Small Business, Enterprise and Employment Bill (HC Bill 117)

(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
or, as the case may be, profits of that entity.

5Voting 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
general meetings of the entity on all or substantially all matters.

(2) 10In 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
constitution of the entity to block changes to the overall policy of
15the 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
20board of directors of a legal entity is to the right to appoint or
remove directors holding a majority of the voting rights at
meetings 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
25equivalent management body of that entity.

Shares or rights held “indirectly”

15 (1) A 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) 30is 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
chain, and

(ii) the last of which holds the share.

(2) 35A 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
entity—

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

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

(i) 40each of which (other than the last) has a majority
stake in the entity immediately below it in the
chain, 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) A is a member of B and has the right to appoint or remove
a majority of the board of directors of B,

(c) 5A 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) A has the right to exercise, or actually exercises, dominant
influence or control over B.

(4) 10In 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) a person’s appointment as director follows necessarily
from that person’s appointment as director of the legal
15entity, 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
20exercisable only—

(a) by that person,

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

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

17 (1) 25“Arrangement” includes—

(a) any 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
30least some degree of stability about it (whether by its nature or
terms, 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) 35when the circumstances have arisen, and for so long as
they 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
40while a legal entity is in relevant insolvency proceedings are not to
be 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
(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
5subject to the control or supervision of a third party or
creditor.

(4) Rights 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 10Rights attached to shares held by way of security provided by a
person are to be treated for the purposes of this Schedule as held
by 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
15rights 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
20preserving the value of the security, or of realising it, the
rights 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
25of this Schedule.

(2) The 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”.

30Joint arrangements

21 (1) A “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) 35“Arrangement” has the meaning given in paragraph 17.

Nominees

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
40are exercisable only on that other’s instructions or with that
other’s consent or concurrence.

Limited partnerships

23 (1) An individual does not meet the specified condition in paragraph
2, 3 or 4 in relation to a company by virtue only of being a limited
partner.

(2) 5An individual does not meet the specified condition in paragraph
2, 3 or 4 in relation to a company by virtue only of, directly or
indirectly—

(a) holding shares,

(b) holding a right, or

(c) 10controlling the exercise of a right,

in or in relation to a limited partner which (in its capacity as such)
would meet the condition if it were an individual.

(3) Sub-paragraphs (1) and (2) do not apply for the purposes of
determining whether the requirement set out in paragraph (a) of
15the specified condition in paragraph 6 is met.

(4) In this paragraph “limited partner” means a limited partner in a
limited partnership registered under the Limited Partnerships Act
1907 (other than one who takes part in the management of the
partnership business).

20Part 3 Power to amend thresholds etc

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

(2) The permitted purposes are—

(a) 25to 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
of this Schedule so as to include circumstances (for
30example, 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) Regulations under this paragraph are subject to affirmative
35resolution 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
40company 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
(a “warning notice”) informing the person that it is proposing to
5issue 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 one month beginning with the date on which the
warning notice was given—

(a) 10the 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
notice served under that section.

(4) 15A 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
must have regard to the effect of the notice on the rights of third
20parties 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) holds any shares in the company,

(b) 25is 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
entitlement in question.

(3) 30Part 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
be regarded for the purposes of this Schedule as having the
35relevant 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) 40no 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
45in 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
5virtue 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
10such 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
15relevant 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.

20Protection 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
25interest.

(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
30restrictions 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
35done 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
40sub-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) exercising 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
5respect of a relevant interest.

(3) A 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
10proxy,

(b) does 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) 15either has a relevant interest that the person knows to be
subject 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) 20References in this Schedule to an interest being “subject to
restrictions” 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
25offence is committed by—

(a) the 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) 30on summary conviction—

(i) in 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
35given 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
40the 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
45person 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
(3)(b) may continue, in whole or in part, the restrictions mentioned
5in 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) an application may be made under this paragraph for an
10order 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.

Orders for sale

9 (1) 15The 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) If the court makes an order under this paragraph, it may make
20such 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) by the company in question,

(b) 25by 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
order that the applicant’s costs (in Scotland, expenses) be paid out
30of 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
beneficially interested in the relevant interest.

(2) 35A 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
applicant of—

(a) 40the 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
the proceeds (and any interest) as the value of the
45applicant’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
paid out of the proceeds of sale, the applicant is entitled to
payment of those costs (or expenses) out of the proceeds before
5any person receives any part of the proceeds under this
paragraph.

Company’s power to withdraw restrictions notice

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

(a) 10it 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) the notice served under section 790D or 790E is complied
with, or

(c) 15it discovers that the rights of a third party in respect of the
relevant interest are being unfairly affected by the
restrictions notice.

Supplementary provision

12 (1) The Secretary of State may by regulations make provision about
20the procedure to be followed by companies in issuing and
withdrawing restrictions notices.

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

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

(b) 25the 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,
and

(c) the effect of withdrawing a restrictions notice on matters
30that are pending with respect to the relevant interest when
the notice is withdrawn.

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

Offences for failing to comply with notices

13 (1) 35A person to whom a notice under section 790D or 790E is
addressed commits an offence if the person—

(a) fails to comply with the notice, or

(b) in purported compliance with the notice—

(i) makes a statement that the person knows to be false
40in a material particular, or

(ii) recklessly makes a statement that is false in a
material particular.

(2) Where the person is a legal entity, an offence is also committed by
every officer of the entity who is in default.

(3) A person does not commit an offence under sub-paragraph (1)(a)
(or sub-paragraph (2) as it applies in relation to that sub-
paragraph) if the person proves that the requirement to give
information was frivolous or vexatious.

(4) 5A person guilty of an offence under this paragraph is liable—

(a) on conviction on indictment, to imprisonment for a term
not exceeding two years or a fine (or both);

(b) on summary conviction—

(i) in England and Wales, to imprisonment for a term
10not exceeding twelve months or to a fine (or both);

(ii) in Scotland, to imprisonment for a term not
exceeding twelve months or to a fine not exceeding
the statutory maximum (or both);

(iii) in Northern Ireland, to imprisonment for a term
15not exceeding six months or to a fine not exceeding
the statutory maximum (or both).

Offences for failing to provide information

14 (1) A person commits an offence if the person—

(a) fails to comply with a duty under section 790G or 790H, or

(b) 20in purported compliance with such a duty—

(i) makes a statement that the person knows to be false
in a material particular, or

(ii) recklessly makes a statement that is false in a
material particular.

(2) 25Where the person is a legal entity, an offence is also committed by
every officer of the entity who is in default.

(3) A person guilty of an offence under this paragraph is liable—

(a) on conviction on indictment, to imprisonment for a term
not exceeding two years or a fine (or both);

(b) 30on summary conviction—

(i) in England and Wales, to imprisonment for a term
not exceeding twelve months or to a fine (or both);

(ii) in Scotland, to imprisonment for a term not
exceeding twelve months or to a fine not exceeding
35the statutory maximum (or both);

(iii) in Northern Ireland, to imprisonment for a term
not exceeding six months or to a fine not exceeding
the statutory maximum (or both).”

Part 2 40Related amendments

3 The Companies Act 2006 is amended as follows.

4 In section 9 (registration documents), in subsection (4), at the end of
paragraph (c) insert “;

(d) a statement of initial significant control (see section 12A).”