The Small Business, Enterprise and Employment Act 2015
10th August, 2015
The Small Business, Enterprise and Employment Act will introduce a number of significant changes to the Companies Act 2006 (and other ancillary legislation), affecting businesses of all kinds and sizes.
The Act was intended, in the Government’s words, “to make the UK the best place in the world to start and grow a business,” by opening up new opportunities for smaller businesses to innovate, grow and create jobs. However, the Act will affect a wide range of companies, not just small businesses.
But how will these changes affect you and your business? What follows is a brief overview of the most fundamental changes, as they currently stand, although there will be further legislation and statutory guidance to add some meat to the bones of the initial legislation.
The main changes are grouped into the headings below. For more details on each section, please click on the links:
Obligation to maintain a “PSC Register”
Simplification of Company Filing Requirements
Ban on Corporate Directors
The Companies Act 2006 will be amended to place a ban on corporate directors subject to some limited exemptions.
However, as of yet the Secretary of State has not issued any regulations regarding what those exemptions should be and the implementation date for these provisions has been put back from October 2015 to October 2016.
What does this mean for existing corporate directors?
After the exceptions are published, companies should assess whether they fit in with the exceptions and can retain their corporate directorships.
If a company does not fall within the scope of the exceptions, any existing corporate directors will have a period of 12 months, from the date on which the relevant section comes into force, to resign from office without committing a breach of the Act. Companies will need to consider the impact on board composition and quorum before the ban takes effect.
If a corporate director remains in office following the expiry of the 12-month grace period they shall be deemed to have ceased to be a statutory director of the company.
The company is then required to notify the Registrar of Companies of the corporate director’s resignation from office and update its statutory records accordingly.
If it appears to the Registrar of Companies that a company has not filed a notice of resignation for an existing corporate director after the 12 month period, the Registrar of Companies may place a notice on the public register recording the fact that this has not been done.
As of 26 May 2015, the Companies Act 2006 has been amended to provide that director’s general duties will apply to shadow directors in equal measure, “to the extent that they are capable of applying”.
The extent to which the duties will apply to shadow directors will be clarified with further regulations.
Ban on Bearer Shares
Since 26 May 2015, companies have been prohibited from issuing new bearer shares.
On 26 May 2015 a nine-month surrender period started for all existing bearer shares. If bearer shares are not voluntarily surrendered for conversion into registered shares during that period, then a compulsory surrender procedure starts which involves an application to court to cancel the bearer shares.
Incidentally, companies will be allowed to amend their articles, without a special resolution, to remove a provision authorising the issuance of bearer share warrants, however it is not mandatory for such provisions to be removed from articles of association although they are now redundant.
Obligation to maintain a “PSC Register” and to make information publicly available
The Act requires all companies (save for those entities which are subject to Chapter 5 of the Disclosure and Transparency Rules or equivalent disclosure requirements) to keep a register of “persons with significant control”.
This register is commonly referred to as the “PSC register” and will be one of the statutory registers that companies are required to keep under the Act.
This requirement is expected to come into force in April 2016 (in respect of requirement to keep a PSC Register) and 30 June 2016 (in respect of the requirement for the PSC information to be publicly available at Companies House via a central public register).
The PSC Register is principally a matter of concern for private limited companies and non-traded public companies (i.e. not Official List nor AIM companies).
As well as maintaining a PSC Register, companies will be obliged to take reasonable steps to identify whether there are any people or entities with significant control.
If a company does not enquire of such a person’s status, the individual or entity is under a proactive disclosure obligation to notify a company that they are such a person and provide the information required to be included on the PSC Register.
A person with significant control over a company is defined in the Act as an individual that (either alone or as one of a number of joint holders of the share or right in question) meets one or more of the following conditions:
- holding, directly or indirectly, more than 25% of the shares in the company;
- holding, directly or indirectly, more than 25% of the voting rights in the company;
- holding, directly or indirectly, the right to appoint or remove a majority of the board of directors of the company; and/or
- holding the right to exercise, or actually exercises, significant influence or control over the company.
Body corporates or a firm which is a legal person under its governing law, will also need to be included on a PSC if (1) they would have satisfied the definition of a person with significant control if they had been an individual and (2) it is subject to its own disclosure regime (for example they are required to keep a PSC register). These legal entities are known as relevant legal entities.
Relevant legal entities and individuals with significant control are registrable and will need to be included in the PSC Register of a company unless they hold they interest via one or more legal entities which are relevant legal entities.
In other words, if an individual holds shares in a holding company, which, in turn, is a relevant legal entity in respect of its subsidiary, then, although the individual will be a PSC for both the holding company and the subsidiary it will only need to be included in the PSC Register of the holding company as it doesn’t have a registrable interest in the subsidiary as it only has that interest via its shareholding in the holding company.
In this scenario, in order to ascertain who beneficially owned the subsidiary, one would have to look at the PSC Register of the subsidiary which would name the holding company as a PSC, you would then look at the PSC register of the holding company which would name the individual.
The PSC Register will contain, amongst other things:
- in respect of individuals, their name, service address, country of residence, nationality, date of birth and usual residential address* (*this is not publicly accessible);
- in respect of relevant legal entities, their name, registered office, legal form and law by which it is governed, register of companies in which it is entered and registration number; and
- in all instances, the date on which the person became a registrable person or legal entity and the nature of his/its control.
The precise details of the information to be included in the PSC Register has not yet been finalised and will be the subject of further legislation.
The requirement for companies to have PSC Registers in place comes into force in April 2016.
Guidance will be provided on what constitutes “significant influence or control” amongst other areas and further legislation will be issued to fill in some of the details regarding the operation of these provisions.
Once the additional legislation and statutory guidance is implemented, companies and individuals should assess whether they are required to keep a PSC Register and whether they are required to be included on a PSC Register as a registrable individual or registrable legal entity.
Companies should also assess what steps they need to take to assess who are their PSCs and start compiling their PSC Register.
Simplification of Company Filing Requirements
Annual filings: Instead of the requirement to complete an annual return at a set point each year, companies will be required to confirm the statutory information held by the Registrar of Companies at least once in a 12 month period, or make changes if required. In any event, there will be a duty to deliver confirmation statements, before the end of 14 days after the end of each review period.
The company will also be required to deliver a statement notifying on the trading status of the company’s shares at the same time as it delivers the confirmation statement.
These obligations are expected to come into force in June 2016.
Director’s date of birth: To help protect directors from identity fraud, only the month and year of a director’s birthday will be publicly available (unless the company elects to hold its register of directors at Companies House (see below)). This measure is expected to come into force in October 2015. The Registrar of Companies will not be required to remove existing information on a director’s date of birth and if the company has elected for the Registrar of Companies to keep the register of directors then the full date of birth will be available.
Statutory registers: Private companies will now have the option of keeping any or all of the following registers centrally at the Companies House public register only, instead of at its registered office or SAIL address: register of directors; directors’ residential addresses; secretaries; members; and the proposed register of beneficial ownership. This provision is expected to come into force in June 2016.
Where a company exercises this option, it will need to ensure that the information on the public register is up-to-date and this will include the addresses of members and full date of birth of directors.
Where a company opts to keep the register of members centrally, a person will become a member of the company when their name is entered on the public register.
It should be noted that any statutory registers kept before utilising the public register function should be retained for the company’s own records.
Appointment of Directors: There will no longer be a requirement for a new director to provide their “consent to act”. Instead the procedure will be as follows:
(a) when a company notifies Companies House (CH) of the appointment it will make a ‘statement of truth’ to confirm the director/company secretary has consented to their appointment.
(b) upon receipt of the notification, CH will write to the new director to notify them that their appointment has been recorded on the public register and to direct them to information regarding their legal duties as a director.
(c) the new director will be able to apply to CH for removal of that appointment from the public register on the grounds that they did not, in fact, consent to act as a director.
(d) if the company fails to provide CH with sufficient evidence that person did consent to act as a director, CH will remove details of that appointment from the public register.
This is expected to come into force in October 2015.
Accelerated strike-off procedure: The period of time it takes to strike-off a company from the public register will be reduced from the current notice periods, as follows:
- for voluntary strike off, from 3-4 months to approximately 2 months; and
- for compulsory strike off, from 5-6 months to around 3.5 months.
This is expected to come into force in October 2015.
The Act introduces a new section into the Company Directors Disqualification Act 1986 which allows the Secretary of State to apply to the court for a disqualification order on the grounds that a director has been convicted of certain offences overseas.
The Act also expands the matters which the court must have regard to when determining whether a person should be disqualified as a director. This includes enabling the court to take conduct in relation to overseas companies into account when considering a disqualification application in relation to the conduct of a director of an insolvent company.
The court may also take into account a person’s conduct in relation to more than one company, including any overseas companies, when deciding whether or not to make a disqualification order and when deciding whether to accept a disqualification undertaking.
The Act will also increase the period of time for applying to the court for disqualification of an unfit director of an insolvent company from two to three years.
These changes are expected to come into force in June 2016.
The Act seeks to reduce red tape and speed up the insolvency process for businesses in England and Wales by way of amendments to the Insolvency Act 1986. Amendments include:
- the abolition of creditors’ and (in corporate insolvency) contributories’ meetings as the default means of decision-making in insolvency procedures The abolition of meetings does not apply to meetings required by the IA 1986 itself; and
- a new deemed consent procedure. Under this procedure, the officeholder circulates details of his proposed decision, which is deemed consented to by the creditors or contributories if a certain proportion of them do not object.
The above is intended to be an overview of the key changes only as the changes implemented are significant.
You can keep up to date with the current progress of the Act by clicking here.
If you have any queries regarding the above, or any particular concerns, please feel free to contact us to find out more.
(This article was revised on 27th August 2015 following updated implementation dates issued by BIS)
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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