This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.
Summary and implications
This briefing discusses some of the key corporate governance aspects of the new Small Business, Enterprise and Employment Bill, focusing particularly on how it may impact on the company secretary.
Don't let the name fool you, the Small Business, Enterprise and Employment Bill (SBEEB) will affect company secretaries at businesses of all sizes.
The SBEEB, which had its second reading in the House of Lords on 2 December 2014, proposes wide ranging changes to company law and corporate governance. This briefing sets out the key elements of SBEEB that company secretaries, and those working in corporate governance, should be aware of.
Set against a background of increased public distrust in companies since the financial crisis of 2008, in the wake of bank scandals such as wide scale money laundering and anger at multinationals for not paying taxes, one of the key aims of SBEEB was to increase transparency in the ownership and control of companies. One of the most of significant of these includes the government's establishment of a central registry of company beneficial ownership information, which will be made available to the public.
Another of the key aims of SBEEB is to reduce red tape and barriers to business, particularly by reducing duplication with filing. This followed the October 2013 government consultation paper, The Red Tape Challenge. Some of the changes stemming from this aim include dispensing with the requirement that private companies keep statutory registers (and instead allowing them to provide the relevant information to the public register) and replacing annual returns with requirements to "check, notify changes if necessary and confirm".
PSC Register – Information on beneficial ownership
Of perhaps greatest importance to company secretaries is the requirement that companies keep a publicly available statutory register of people who have significant control over the company (the PSC Register). The PSC Register can be a physical register made available for inspection at the company's registered office or held on the public register at Companies House.
|Person with significant control |
An individual that (alone, or as a joint holder):
- holds, directly or indirectly, more than 25 per cent of the shares in the company;
- holds, directly or indirectly, more than 25 per cent of the voting rights in the company;
- holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company;
- has the right to exercise, or actually exercises, significant influence or control over the company; and/or
- has the right to exercise, or actually exercises, significant influence or control over the activities of a trust (of which the individual is a trustee) or firm (of which the individual is a member) and the trust/firm meets one or more of the above conditions.
There is a specific carve-out for limited partnerships that was added following the Commons committee stage. An individual will not meet the conditions in either of the first two bullet points above by virtue only of being a limited partner, or holding shares or rights in or in relation to a limited partner which would itself meet the condition if it were an individual.
As a general rule, an individual or a body corporate/firm with significant control will need to be registered in the PSC Register (a registrable person/entity) unless they only exercise significant control through another entity, which itself must keep a register or has disclosure requirements (see diagram below).
On 15 January 2015, the government announced a working group will be established to oversee the development of the non-statutory and statutory guidance required to support the implementation of the PSC register.
Also an expert working panel, made up of company law specialists, will be formed to draft statutory guidance on what is meant by the expression "significant influence or control" in the context of the PSC register.
SBEEB inserts a requirement that companies investigate, obtain and update information on registrable persons/entities into the Companies Act 2006 (sections 790D, 790E and 790H). This includes taking reasonable steps to find out if any exist and to identify them and to give notice to those it knows (or has reasonable cause to believe):
i) are registrable persons/entities themselves;
ii) know of the identity of such registrable persons/entities; and
iii) have ceased to be registrable persons/entities. The company and its officers commit an offence by failing to comply with these sections.
There is a corresponding duty on registrable persons/entities to actively disclose their status where the person/entity knows (or ought reasonably to know) that it is a registrable person/entity, they are not already registered in the PSC Register and have not yet received a notice from the company (section 790G). If all these circumstances have existed for at least one month, the registrable person/entity has a further month to make the notification.
Should a recipient of a section 790D or 790E notice fail to comply with it or give a valid reason why it has not complied, the company may give a warning notice that the company intends to issue that person/entity with a restrictions notice. If a restrictions notice is served, any transfer of the interests subject to the restrictions notice will be void, no payments can be made (including dividends), no rights may be exercised and no shares may be issued in right of that interest (should the company so issue shares in contravention of a restriction, the company and the officers commit an offence) (Schedule 1B). Similarly the registrable person/entity (and its officers) commits an offence by failing to comply with sections 790D, 790E, 790G and 790H (Schedule 1B).
The PSC Register must contain information such as the nature of the registrable person/entity's control.
Another change influenced by the aim of increased transparency in companies is the prohibition of bearer shares. For existing bearer shares, SBEEB prescribes a transitional arrangement for their cancellation or conversion. The voluntary surrender period lasts for nine months, during which the holders may voluntarily surrender their bearer shares for conversion into registered shares. Within the first month of the surrender period and again before the end of the eighth month, the company must give notice to the bearer shareholders stating their rights to surrender and the consequences of failing to do so. From the seventh to ninth month of the period, all rights (such as voting and dividends) will be suspended automatically. If there are any bearer shares remaining by the end of the period, during the three months following its expiry, the company must obtain a court order for their cancellation (after notice is given to holders and Companies House). Failure by the company with the above will constitute an offence of the company/officers (as applicable).
To address concerns that corporate directors are used by individuals to disguise their involvement and the difficulty in bringing a misfeasance claim, corporate directors will be prohibited under SBEEB. Although SBEEB allows for exceptions to be made by the Secretary of State, none are specified under SBEEB itself. Some commentators expect the exceptions to include group companies, charities and corporate pension trustees, although this has not been confirmed. For companies with existing corporate directors, there are transitional provisions for their removal after one year of SBEEB coming into force.
SBEEB now makes it explicit that general duties of directors apply to shadow directors where and to the extent they are capable of applying. It also amends the definition of shadow director in section 251 of the Companies Act 2006.
Registers and filing
On incorporation of a company, a statement of initial significant control must be included with the registration documents delivered to Companies House. The statement contains similar information to the required particulars in the PSC Register (described above). Following incorporation, if there has been no change in significant control since the information was last delivered to Companies House, then it will be sufficient to deliver a confirmatory statement saying so (see Replacement of annual return below).
As part of the government's aim to remove red tape and simplify filing requirements, SBEEB allows private companies the option of keeping information on the public register at Companies House instead of a separately maintained PSC Register. The company must give notice to registrable persons/entities of this election and the election may not be made if any persons/entities so notified raise an objection within a prescribed notice period.
Replacement of annual return
Of interest to company secretaries is the removal of the requirement to file an annual return, to be replaced by a confirmation statement stating that the company has delivered all the information that it was required to for that review period within 14 days of the end of the review period. The default review period begins on the day of incorporation and lasts 12 months, with the next review period commencing on the following day. The company can choose to provide a confirmation statement earlier than the due date, in which case the next 12-month review period starts the day after the date specified in the confirmation statement.
The confirmation statement must include (or provide with the statement):
i) details of a change in registered office;
ii) details of company registers relating to directors, company secretaries (if appropriate) and people with significant control;
iii) any obligations that arise following the company's decision to keep any registers on the central register;
iv) if the company uses a single alternative inspection location, details of where a company keeps company registers;
v) notice of any change in the company's principal business activities;
vi) a statement of capital (unless there has been no change); and
vii) whether any of its shares are admitted to trading and whether the company is a DTR5 issuer, unless there has been no change.
A traded company (unless a DTR5 issuer) must provide information about shareholders holding at least 5 per cent of the issued shares of any class in the company including their name and address and the number and class of the shares held. Non-traded companies have more limited information requirements: only the name of each shareholder, the number of shares of each class held, the number of shares of each class transferred and the dates of registration of those transfers need to be provided. If the non-traded company has elected to keep its register of members on the central register only, it will not have to provide this information.
Note that statements of capital will no longer require the amount paid up and unpaid on each share to be stated; only the aggregate amount unpaid on the total number of shares is necessary.
A useful provision in SBEEB for company secretaries of private companies is the option to record statutory register information (registers of members, directors and secretaries, and of directors' residential addresses) in a central public register at Companies House instead. This option is subject to certain conditions and requirements, including that all members of the company must assent to the register of members being held centrally and the company must update the Companies House central register.
Consent to act
Another provision which is likely to be welcomed by company secretaries is the removal of the consent to act from new directors or company secretaries on registration of their appointment with Companies House. Instead, the company gives a statement that the appointee has consented to act and Companies House will send a notice to new appointees (appointees can apply to have their name removed from the register if they did not consent to act).
- SBEEB 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 indictable offences overseas.
- SBEEB allows the Secretary of State to impose a requirement on companies to publish information about a company's payment practices and policies.
- Reducing the amount of time required to strike off a company from approximately six months in total to approximately four months.
- There are plans to streamline company registration that will allow companies to register simultaneously with Companies House and for taxes with HMRC, by May 2017.
SBEEB has now moved to the Committee stage in the House of Lords.
This does not apply to a company that is subject to Chapter 5 of the Disclosure & Transparency Rules (DTRs)
 By reference to nominal share value or (if the company does not have share capital) the right to share in more than 25 per cent of the entity’s capital or profits
The Secretary of State is required to publish guidance about the meaning of "significant influence or control".
 As at January 2015 the proposed staged implementation process was as follows:
- Two months following SBEEB’s Royal Assent: The prohibition on issuing new bearer shares will come into force and the nine month period for companies to convert existing bearer shares will start.
- October 2015: The prohibition on corporate directors will come into force, together with the measures relating to the company’s registered office and director disputes, reducing the time periods applicable to the company strike off process and withholding directors' dates of birth from the public register.
- January 2016: The requirement for companies to keep a register of persons with significant control will come into force. However, the obligation to file this information with the Registrar of Companies is planned to take effect three months later.
- April 2016: The changes to the statement of capital will take effect, along with the new confirmation statement which will replace the traditional annual return. The obligation to file information from the PSC register at the Registrar of Companies will also come into force, and private companies will be able to opt to keep information in their registers on the public register with the Registrar.