies where the company is incorporated offshore as they make it difficult for law enforcement and tax authorities to identify the true beneficial owners of the UK company.  However, many group structures, pension scheme trustee arrangements, collective investment structures and financial structures are based on governance arrangements using a corporate director and changing this would be problematic.

Nominee directors

More worryingly, BIS seems to have introduced a new (and dangerously incorrect) concept into the corporate governance lexicon, that of a nominee director.  Under English law, there is no such thing and the very suggestion of it runs contrary to the duties of directors as set out in the Companies Act 2006, the most relevant duty of which is to exercise independent judgement: this would not be possible where one person is acting as a mere cipher for another.   Any person who does decide to conduct a directorship in this manner must face the consequences.

UK companies

The proposals are necessarily focussed on UK companies, in respect of which a high level of disclosure is already required.  Much of the apparent murkiness arises once one seeks to continue a line of ownership to owners outside of the UK.

Footnote

1 The government's discussion paper "Transparency & Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business" is available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/212079/bis-13-959-transparency-and-trust-enhancing-the-transparency-of-uk-company-ownership-and-increaing-trust-in-uk-business.pdf.

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