The Department for Business, Innovation and Skills (BIS) recently released a discussion paper on ‘Transparency and Trust’ dealing with the questions of ownership and control of companies. This paper was prepared in response to Prime Minister David Cameron’s proposal to his counterparts at the G8 summit in June that reforms be put in place to enhance transparency of company ownership.
Vince Cable, the Secretary of State for BIS, introduced the paper by declaring the reforms important, and stating that “enhanced transparency of company ownership will help [the government] tackle tax evasion, money laundering and terrorist financing. It will improve the investment climate and make doing business easier.”
Mr Cable was, however, also careful to reassure business owners that he was still committed to reducing regulation and burdens on business, and that the “enhanced transparency” would not just reduce fraudulent behaviour, but also encourage additional investment.
The discussion paper consists of 2 parts: “transparency” part, that deals with the issue of “real” ownership and control of UK companies, and “trust” part, that deals with accountability of the directors for misconduct and corporate failures. The first part of the paper, as summarised by BIS, looks to inject greater transparency around who really owns and controls companies in the UK and the second half sets out ways of making directors more accountable for misconduct or company failure. Key proposals include giving regulators greater powers to disqualify directors in specific sectors and allowing courts to take more account of the social impacts of directors’ actions.
The following have been proposed as ways for achieving greater corporate transparency:
- Establishment of a central registry of information on companies’ beneficial ownership, which will be maintained by the Companies House. This registry would hold information on individuals holding more than 25 per cent of shares or voting rights in a company, or who otherwise control the way a company is run;
- Abolition of bearer shares, which would allow the public to know the true owners of companies;
- Disclosure by nominee directors of their status as nominee directors and the identity of individuals for whom they are acting;
The abolition of corporate directors (i.e., companies acting as directors in any company). The main proposals contained in the ‘trust’ section of the paper include:
- Changing the duties of banks’ directors;
- Allowing the courts to take account of the impact a director’s actions have on society and their previous failures when considering disqualification action;
- Giving courts the power to make compensation awards against a director when making a disqualification order and allowing liquidators to sell or assign fraudulent trading actions to creditors;
- Offering directors education at the end of their disqualification or a slight reduction in the disqualification period if they take up the offer;
- Preventing disqualified overseas directors from being a director of a UK company;
- Extending the time limit for when disqualification action must be taken against the directors of an insolvent company. Currently standing at two years, the paper proposes a new five year limit to take into account more complex insolvency cases.
This discussion paper represents only the start of what may well be a lengthy consultation process.
One likely objection will be that – despite Mr Cable’s reassurances – the proposed rules will simply impose new burdens on the law-abiding. The group which should be most affected are of course those who have in fact shown a willingness not to play by the rules – leading to a potential Catch-22 situation.
Arlington will stay fully informed and will keep its clients informed with respect to all new developments in this area. Should any changes be introduced that may affect our clients we will be happy to work with you on finding suitable solutions. Should you require any further information regarding the proposal and how it may affect your situation and your business if the proposals were to be implemented, please feel free to contact us.
Source: Global Banking & Finance , GlobalServeNetwork