Small Business, Enterprise and Employment Bill (HC Bill 11)

2 After Schedule 1 to that Act insert—

Section 790C

“Schedule 1A References to people with significant control over a company

Part 1 The specified conditions

5Introduction

1 This Part of this Schedule specifies the conditions at least one of
which must be met by an individual (“X”) in relation to a company
(“company Y”) in order for the individual to be a person with
“significant control” over the company.

10Ownership of shares

2 The first condition is that X holds, directly or indirectly, more than
25% of the shares in company Y.

Ownership or control of voting rights

3 The second condition is that X is entitled, directly or indirectly—

(a) 15to exercise more than 25% of the voting rights in company
Y, or

(b) to control the exercise of more than 25% of those rights.

Ownership or control of right to appoint or remove directors

4 The third condition is that X is entitled, directly or indirectly—

(a) 20to appoint or remove a majority of the board of directors of
company Y, or

(b) to control the exercise of a right or rights (in aggregate) to
appoint or remove a majority of that board.

Significant influence or control

5 25The fourth condition is that X has the right to exercise, or actually
exercises, significant influence or control over company Y.

Trusts, partnerships etc

6 The fifth condition is that—

(a) the trustees of a trust or the members of a firm that, under
30the law by which it is governed, is not a legal person meet
any of the other specified conditions (in their capacity as
such) in relation to company Y, or would do so if they were
individuals, and

(b) X has the right to exercise, or actually exercises, significant
35influence or control over the activities of that trust or firm.

Joint interests

7 If X and others hold a share or right jointly—

(a) each of them is treated for the purposes of this Schedule as
holding that share or right, and

(b) 5the specified conditions are to be read accordingly.

Joint arrangements

8 If shares or rights held by X and shares or rights held by another
person are the subject of a joint arrangement between X and that
other person—

(a) 10each of them is treated for the purposes of this Schedule as
holding the combined shares or rights of both of them, and

(b) the specified conditions are to be read accordingly.

Part 2 Supplementary provision

15Introduction

9 This Part sets out rules for the interpretation of this Schedule.

Calculating shareholdings

10 (1) In relation to a legal entity that has a share capital, a reference to
holding “more than 25% of the shares” in that entity is to holding
20shares comprised in the issued share capital of that entity of a
nominal value exceeding (in aggregate) 25% of that share capital.

(2) In relation to a legal entity that does not have a share capital, a
reference to holding “more than 25% of the shares” in that entity is
to holding a right or rights to share in more than 25% of the capital
25or, as the case may be, profits of that entity.

Voting rights

11 (1) A reference to the voting rights in a legal entity is to the rights
conferred on shareholders in respect of their shares (or, in the case
of an entity not having a share capital, on members) to vote at
30general meetings of the entity on all or substantially all matters.

(2) In relation to a legal entity that does not have general meetings at
which matters are decided by the exercise of voting rights, a
reference to exercising more than 25% of the voting rights in the
entity is to be read as a reference to exercising the right under the
35constitution of the entity to block changes to the overall policy of
the entity or to the terms of its constitution.

12 In applying this Schedule, the voting rights in a legal entity are to
be reduced by any rights held by the entity itself.

Rights to appoint or remove a majority of the board

13 A reference to the right to appoint or remove a majority of the
board of directors of a legal entity is to the right to appoint or
remove directors holding a majority of the voting rights at
5meetings of the board on all or substantially all matters.

14 References to a board of directors, in the case of an entity that does
not have such a board, are to be read as references to the
equivalent management body of that entity.

Shares or rights held “indirectly”

15 (1) 10A person holds a share “indirectly” if the person has a majority
stake in a legal entity and that entity—

(a) holds the share in question, or

(b) is part of a chain of legal entities—

(i) each of which (other than the last) has a majority
15stake in the entity immediately below it in the
chain, and

(ii) the last of which holds the share.

(2) A person is entitled “indirectly” to exercise or control the exercise
of a right if the person has a majority stake in a legal entity and that
20entity—

(a) is entitled to exercise or control the exercise of that right, or

(b) is part of a chain of legal entities—

(i) each of which (other than the last) has a majority
stake in the entity immediately below it in the
25chain, and

(ii) the last of which is entitled to exercise or control the
exercise of that right.

(3) For these purposes, A has a “majority stake” in B if—

(a) A holds a majority of the voting rights in B,

(b) 30A is a member of B and has the right to appoint or remove
a majority of the board of directors of B,

(c) A is a member of B and controls alone, pursuant to an
agreement with other shareholders or members, a majority
of the voting rights in B, or

(d) 35A has the right to exercise, or actually exercises, dominant
influence or control over B.

(4) In the application of this paragraph to the right to appoint or
remove a majority of the board of directors, a legal entity is to be
treated as having the right to appoint a director if—

(a) 40a person’s appointment as director follows necessarily
from that person’s appointment as director of the legal
entity, or

(b) the directorship is held by the legal entity itself.

Controlling the exercise of a right

16 A person is entitled to “control” the exercise of rights if, by virtue
of any arrangement between that person and others, the rights are
exercisable only—

(a) 5by that person,

(b) in accordance with that person’s directions or instructions,
or

(c) with that person’s consent or concurrence.

17 (1) “Arrangement” includes—

(a) 10any scheme, agreement or understanding, whether or not
it is legally enforceable, and

(b) any convention, custom or practice of any kind.

(2) But something does not count as an arrangement unless there is at
least some degree of stability about it (whether by its nature or
15terms, the time it has been in existence or otherwise).

Rights exercisable only in certain circumstances etc

18 (1) Rights that are exercisable only in certain circumstances are to be
taken into account only—

(a) when the circumstances have arisen, and for so long as
20they continue to obtain, or

(b) when the circumstances are within the control of the
person having the rights.

(2) But rights that are exercisable by an administrator or by creditors
while a legal entity is in relevant insolvency proceedings are not to
25be taken into account even while the entity is in those proceedings.

(3) “Relevant insolvency proceedings” means—

(a) administration within the meaning of the Insolvency Act
1986,

(b) administration within the meaning of the Insolvency
30(Northern Ireland) Order 1989, or

(c) proceedings under the insolvency law of another country
or territory during which an entity’s assets and affairs are
subject to the control or supervision of a third party or
creditor.

(4) 35Rights that are normally exercisable but are temporarily incapable
of exercise are to continue to be taken into account.

Rights attached to shares held by way of security

19 Rights attached to shares held by way of security provided by a
person are to be treated for the purposes of this Schedule as held
40by that person—

(a) where apart from the right to exercise them for the purpose
of preserving the value of the security, or of realising it, the
rights are exercisable only in accordance with that person’s
instructions, and

(b) where the shares are held in connection with the granting
of loans as part of normal business activities and apart
from the right to exercise them for the purpose of
preserving the value of the security, or of realising it, the
5rights are exercisable only in that person’s interests.

Significant influence or control

20 (1) The Secretary of State must prepare and publish guidance about
the meaning of “significant influence or control” for the purposes
of this Schedule.

(2) 10The guidance must be laid before Parliament.

(3) Regard must be had to that guidance (or, if it has been updated, to
the latest guidance) in interpreting references in this Schedule to
“significant influence or control”.

Joint arrangements

21 (1) 15A “joint arrangement” is an arrangement between the holders of
shares (or rights) that they will exercise all or substantially all the
rights conferred by their respective shares (or rights) jointly in a
way that is pre-determined by the arrangement.

(2) “Arrangement” has the meaning given in paragraph 17.

20Nominees

22 (1) A right held by a person as nominee for another is to be treated for
the purposes of this Schedule as held by the other.

(2) Rights are to be regarded as held “as nominee for another” if they
are exercisable only on that other’s instructions or with that
25other’s consent or concurrence.

Part 3 Power to amend thresholds etc

23 (1) The Secretary of State may by regulations amend this Schedule for
a permitted purpose.

(2) 30The permitted purposes are—

(a) to replace any or all references in this Schedule to a
percentage figure with references to some other (larger or
smaller) percentage figure;

(b) to change or supplement the specified conditions in Part 1
35of this Schedule so as to include circumstances (for
example, circumstances involving more complex
structures) that give individuals a level of control over
company Y broadly similar to the level of control given by
the other specified conditions.

(3) 40Regulations under this paragraph are subject to affirmative
resolution procedure.

Section 790I

Schedule 1A Enforcement of disclosure requirements

Right to issue restrictions notice

1 (1) This paragraph applies if—

(a) a notice under section 790D or 790E is served by a
5company on a person who has a relevant interest in the
company, and

(b) the person fails to comply with that notice within the time
specified in it.

(2) The company may give the person a notice under this paragraph
10(a “warning notice”) informing the person that it is proposing to
issue the person with a notice (a “restrictions notice”) with respect
to the relevant interest.

(3) The company may issue the restrictions notice if, by the end of the
period of 14 days beginning with the date on which the warning
15notice was given—

(a) the person has not complied with the notice served under
section 790D or 790E, and

(b) the company has not been provided with a valid reason
sufficient to justify the person’s failure to comply with the
20notice served under that section.

(4) A restrictions notice is issued on a person by sending the notice to
the person.

(5) The effect of a restrictions notice is set out in paragraph 3.

(6) In deciding whether to issue a restrictions notice, the company
25must have regard to the effect of the notice on the rights of third
parties in respect of the relevant interest.

Relevant interests

2 (1) For the purposes of this Schedule, a person has a relevant interest
in a company if the person—

(a) 30holds any shares in the company,

(b) is entitled to exercise any voting rights in the company, or

(c) is entitled to appoint or remove a majority of the board of
directors of the company.

(2) References to “the relevant interest” are to the shares or
35entitlement in question.

(3) Part 2 of Schedule 1A applies for the interpretation of sub-
paragraph (1) save that, where the relevant interest is held by one
person as nominee for another (within the meaning of paragraph
22 of that Schedule), both the nominee and the other person are to
40be regarded for the purposes of this Schedule as having the
relevant interest.

Effect of restrictions notice

3 (1) The effect of a restrictions notice issued under paragraph 1 with
respect to a relevant interest is as follows—

(a) any transfer of the interest is void,

(b) 5no rights are exercisable in respect of the interest,

(c) no shares may be issued in right of the interest or in
pursuance of an offer made to the interest-holder,

(d) except in a liquidation, no payment may be made of sums
due from the company in respect of the interest, whether
10in respect of capital or otherwise.

(2) An agreement to transfer an interest that is subject to the
restriction in sub-paragraph (1)(a) is void.

(3) Sub-paragraph (2) does not apply to an agreement to transfer the
interest on the making of an order under paragraph 8 made by
15virtue of sub-paragraph (3)(b) of that paragraph (removal of
restrictions in case of court-approved transfer).

(4) An agreement to transfer any associated right (otherwise than in a
liquidation) is void.

(5) Sub-paragraph (4) does not apply to an agreement to transfer any
20such right on the making of an order under paragraph 8 made by
virtue of sub-paragraph (3)(b) of that paragraph (removal of
restrictions in case of court-approved transfer).

(6) An “associated right”, in relation to a relevant interest, is—

(a) a right to be issued with any shares issued in right of the
25relevant interest, or

(b) a right to receive payment of any sums due from the
company in respect of the relevant interest.

(7) The provisions of this section are subject to any directions given
under paragraph 4.

30Protection of third party rights

4 (1) The court may give a direction under this paragraph if, on
application by any person aggrieved, the court is satisfied that a
restrictions notice issued by the company under paragraph 1
unfairly affects the rights of third parties in respect of the relevant
35interest.

(2) The direction is given for the purpose of protecting those third
party rights.

(3) The direction is a direction that certain acts will not constitute a
breach of the restrictions placed on the relevant interest by the
40restrictions notice.

(4) An order containing a direction under this paragraph—

(a) must specify the acts that will not constitute a breach of the
restrictions, and

(b) may confine the direction to cases where those acts are
45done by persons, or for purposes, described in the order.

(5) The direction may be given subject to such terms as the court
thinks fit.

Breach of restrictions

5 (1) A person commits an offence if the person does anything listed in
5sub-paragraph (2) knowing that the interest is subject to
restrictions.

(2) The things are—

(a) exercising or purporting to exercise any right to dispose of
a relevant interest,

(b) 10exercising or purporting to exercise any right to dispose of
any right to be issued with a relevant interest, or

(c) voting in respect of a relevant interest (whether as holder
of the interest or as proxy) or appointing a proxy to vote in
respect of a relevant interest.

(3) 15A person who has a relevant interest that the person knows to be
subject to restrictions commits an offence if the person—

(a) knows a person to be entitled (apart from the restrictions)
to vote in respect of the interest, whether as holder or as
proxy,

(b) 20does not know the person to be aware of the fact that the
interest is subject to restrictions, and

(c) fails to notify the person of that fact.

(4) A person commits an offence if the person—

(a) either has a relevant interest that the person knows to be
25subject to restrictions or is entitled to an associated right,
and

(b) enters in that capacity into an agreement that is void by
virtue of paragraph 3(2) or (4).

(5) References in this Schedule to an interest being “subject to
30restrictions” are to an interest being subject to restrictions by
virtue of a restrictions notice under paragraph 1.

6 If shares in a company are issued in contravention of a restriction
imposed by virtue of a restrictions notice under paragraph 1, an
offence is committed by—

(a) 35the company, and

(b) every officer of the company who is in default.

7 (1) A person guilty of an offence under paragraph 5 or 6 is liable—

(a) on conviction on indictment, to a fine;

(b) on summary conviction—

(i) 40in England and Wales, to a fine,

(ii) in Scotland or Northern Ireland, to a fine not
exceeding the statutory maximum.

(2) The provisions of those paragraphs are subject to any direction
given under paragraph 4 or 8.

Relaxation of restrictions

8 (1) An application may be made to the court for an order directing
that the relevant interest cease to be subject to restrictions.

(2) An application for an order under this paragraph may be made by
5the company in question or by any person aggrieved.

(3) The court must not make an order under this paragraph unless—

(a) it is satisfied that the information required by the notice
served under section 790D or 790E has been disclosed to
the company and no unfair advantage has accrued to any
10person as a result of the earlier failure to make that
disclosure, or

(b) the relevant interest is to be transferred for valuable
consideration and the court approves the transfer.

(4) An order under this paragraph made by virtue of sub-paragraph
15(3)(b) may continue, in whole or in part, the restrictions mentioned
in paragraph 3(1)(c) and (d) so far as they relate to a right acquired
or offer made before the transfer.

(5) Where any restrictions continue in force under sub-paragraph
(4)—

(a) 20an application may be made under this paragraph for an
order directing that the relevant interest cease to be subject
to those restrictions, and

(b) sub-paragraph (3) does not apply in relation to the making
of such an order.

25Orders for sale

9 (1) The court may order that the relevant interest subject to
restrictions be sold subject to the court’s approval as to the sale.

(2) An application for an order under sub-paragraph (1) may only be
made by the company in question.

(3) 30If the court makes an order under this paragraph, it may make
such further order relating to the sale or transfer of the interest as
it thinks fit.

(4) An application for an order under sub-paragraph (3) may be
made—

(a) 35by the company in question,

(b) by the person appointed by or in pursuance of the order to
effect the sale, or

(c) by any person with an interest in the relevant interest.

(5) On making an order under sub-paragraph (1) or (3), the court may
40order that the applicant’s costs (in Scotland, expenses) be paid out
of the proceeds of sale.

10 (1) If a relevant interest is sold in pursuance of an order under
paragraph 9, the proceeds of the sale, less the costs of the sale,
must be paid into court for the benefit of those who are
45beneficially interested in the relevant interest.

(2) A person who is beneficially interested in the relevant interest
may apply to the court for the whole or part of those proceeds to
be paid to that person.

(3) On such an application, the court must order the payment to the
5applicant of—

(a) the whole of the proceeds of sale together with any interest
on the proceeds, or

(b) if another person was also beneficially interested in the
relevant interest at the time of the sale, such proportion of
10the proceeds (and any interest) as the value of the
applicant’s interest bears to the total value of the relevant
interest.

(4) If the court has ordered under paragraph 9 that the costs (in
Scotland, expenses) of an applicant under that paragraph are to be
15paid out of the proceeds of sale, the applicant is entitled to
payment of those costs (or expenses) out of the proceeds before
any person receives any part of the proceeds under this
paragraph.

Company’s power to withdraw restrictions notice

11 20A company that issues a person with a restrictions notice under
paragraph 1 must by notice withdraw the restrictions notice if—

(a) it is satisfied that there is a valid reason sufficient to justify
the person’s failure to comply with the notice served under
section 790D or 790E,

(b) 25the notice served under section 790D or 790E is complied
with, or

(c) it discovers that the rights of a third party in respect of the
relevant interest are being unfairly affected by the
restrictions notice.

30Supplementary provision

12 (1) The Secretary of State may by regulations make provision about
the procedure to be followed by companies in issuing and
withdrawing restrictions notices.

(2) The regulations may in particular make provision about—

(a) 35the form and content of warning notices and restrictions
notices, and the manner in which they must be given,

(b) the factors to be taken into account in deciding what
counts as a “valid reason” sufficient to justify a person’s
failure to comply with a notice under section 790D or 790E,
40and

(c) the effect of withdrawing a restrictions notice on matters
that are pending with respect to the relevant interest when
the notice is withdrawn.

(3) Regulations under this paragraph are subject to negative
45resolution procedure.