Small Business, Enterprise and Employment Bill

Written evidence submitted by Equiniti David Venus (SB 38)

1. Equiniti David Venus is a leading firm of chartered secretaries, and part of the Equiniti group. We are professional company law specialists providing complex company law and corporate guidance advice to both public and private companies, acting as company secretary to many of these, and consultant and adviser to many more. We act for public companies listed on the Main Market including 17 of the ftse350, AIM or ISDX, private companies, UK establishments of foreign companies, and overseas subsidiaries of UK parent companies. We also provide outsourced support to accountants, tax advisers, and lawyers.

2. We are grateful for the opportunity to comment on the Bill and support the work of BIS to further deregulate compliance for the smallest corporate entities whilst also ensuring a robust framework is in place for larger entities. Our comments are focused on the proposed amendments to the Companies Act 2006 set out in Part 7 of the Bill.

Summary of Points Raised

o Application of PSC Register to directors under significant control provisions

o Application of duty to make enquires for the purposes of PSC register in circumstances where owner is unresponsive or claims foreign privacy rights

o Concern that the requirement for a Court Order when cancellation share warrants may place unnecessary expense on companies and place burdens on the Companies Court

o Query the ability of the Court Funds office to receive funds in the timescale set out in the Bill

o Querying the rationale for replacing the annual return with, for all practical purposes, an identical return but called a confirmation statement

o Querying the removal of the ability of companies to withhold information using the proper purpose test where they take advantage of the optional filing arrangements.

Register of People with Significant Control (PSC Register)

3. We have three areas of concern being the scope and interaction between interests deriving from share ownership and control by virtue of influence or control of a company and secondly the practical implication for UK companies with unresponsive owners and lastly the process for rectification.

4. Directors, and certainly CEOs and MDs clearly have significant influence and control over the company they are employed by. However they may not necessarily have any significant ownership either directly or indirectly. As details of directors are already made public are the directors of the company to be exempt from being entered on the PSC Register if their interest arise solely out of their being a director of the company?

5. In our own case as a group we are owned by a private equity fund. We know that no one individual has a beneficial interest in more than 5% of the share capital. The private equity firm manages this investment on behalf of the fund members. Are they likely to fall within the definition of exercising significant control even though their economic interest would fall below the 25% level? – I suspect yes.

6. We are also concerned that in certain circumstances the requirement on directors to enquire and obtain information on those with significant control may pit them against their company owner. Identification of the true owners/controllers of companies is of legitimate concern however failure to provide those details may also be for legitimate reasons.

7. Proposed section 790D imposes a duty on company officers to investigate and obtain information and proposed section 790F imposes liability in the event of failure to do so. However it is feasible that this obligation may place an officer of a company under a statutory duty to make enquiries of their employer that that employer specifically instructs them not to do. Additionally whilst there are sanctions available to a company for failure to reply it is difficult to understand the circumstances in which a company and its directors would seek to impose sanctions against its significant owners.

8. In addition there may be a conflict of laws. For example we have clients where, if these provisions were currently in force, a registrable interest would exist for a Swiss resident nominee. We are aware from our experience of issuing requests under section 793 Companies Act 2006 that these nominees simply refer to Swiss privacy laws and refuse to disclose underlying beneficiary information, even in circumstances where the beneficiary has instructed them to co-operate.

9. Proposed section 790U sets out the procedure for rectification of the PSC Register which mirror the existing provisions for rectification of the register of members and only permit rectification supported by a Court Order. Obtaining a Court Order is a time consuming and expensive process and one that currently deters companies, shareholders and beneficial holders from seeking rectification where the cost of obtaining a Court Order is greater than the value of the holding. Whilst a Court process for disputed cases should be retained we would welcome the inclusion of a simpler process, not requiring Court approval, in circumstances where all relevant parties agree. This might include the company, the person whose details are incorrect and if relevant the person whose details should be included. Extending such a simpler process for rectification of the register of members would also be greatly valued.

Abolition of Bearer Shares

10. Schedule 4 section 5 of the Bill will require a company with share warrants remaining unsurrendered to obtain a Court Order to reduce its capital by cancelling the warrants and shares specified therein.

11. Chapter 10 of the Companies Act 2006 sets out a procedure for private companies to undertake reductions of capital supported by a declaration of solvency so as t avoid the expense of obtaining a Court Order. We are concerned that requiring all companies to obtain a court order to implement the cancellation of any remaining share warrants will be unduly expensive and may also place undue strain on the companies court given the very tight timeframe imposed on companies.

12. Although the reduction of capital supported by a solvency statement is generally only available to private companies will this procedure be made available to both private and public companies in respect of cancellation of share warrants?

13. Schedule 4 section 9 will require companies to make a payment into Court within 14 days of the Court Order being made. This is wholly impractical. Currently a draft of the witness statement in support of a payment into court is submitted to the Court officer for review and once confirmed payment can then be made. This review process currently takes approximately 10 weeks due to the backlog at the Court funds office.

14. The current process for payments into court requires the last known details of beneficiaries, names, address and amount, to be provided to the Court Funds Office. Clearly I the case of bearer shares this is not possible.

Replacement of annual return with confirmation statement

15. At first sight it is difficult to see what if any benefit this change has over the existing annual return regime. Much has been made of the need to allow companies, where there have been no changes to the information from one year to the next, to be able to confirm that in a simple and quick check and confirm process. In addition much has been made of the ability for companies to file a confirmation statement at any point during the period of 12 months from the previous one and specifically when making any other changes such as change of director.

16. Companies making use of the Companies House web filing service are already able to check and confirm the details of their annual return in less than 1 minute and I find it difficult to believe that a newer check and confirm service will be any quicker or provide any tangible benefit when compared to the current system. This feels like change for changes sake.

17. Companies are already able to file an annual return earlier than the anniversary of the made up date.

18. Companies are not currently offered the opportunity to file an updated annual return whenever changes to the content of the annual return are made however it is not credible that such a change cannot be made by Companies House without the need for new legislation.

19. As currently drafted the Bill appears to remove the requirement for an annual return and replace it with an almost identical obligation to file a confirmation statement.

Optional filing

20. s.80 of the Bill introduces the ability for companies to hold their statutory registers on the central registry kept at Companies House. Any company that does this will automatically have details of the directors and members residential addresses freely available to those searching the public register. Whilst this does of course replicate the ability of anyone to inspect a company’s registers what is missing is the proper purpose test which allows companies the ability to protect sensitive data from anyone seeking the data for an improper purpose.

21. This proposed change also flies in the face of recent trends to prohibit access to residential addresses introduced by the Companies Act 2006.

October 2014

Prepared 22nd October 2014