UK: Changes To The Companies Act: What Directors Need To Know

You may be forgiven in thinking that there cannot be much in the Small Business, Enterprise and Employment Act 2015 (SBEEA) which is of direct relevance to companies. It was Shakespeare who penned the famous line "what is in a name" – in the context of the SBEEA, the answer is very little. The title of the new law is misleading: directors of all companies, not just small companies, need to understand the changes that the SBEEA is bringing about and the aggressive timetable for its implementation. The SBEEA could more justifiably be called the Companies Act (Amendment) Act, because, in reality, that is what it is.

The SBEEA expands our canon of company law by adding about 5 per cent. to the length of the voluminous Companies Act 2006. The SBEEA introduces a series of major changes which need to be understood, not only by directors and company secretaries, but also by shareholders (both those who are trustees and beneficial owners).

Almost all of company law regulates the conduct of companies, giving rights to shareholders and imposing obligations on companies and company officers. The new SBEEA regime introduces a new part 21A to the Companies Act 2006 and (unusually) places obligations directly onto shareholders. Shareholders who fail to comply with their part 21A obligations risk having their shares disenfranchised, leading to loss of income, loss of voting rights and the resultant destruction of capital value.

Summary of key SBEEA changes to Companies Act 2006

The SBEEA has evolved from the former Business Secretary's "Transparency and Trust" initiative. The 2010-2015 coalition government was of a view that standards of corporate conduct would be best improved by changes to the regime, rather than through enforcement of breaches of company law by BIS.  The authors might not agree with the conclusion that the coalition government reached, but we respect their decision.

BIS expects that standards of corporate conduct and trust across the UK are to be improved by:

1. a total ban on bearer shares;
2. the extension of directors' duties to also bind shadow directors;
3. allowing overseas misconduct to be taken into account in directors' disqualification proceedings;
4. a general prohibition on corporate directors; and
5. an obligation on almost all UK companies (other than those traded companies which are subject to DTR 5) to create and maintain a new publicly accessible statutory register of people with significant control and to also regularly provide these details to Companies House.

In addition, changes are to be made to some company filing processes.

The register of people with significant control

From 1 January 2016 all companies incorporated in any part of the UK will need to maintain a register of people with significant control (PSC). 

There are five specified conditions as to what constitutes significant control set out in the new schedule 1A to Companies Act 2006.  These are summarised below:

It is vital to carefully review the rules to determine how the regime will impact on your company, recognising that PSCs may not appear on the register of members and may include creditors, funders, commercial counterparties and investors.

Shareholders' agreements

When determining its PSCs companies will need to examine:

• existing registers;
• articles of association;
• shareholders' agreements;
• financing agreements; and
• other commercial agreements

Those companies who are not party to a shareholders' agreement entered into between some or all of its shareholders will need to make specific enquiry with its shareholders as to the operation of that agreement and the impact it has on the company's control (for example, veto rights reserved to shareholders are very likely to render the holder of such rights to be a PSC whether or not they have a significant shareholding).

Corporate groups

In a corporate group, a chain of PSCs will lead up through all companies incorporated in any part of the UK.  The PSC will be different at different layers in the structure.  The PSC chain will be broken as soon as there is a company incorporated outside of the UK. 

Creditors

There are circumstances in which creditors of a company may become PSCs (even without being so aware).  The rules are very detailed and prescriptive, but as soon as a right to exercise control arises, for example, when security crystallises, the creditor will become a PSC. However, the company may not inform the creditor of that fact or update its register.

Perversely, if that creditor then appoints an administrator, neither the creditor nor the administrator will be a PSC; however, if a liquidator, administrative receiver or a receiver is appointed, each of the creditor and appointed officeholder will be a PSC.

Guidance awaited

Guidance is intended to be issued in October 2015, which will then kick-start a process where companies will quickly need to use the final months of the year to obtain the relevant information and put in place a PSC register for 1 January 2016. Companies cannot opt-out of the PSC regime.

Shareholders might wish to not provide PSC information to a company. If they fail to, the shares in question may have all rights suspended.

From 1 April 2016 companies will, at least annually, need to provide the PSC information to Companies House for inclusion on a searchable public register. It is anticipated that it will be possible to search against a name; however, it must be understood that the Companies House data will only be as good as the information provided to it: Companies House will carry out no verification.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.