Consolidated Corporate Update – Corporate Governance

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This half-yearly update summarizes the main developments in UK company law and regulation that have occurred over the past six months and which will be relevant to companies listed in the UK.

“On the horizon” – more hardware developments we expect to see over the next 6-12 months:

TCFD reporting for all companies for fiscal years beginning on or after April 2022 – see point E1 below

Diversity reporting for listed companies for fiscal years commencing April 2022 or later, but FCA encourages early adoption – see point C3 below

Reform of Companies House which will impact all businesses due to the broad nature of the proposals – see point A1 below

Range audit and corporate governancereform which will impact many large companies and listed companies – see point F1 below

Hill Review reform package – a
restructuring of the registration scheme in the UK is in progress, secondary capital raising review is to report and draft legislation to give
Prospectus powers to the FCA is expected this year – see points C1, C2 and D1

A. Company law

1. Reform of Companies House and prohibition of company directors

In February 2022, the government published a white paper on the reform of Companies House.

Enhanced role and increased powers for Companies House

The reforms will bring about the biggest change in the role of the Registrar since its creation in 1884, transforming it from a largely passive recipient of information into a much more active gatekeeper. According to the plans, Companies House:

  • Power to request information – be empowered to question any filing (including company names) that appears to be erroneous, abnormal or suspicious, and which may affect the integrity of the register or the broader business environment. It will have the power to request additional evidence and/or to reject the deposit;

  • Power to delete information from register– have the power to delete items from the registry more quickly and in broader circumstances than currently; and

  • Digital archiving of information – be able to require that all information be archived in digital form. Company accounts will need to be tagged and filed in iXBRL.

Identity Verification

New identity verification requirements will be introduced for all new and existing company directors (and equivalent for other entities), persons in significant control (PSC) and those filing information with Companies House. UK company formation agents who register with Companies House can carry out the checks. Administrators and PSCs who do not verify their identity commit a criminal offense and/or face a civil penalty. Companies that have an unverified administrator are also committing an offence.

Prohibition of corporate directors

The ban on company directors (contained in the Small Business, Enterprise and Jobs Act 2015) will also be implemented. The only exception is where:

  • all the directors of the corporate officer are natural persons; and

  • prior to their appointment as directors of the company director, all the directors had their identity verified.

Only company directors registered in the UK will be allowed – companies will not be able to have company directors registered overseas.

An easy reference snapshot of proposals can be found here.

2. Register of foreign entities that own property in the UK and latest sanctions

Register of foreign entities owning property in the UK

Under the Economic Crime (Transparency and Enforcement) Act 2022, which received royal assent on March 15, 2022, foreign entities that own land in the UK will need to be listed on a public register at Companies House. They will be brought to:

  • take steps to identify their beneficial owner(s);

  • register information about their beneficial owner(s) with Companies House; and

  • update this information periodically (or confirm that the registry information is current).

The requirement will only come into force once the necessary secondary legislation has been passed but, once in force, any overseas entity which becomes, or has become since 1 January 1999, the registered owner of UK land will have to register. The definition of beneficial owner and the information required in relation to beneficial owners in the Act are substantially the same as under the UK Companies Act 2006, persons with significant control.

If a foreign entity does not register with Companies House or comply with the requirement to update information, in most cases this will affect the entity’s ability to sell or lease the land , or to create a charge on it, as the other party would not be able to register the transaction with the Land Registry. The law also provides for various penalties that could be imposed on the entity, including fines for directors if they fail to comply.

An overview of the impact of the law and the transitional provisions relating to land already held by foreign entities is available here.

Punishments

The law also makes significant changes to the sanctions regime in the UK, which will have wider and longer-term ramifications beyond the conflict in Ukraine.

Listed companies are particularly interested in the changes made by the law to the Policing and Crime Act 2017. From June 15, 2022, the amendments introduced a strict civil liability regime in the UK for companies that breach financial sanctions legislation – there is no longer a need to know or have reasonable grounds to suspect relevant issues (for example, that a transaction involves a named person).

The Treasury has also been given the power to publish reports in cases where a pecuniary penalty has not been imposed, but it is satisfied that a person has breached a prohibition or failed to comply with an obligation imposed under the financial sanctions legislation (on a balance of probabilities)

The implications of these changes will need to be considered in connection with any corporate action in the normal course of business, for example involving payments to shareholders or shareholders exercising voting or other rights.

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The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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