From 6 April 2016, UK limited companies and limited liability partnerships (LLPs) have been required to maintain a Persons with Significant Control Register (PSC Register) to identify and record those Persons with Significant Control (each a PSC) namely the people who own and control the company or LLP. The UK government proposed this in order to increase transparency over who owns and controls UK companies and is confident that this will help inform investors when they are considering investing in a company.
Details of each company's PSC Register must be submitted to Companies House on an annual basis as part of the company's Annual Confirmation Statement, which, as of 30 June 2016, replaced the Annual Return. The company (or LLP) is responsible for monitoring and updating the information on its PSC Register but will continue to maintain existing registers such as the register of directors and register of members.
The PSC Register is a publicly available register and will attempt to create transparency by disclosing who has significant control over a company. The hope is that this will discourage criminal activity such as tax evasion. A PSC is an individual who, amongst other potential ownership conditions, alone or with others holds, directly or indirectly more than 25% of a company's shares. For the purpose of this article, this is the relevant condition to be considered.
Although PSCs will be individuals i.e natural persons, Relevant Legal Entities (RLEs) should also be included on a company's PSC Register. A legal entity, such as a company or LLP, will be a RLE if it is capable of satisfying one of the ownership conditions such as holding directly or indirectly more than 25% of the shares in the company. Additionally, the RLE must also be both "relevant" and "registrable" in respect of the company.
A RLE is relevant if it is required to maintain its own PSC Register (which would be the case for a UK limited company or LLP) or if it is a UK listed company. For an entity to be registrable, it must appear directly above the company in the ownership chain. On the basis of these conditions being met, a bank is capable of being a RLE for the purposes of the PSC regime.
In relation to banks, the PSC Register should be considered in finance transactions where banks take security over more than 25% shares in a Scottish company by way of a Scottish share pledge.
When shares in Scottish companies are pledged, a legal transfer of the ownership of the shares occurs and the pledgee is entered on the company's register of members as being the share owner.
If more than 25% of the shares in the company have been pledged to a bank, the consequence of the legal transfer would be that the bank holds the shares in the company and would ultimately be considered a RLE in terms of the PSC regime. This differs from the approach in England, where security can be created by way of an equitable charge.
In the situation of a Scottish share pledge, the burden of the PSC Register regime does not solely lie with the company whose shares have been pledged, but the bank as a RLE must also be aware of its obligations. The company must take all reasonable steps to identify any PSC or RLE. However, if a bank is aware that it should be included on a company's PSC Register then it must volunteer required particulars to the company. The information required includes the corporate name, registered office, legal form, registration number at the register of companies and the nature of control. The bank has one month from the time it ought to have known it was registrable to volunteer the information. Failure to do so is a criminal offence and may result in fines or potential prison sentences. Of course it is the company whose shares have been pledged and not the grantors of the pledge who have this responsibility.
The PSC regime should be an ongoing consideration for banks as RLEs as they are also under an obligation to inform the company of any changes in respect of the required particulars. The company must be notified within two months from the point of the change occurring. Alternatively, if the company is aware of a change to the bank's particulars, then it can issue a notice requesting the bank to provide the updated information.
Failure to respond to a notice issued by the company within one month may lead to a warnings notice being issued. Following that, if the information has still not been provided by the bank within one month of a warnings notice being issued, then a restrictions notice may be served. The consequence of a restrictions notice is that the bank will have no security as the shares cannot be sold or transferred. A restrictions notice should be lifted as soon as the initial information requested has been provided by the bank.
It is not entirely clear by the drafting of the PSC regime whether Scottish share pledges were intended to trigger PSC Register requirements, however the general approach taken is to apply caution and volunteer information as soon as possible. Additionally, any bank which is entered on a company's PSC Register must ensure that it keeps the company informed and up to date in respect of any changes to its information and respond to any notices from the company expeditiously.
This article was co-written by Hannah Ward.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
