New Statutory Register introduced under Small Business, Enterprise and Employment Act 2015 (SBEE) – Part Three
Whether you are a company or an individual shareholder this new legislation may affect you.
This is our third and final article covering the Register for People with Significant Control (PSC Register).
Our first two articles discussed the requirement to have a PSC Register, the distinction between registrable and non-registrable persons, and the statutory responsibility to collect, provide and maintain the requisite information, together with the expected timeframe for implementation.
This article examines the penalties for default, the actions companies may take against individuals or legal entities who fail to comply and takes a brief look at the new 'Confirmation Statement', which will replace the Annual Return.
Question - What is the penalty for failing to comply with this legislation?
Failure to maintain the PSC Register and to investigate, obtain and update information on persons with significant control will amount to a criminal offence committed not only by the company but also each of its officers. A conviction may result in a fine and/or imprisonment for up to two years.
Given the severity of the consequences for non-compliance, companies will want to keep detailed records showing that they have made every effort to identify, give notice to and collect the information required from the relevant PSCs or RLEs (or potential PSCs or RLEs), and to keep this information up to date. The legislation supplies specific wording to be used to ensure that the PSC Register is up to date when identifying PSCs and RLEs.
Question - What are the obligations on PSCs and suspected PSCs? What happens if we issue notices to them and they do not reply?
As mentioned in our previous article, persons who know or ought reasonably to know that their details should be on a PSC Register are obliged to give this information to the company. They are obliged to provide this data even if the company does not ask for it. They should also ensure that their details are kept up to date. It is a criminal offence to fail to supply this information or to knowingly or recklessly supply incorrect information and may incur a fine and/or imprisonment of up to two years. It is therefore as much the PSC's obligation to provide the information, as it is in the company's obligation to track it down.
Notwithstanding the statutory obligations on PSCs, the new legislation also grants to companies rights to impose sanctions on PSCs who fail to comply with their obligations. If there is no response within one month of an initial notice, the company may (after first sending a warning notice and provided that no valid reason for the non-compliance has been received by the company) issue a 'restrictions notice' placing restrictions on shares held by the recalcitrant PSC. The legislation, as currently drafted, states that these restrictions will prevent the holder from selling, transferring or receiving any benefits from their interest in the company. It is envisaged that these restrictions can be imposed by the company directly, without having to seek any form of authorisation or court order.
The consequences of such a restriction notice could be extreme: no rights appertaining to the PSC's restricted shares may be exercised and no further shares may be issued in connection with them. Also, the company may not pay out any sums due in respect of the shareholding, such as dividends or returns of capital (although it is understood that this would not be the case in the event that the company were liquidated with such a restriction in place). It should be noted that the effect of these restrictions is, in a sense, irreversible: although the restrictions can be lifted (once the PSC has provided the necessary information or a suitable justification for not doing so), there is no ability to claw back rights or opportunities lost during the period in which the restrictions were in place.
To further emphasise the importance of the sanctions envisaged, and perhaps reflecting that in some companies the relationship between the company, its board and its PSCs might be complex, there are also penalties should a PSC attempt to contravene the restriction notice whilst knowing that the restrictions are in place, and the company could also find itself in hot water if it were to take any action that was in contravention of any restrictions.
Given what could ultimately be at stake, and the recriminations that could flow from restrictions being placed on shares, this is undoubtedly going to be an area where companies are going to tread carefully. The legislation does set out what wording should be placed in the PSC Register when imposing a restriction notice, but we would strongly recommend professional advice be sought in connection with any such proceedings. At the very least, the officers of the company would want to make sure that they have a fulsome audit trail of the relevant correspondence and the rationale for any decisions.
Question - What if the company has no People with Significant Control?
Companies will be required to make a note of this on their PSC Register and the legislation sets out the exact wording. Every limited company, Societates Europaeae (SE) and Limited Liability Partnership (LLP) must have a PSC Register, even if it only contains the wording set out in legislation to the effect that the company has no PSCs. Entities such as limited partnerships (LPs) and Charitable Incorporated Organisations (CIOs) are exempt from the requirement. The obligation of maintaining a PSC Register is effectively suspended for those companies who are subject to Chapter 5 of the FCA's Disclosure and Transparency Rules (which is where they are listed on the main London Stock Exchange or other prescribed markets such as AIM or ISDX Growth Market).
Question - What is the Confirmation Statement mentioned in earlier articles?
The Confirmation Statement will replace the Annual Return (currently filed by companies once in every calendar year). The layout for the Confirmation Statement has yet to be released. We anticipate that it will: cover the same information as the Annual Return as well as some information from the PSC Register; incur a filing fee; remain a statutory requirement; and need to be filed at least once in every twelve month period.
Confirmation Statements will be able to be filed at any time. For instance, should a new director be appointed, a company could chose to file a new Confirmation Statement even if it is not due. The legislation states that a Confirmation Statement must be filed once in every 12 month period and the clock re-sets every time a Confirmation Statement is filed. However, it is our expectation that many companies will keep to filing on the anniversary of their last statement, mirroring the position with the existing annual return.
Once again we draw your attention to the guidance which is currently available on the Companies House website https://www.gov.uk/government/publications/guidance-to-the-people-with-significant-control-requirements-for-companies-and-limited-liability-partnerships. This guidance contains much more information than is covered in these articles. It should also be noted that LLPs are also required to keep and maintain a PSC Register. Broadly, the regulations are very similar but there are differences, therefore looking at the legislation (which has a separate section on LLPs) may be useful.
We would also recommend following the social media pages for Companies House to keep up with information as it is released.