Legal Services Bill [HL]

House of Commons

Session 2006 - 07
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Legal Services Bill [HL]

Legal Services Bill [HL]
Schedule 13 — Ownership of licensed bodies
Part 1 — Introductory
194

Schedule 13
Section 89

Ownership of licensed bodies
Part 1
Introductory
Restricted interests subject to approval
5
1     (1)
The holding by a non-authorised person of a restricted interest in a licensed
body is subject to the approval of the relevant licensing authority in
accordance with the provisions of this Schedule.
      (2)
In relation to a licensed body which is a partnership, for the purposes of
section 34 of the Partnership Act 1890 (c. 39) (dissolution by illegality) the
10
holding by a non-authorised person of a restricted interest in the body
without the approval of the relevant licensing authority does not make it
unlawful for the business of the partnership to be carried on, or for the
partners to carry it on in partnership.
Restricted interest
15
2     (1)
“Restricted interest” means each of the following—
(a)
a material interest;
(b)
if licensing rules are made by the relevant licensing authority under
sub-paragraph (2), a controlled interest.
      (2)
Licensing rules may specify that a controlled interest is a restricted interest
20
for the purposes of this Schedule.
Material interest
3     (1)
For the purposes of this Part of this Act, a person holds a material interest in
a body (“B”) if the person—
(a)
has an interest in at least 10% of the shares in B,
25
(b)
is able to exercise significant influence over the management of B by
virtue of the person’s interest in shares in B,
(c)
has an interest in at least 10% of the shares in a parent undertaking
(“P”) of B,
(d)
is able to exercise significant influence over the management of P by
30
virtue of the person’s interest in shares in P,
(e)
is entitled to exercise, or control the exercise of, at least 10% of the
voting power in B,
(f)
is able to exercise significant influence over the management of B by
virtue of the person’s voting power in B,
35
(g)
is entitled to exercise, or control the exercise of, at least 10% of the
voting power in P, or
(h)
is able to exercise significant influence over the management of P by
virtue of the person’s voting power in P.
      (2)
Licensing rules made by the relevant licensing authority may provide—
40
(a)
that the references in sub-paragraph (1) to 10% are to have effect as
references to such lesser percentage as may be specified in the rules;

Legal Services Bill [HL]
Schedule 13 — Ownership of licensed bodies
Part 1 — Introductory
195

(b)
that in relation to a partnership, for the purposes of this Part a person
has a material interest in the partnership if he is a partner (whether
or not the person has a material interest by virtue of sub-paragraph
(1)).
      (3)
For the purposes of sub-paragraph (1) “the person” means—
5
(a)
the person,
(b)
any of the person’s associates, or
(c)
the person and any of the person’s associates taken together.
      (4)
For the purposes of this Schedule, material interests held by virtue of
different paragraphs of sub-paragraph (1) are restricted interests of different
10
kinds.
Controlled interest
4     (1)
For the purposes of this Schedule, a person holds a controlled interest in a
body (“B”) if the person—
(a)
has an interest in at least x% of the shares in B,
15
(b)
has an interest in at least x% of the shares in a parent undertaking
(“P”) of B,
(c)
is entitled to exercise, or control the exercise of, at least x% of the
voting power in B, or
(d)
is entitled to exercise, or control the exercise of, at least x% of the
20
voting power in P.
      (2)
For the purposes of sub-paragraph (1) “the person” means—
(a)
the person,
(b)
any of the person’s associates, or
(c)
the person and any of the person’s associates taken together.
25
      (3)
In sub-paragraph (1), “x” means such percentage as may be specified in
licensing rules made by the relevant licensing authority under paragraph
2(2).
      (4)
Licensing rules made under paragraph 2(2) may specify more than one
percentage.
30
      (5)
Any percentage specified by licensing rules made under paragraph 2(2)
must be greater than—
(a)
10%, or
(b)
if the relevant licensing authority makes licensing rules under
paragraph 3(2)(a), the percentage specified in those rules.
35
      (6)
For the purposes of this Schedule—
(a)
controlled interests held by virtue of different paragraphs of sub-
paragraph (1) are restricted interests of different kinds;
(b)
if licensing rules made under paragraph 2(2) specify more than one
percentage, controlled interests held by virtue of each of those
40
percentages are restricted interests of different kinds.
Associates, parent undertakings and voting power
5     (1)
For the purposes of this Schedule “associate”, in relation to a person (“A”)
and—

Legal Services Bill [HL]
Schedule 13 — Ownership of licensed bodies
Part 1 — Introductory
196

(a)
an interest in the shares of a body (“S”), or
(b)
an entitlement to exercise or control the exercise of voting power in
a body (“V”),

means a person listed in sub-paragraph (2).
      (2)
The persons are—
5
(a)
the spouse or civil partner of A,
(b)
a child or stepchild of A (if under 18),
(c)
the trustee of any settlement under which A has a life interest in
possession (in Scotland a life interest),
(d)
an undertaking of which A is a director,
10
(e)
an employee of A,
(f)
a partner of A (except, where S or V is a partnership in which A is a
partner, another partner in S or V),
(g)
if A is an undertaking—
(i)
a director of A,
15
(ii)
a subsidiary undertaking of A, or
(iii)
a director or employee of such a subsidiary undertaking,
(h)
if A has with any other person an agreement or arrangement with
respect to the acquisition, holding or disposal of shares or other
interests in S or V, that other person, or
20
(i)
if A has with any other person an agreement or arrangement under
which they undertake to act together in exercising their voting power
in relation to S or V, that person.
      (3)
In sub-paragraph (2)(c), “settlement” means any disposition or arrangement
under which property is held on trust (or subject to a comparable
25
obligation).
      (4)
For the purposes of this Schedule—
“parent undertaking” and “subsidiary undertaking” have the same
meaning as in the Financial Services and Markets Act 2000 (c. 8) (see
section 420 of that Act);
30
“voting power”, in relation to a body which does not have general
meetings at which matters are decided by the exercise of voting
rights, means the right under the constitution of the body to direct
the overall policy of the body or alter the terms of its constitution.
The approval requirements
35
6     (1)
For the purposes of this Schedule, the approval requirements are met in
relation to a person’s holding of a restricted interest if—
(a)
the person’s holding of that interest does not compromise the
regulatory objectives,
(b)
the person’s holding of that interest does not compromise
40
compliance with the duties imposed by section 177 by the licensed
body or persons to whom sub-paragraph (2) applies, and
(c)
the person is otherwise a fit and proper person to hold that interest.
      (2)
This sub-paragraph applies to any employee or manager of the licensed
body who is an authorised person in relation to an activity which is a
45
reserved legal activity.

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Schedule 13 — Ownership of licensed bodies
Part 2 — Approval of restricted interests on application for licence
197

      (3)
In determining whether it is satisfied of the matters mentioned in sub-
paragraph (1)(a) to (c), the licensing authority must in particular have regard
to—
(a)
the person’s probity and financial position,
(b)
whether the person is disqualified as mentioned in section 100(1), or
5
included in the list kept by the Board under paragraph 52,
(c)
the person’s associates, and
(d)
any other matter which may be specified in licensing rules.
      (4)
Licensing rules must make provision about the procedures that will be
applied by the licensing authority when determining whether it is satisfied
10
of the matters mentioned in sub-paragraph (1)(a) to (c).
Approval of multiple restricted interests
7     (1)
This paragraph applies if a person (“P”) holds a kind of restricted interest in
a body (“B”) by virtue of—
(a)
an interest in a particular percentage of the shares in B or a parent
15
undertaking of B, or
(b)
an entitlement to exercise, or control the exercise of, a particular
percentage of the voting power in B or a parent undertaking of B.
      (2)
If the relevant licensing authority approves P’s holding of that interest, it is
to be treated as also approving P’s holding of any lesser restricted interest in
20
B held by P.
      (3)
A lesser restricted interest is a kind of restricted interest held by P by virtue
of—
(a)
an interest in a smaller percentage of the shares mentioned in sub-
paragraph (1)(a), or
25
(b)
an entitlement to exercise, or control the exercise of, a smaller
percentage of the voting power mentioned in sub-paragraph (1)(b).
Board’s power to prescribe rules
8
In this Schedule “prescribed” means prescribed by rules made by the Board
for the purposes of this Schedule.
30
Lord Chancellor’s power to modify
9
The Lord Chancellor may, on the recommendation of the Board, by order
modify—
(a)
paragraph 3 (material interest);
(b)
paragraphs 4(2), 5, 6(3)(c), 38(2), 42(3) and 43(3) (associates).
35
Part 2
Approval of restricted interests on application for licence
Requirement to identify non-authorised persons
10    (1)
Where a body applies to a licensing authority for a licence, it must identify
in its application—
40

Legal Services Bill [HL]
Schedule 13 — Ownership of licensed bodies
Part 2 — Approval of restricted interests on application for licence
198

(a)
any non-authorised person who holds a restricted interest in the
body, or whom the body expects to hold such an interest when the
licence is issued, and
(b)
the kind of restricted interest held, or expected to be held, by that
person.
5
      (2)
If, before the licence is issued, there is any change in—
(a)
the identity of the non-authorised persons within sub-paragraph
(1)(a), or
(b)
the kind of restricted interest held, or expected to be held, by a
person identified to the licensing authority under that sub-
10
paragraph,

the applicant must inform the relevant licensing authority within such
period as may be specified by order made by the Lord Chancellor on the
recommendation of the Board.
11    (1)
It is an offence for a person to fail to comply with a requirement imposed on
15
the person by paragraph 10.
      (2)
A person who is guilty of an offence under sub-paragraph (1) is liable on
summary conviction to a fine not exceeding level 5 on the standard scale.
      (3)
It is a defence for a person charged with an offence under sub-paragraph (1)
to show that at the time of the alleged offence the person had no knowledge
20
of the facts by virtue of which the duty to notify arose.
12    (1)
This paragraph applies if a person under a duty to notify imposed by
paragraph 10—
(a)
had no knowledge of the facts by virtue of which that duty arose, but
(b)
subsequently becomes aware of those facts.
25
      (2)
The person must give the licensing authority the required notification
within such period, after the person becomes so aware, as may be specified
by order made by the Lord Chancellor on the recommendation of the Board.
      (3)
A person who fails to comply with the duty to notify imposed by sub-
paragraph (2) is guilty of an offence.
30
      (4)
A person who is guilty of an offence under sub-paragraph (3) is liable on
summary conviction to a fine not exceeding level 5 on the standard scale.
Requirement to notify non-authorised persons
13    (1)
Where an applicant for a licence identifies a non-authorised person to a
licensing authority in accordance with paragraph 10 or 12, it must give that
35
person a notice—
(a)
stating that it has applied for a licence and identified the person to
the licensing authority in accordance with paragraph 10 or 12, and
(b)
explaining the effect of paragraph 14.
      (2)
It is an offence for a person to fail to comply with a requirement imposed on
40
it by sub-paragraph (1).
      (3)
A person who is guilty of an offence under sub-paragraph (2) is liable on
summary conviction to a fine not exceeding level 5 on the standard scale.

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Schedule 13 — Ownership of licensed bodies
Part 2 — Approval of restricted interests on application for licence
199

Licensing authority’s power to require information
14    (1)
A licensing authority may require a non-authorised person identified to it in
accordance with paragraph 10 or 12 to provide it with such documents and
information as it may require.
      (2)
It is an offence for a person who is required to provide information or
5
documents under sub-paragraph (1) knowingly to provide false or
misleading information or documents.
      (3)
A person who is guilty of an offence under sub-paragraph (2) is liable—
(a)
on summary conviction, to a fine not exceeding the statutory
maximum, and
10
(b)
on conviction on indictment, to a term of imprisonment not
exceeding 2 years or a fine (or both).
Licence may not be granted unless non-authorised persons approved
15    (1)
This paragraph applies where an applicant for a licence (“the applicant”)
gives the licensing authority notification under paragraph 10 or 12 in
15
relation to one or more non-authorised persons.
      (2)
The licensing authority may not grant the application for a licence unless, in
relation to each non-authorised person in respect of which notification is
given (“the investor”), it approves the investor’s holding of the restricted
interest to which the notification relates (“the notified interest”).
20
      (3)
Sub-paragraph (2) does not apply in relation to a non-authorised person
who does not hold the notified interest when the licence is issued.
      (4)
In this Part of this Schedule, “the applicant”, “the investor” and “the notified
interest” are to be construed in accordance with this paragraph.
Unconditional approval of notified interest
25
16    (1)
If the licensing authority is satisfied that the approval requirements are met
in relation to the investor’s holding of the notified interest, it must approve
the investor’s holding of that interest without conditions.
      (2)
If the licensing authority approves the investor’s holding of the notified
interest without conditions, it must notify the investor and the applicant of
30
its approval as soon as reasonably practicable.
Conditional approval of notified interest
17    (1)
If the licensing authority is not satisfied that the approval requirements are
met in relation to the investor’s holding of the notified interest, it may
approve the investor’s holding of the notified interest subject to conditions.
35
      (2)
It may do so only if it considers that, if the conditions are complied with, it
will be appropriate for the investor to hold the notified interest without the
approval requirements being met.
      (3)
If the licensing authority proposes to approve the investor’s holding of the
notified interest subject to conditions it must give the investor and the
40
applicant a warning notice.
      (4)
The warning notice must—

Legal Services Bill [HL]
Schedule 13 — Ownership of licensed bodies
Part 2 — Approval of restricted interests on application for licence
200

(a)
specify the nature of the conditions proposed and the reasons for
their imposition, and
(b)
state that representations may be made to the licensing authority
within the prescribed period.
      (5)
The licensing authority must consider any representations made within the
5
prescribed period.
      (6)
If the licensing authority approves the investor’s holding of the notified
interest subject to conditions, it must notify the investor and the applicant of
its approval as soon as reasonably practicable.
      (7)
The notice must—
10
(a)
specify the reasons for the imposition of the conditions, and
(b)
explain the effect of Part 5 of this Schedule.
18    (1)
The investor and the applicant may before the end of the prescribed period
appeal to the relevant appellate body against the imposition of any or all of
the conditions.
15
      (2)
The relevant appellate body may dismiss the appeal, or allow the appeal
and—
(a)
order the licensing authority to approve the investor’s holding of the
notified interest without conditions, or subject to such conditions as
may be specified in the order, or
20
(b)
remit the matter to the licensing authority.
      (3)
A party to the appeal may before the end of the prescribed period appeal to
the High Court on a point of law arising from the decision of the relevant
appellant body, but only with the permission of the High Court.
      (4)
The High Court may make such order as it thinks fit.
25
      (5)
If the investor’s holding of the notified interest is subject to conditions as a
result of an order made on an appeal under this paragraph, for the purposes
of this Schedule the conditions are to be treated as having been imposed
under paragraph 17.
Objection to notified interest
30
19    (1)
If the licensing authority is not satisfied that the approval requirements are
met in relation to the investor’s holding of the notified interest, it may object
to the investor’s holding of that interest.
      (2)
If the licensing authority proposes to object to the investor’s holding of the
notified interest, it must give the investor and the applicant a warning
35
notice.
      (3)
The warning notice must—
(a)
specify the reasons for the proposed objection, and
(b)
state that representations may be made to the licensing authority
within the prescribed period.
40
      (4)
The licensing authority must consider any representations made within the
prescribed period.