Small Business, Enterprise and Employment Act 2015
On 26 March 2015, The Small Business, Enterprise and Employment Act 2015 received Royal Assent and forms the part of the Government’s ‘Transparency and Trust’ proposals. The overarching objective of this piece of legislation is to deter illegal activity in business (such as money-laundering and tax evasion). A staging timetable has been introduced to implement the Act and unfortunately is going to cause an element of upheaval among firms.
The new legislation brings about changes in the law and implementation dates which are as follows:
| Change in the law | Implementation date |
| Prohibition of ‘bearer shares’ | 26 May 2015, with a nine months’ transitional period for existing holders of bearer shares |
| Prohibition of corporate directors (although some exceptions are allowed) | October 2015 with a 12 months’ transitional period for existing corporate directors |
| A public register of people with significant control for unlisted entities | January 2016 with details of such people being provided to Companies House from April 2016 |
| Abolition of the annual return | April 2016 (this will be replaced with the annual ‘confirmation statements’) |
| Retention of statutory registers at Companies House | April 2016 |
Register of persons with significant control
The area which is likely to be most controversial with the new legislation is that the Act requires those individuals with ‘significant control’ over an entity to be named on a public register. A person holds significant control when they hold or control more than 25% of the company’s voting rights. In addition, they can also hold significant control where they have the power to appoint, or remove, a majority of the board (this can also be achieved directly, or indirectly, through a majority stake in another company).
Problems have become apparent where an individual may have significant influence over an unlisted company or exercises such control through a partnership or trust and hence the government is expected to provide additional guidance on how they define ‘significant control’ by October 2015.
An unlisted company will be legally obliged to identify and keep up-to-date a register of persons with significant control. In addition, those with significant control will have to disclose their identities to the company (although this should be relatively easy in practice for many unquoted companies).
To start with, the requirement to provide information about persons with significant control to Companies House will be on an annual basis (from April 2016). However, there are plans to increase the frequency of reporting to Companies House so as to bring the new rules in line with the EU Fourth Money Laundering Directive.
While the information contained on the register of persons with significant control will be similar to those currently on the register of directors, the residential address of a person with significant control will be protected. Other information relating to the person with significant control may only be withheld in certain (limited) circumstances; such as where the person may be at risk of serious violence or intimidation due to the nature of the company’s business. Final details concerning such circumstances have yet to be published.
Listed companies (including AIM-listed companies) are exempt from the requirements on the grounds that the disclosure requirements in DTR 5 already apply to shareholders of listed companies.
Failure to comply
Where a person with significant control does not comply with their disclosure obligations, the company can impose sanctions which can include a loss of voting rights and transfer obligations. In addition, where a company fails to comply under the new law, criminal penalties can be imposed which will also extend to the company’s directors and (where applicable) company secretary.
Bearer shares
While ‘bearer shares’ are fairly uncommon nowadays, from 26 May 2015 companies will no longer be able to create such shares. From this date, existing holders of bearer shares will have nine months’ to swap their shares and be listed on the register of shareholders. If they fail to swap their shares after the nine months’ have elapsed, the shares will be cancelled. Therefore, for companies that have holders of bearer shares, they will need to inform the holders of these shares as soon as possible.
Corporate directors
The new Act prohibits companies (and other corporate entities) from becoming directors. The reason the government have legislated for this is to stop corporate structures from hiding illegal activity. This is expected to come into force from October 2015 and for those entities which already have corporate directors, they will have a one-year transitional period in which to appoint replacement directors.
The government are providing for some exemptions to the prohibition of a corporate director and they are consulting on whether a corporate director should be permitted if all of its directors are natural persons and those natural persons have their details on a public register (e.g. the one held at Companies House).
Shadow directors
The general duties of directors under sections 170 to 177 of the Companies Act 2006 will apply to shadow directors. The change takes effect from 26 May 2015 but it is not clear as to how this will operate in practice. Current advice is to avoid “crossing the line” between board engagement and board control.
Disqualification of directors
The Act has been drafted in such a way that it will make it easier to pursue directors who have not complied with their legal obligations. It will essentially allow liquidators and administrators to bring legal cases against directors where there have been acts of wrongful or unlawful trading (which will also include the ability to apply for creditor compensation orders against directors that have been disqualified).
The regime which deals with disqualified directors has also been updated and the powers given to the Secretary of State have been extended to disqualify directors for misconduct in connection with companies that are overseas.
Finally, in respect of disqualification of directors, the Secretary of State will have three years (instead of two years) to bring disqualification action against a director following formal insolvency of a company.
Annual return
The annual return lodged at Companies House is being abolished and replaced with an annual “check-and-confirm” confirmation statement. There are going to be simplifications to this confirmation statement in respect of the statement of capital because the requirement for companies to include the amount paid up and unpaid on each share is removed. Companies will, instead, be required to specify the total amount unpaid on the total number of issued shares.
These changes are scheduled to come into effect in April 2016.
Company registers
Unlisted companies will have the choice of maintaining certain information (e.g. information on shareholders, directors, secretaries and persons with significant control) on the register held at Companies House as opposed to statutory registers. Companies House will charge for this service and hence companies should consider whether they should maintain their own registers (which may be more beneficial if there are infrequent changes).
Days of birth of directors
To combat fraud, the day that a director was born will not be made public. The public register will only display the month and year the director was born and this is expected to come into force from October 2015. However, the new rules do not appear to require historic data to be removed and therefore there will be little benefit for existing directors. These new rules will also extend to those persons with significant control.
Registered office disputes
On appointment, a director will no longer have to countersign the appointment forms to indicate their consent. Companies House will inform the director that they have been appointed and this will then give the director the opportunity of objecting if the appointment has been made in error, or if it has been done fraudulently. These new rules are also expected to come into force in October 2015 and will also allow Companies House to amend the registered office of a company where the use of the address is disputed.
Striking off
The time it takes for a company to be voluntarily or compulsorily dissolved is reduced to two months (from three months) after publication of the notice in the Gazette. This new timeframe is expected to come into force in October 2015.
Companies House changes
The three services offered by Companies House (Webfiling; Webcheck and Companies House Direct) will be replaced by one online service which will be called The Companies House Service. During the implementation phase of the new service, the three existing services will run in parallel. Other changes will include:
- removing the subscription-based Companies House Direct service to a free of charge service;
- the grant of access to all document images free of charge (including mortgage charges);
- a “click and confirm” process to replace the form-based filing which will make it simpler to maintain company information; and
- an updated and more user-friendly interface to enable searching for information at Companies House more easier and quicker.
Category: Uncategorized
