House of Lords - Draft Registration of Overseas Entities Bill - Joint Committee on the Draft Registration of Overseas Entities Bill

No	Location	Issue	Department response	Committee Recommendation
1	Cl 2(2)	“Legal entity” might include individuals. They are also “legal persons”. Might it be helpful to exclude individuals expressly–as does, for example, Sched 3 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012?	In our view it is already clear that the definition of “legal entity” does not catch individuals. The word “entity” connotes an organisation, body or institution. In ordinary usage it would be unusual to refer to a natural person as an “entity”. The context also makes it clear that we do not intend to catch individuals because individuals do not have beneficial owners. Moreover, Schedule 2 clearly draws a distinction between legal entities and individuals.
2	Cl 7(5)	The Explanatory Notes (ENs) suggest the intention to be that an update period can be shortened by early delivery of an updating statement (and information) coupled with a notice that the new period is to run from the following day. How does the Bill operate to cause the update period to end on the day that the information is provided? Does Cl 7(5)(b), coupled with Cl 7(1), in fact allow the entity to specify the end of the period to be any of the 14 days preceding the giving of the information?	The answers to these questions are worked through below. An update period is defined in clause 7(4). It is either: - (a) the period of 12 months beginning with the date of the overseas entity’s registration; and then subsequently– (b) each period of 12 months beginning with the day after the end of the previous update period. The update period, defined above, can be shortened. This is made clear by clause 7(5). In order to shorten the update period, the overseas entity needs to deliver the statements and information specified in Clause 7(1) and notify the registrar of the shortened update period. When these steps are completed the current update period ends automatically. In practice, this will be the day that the overseas entity notifies Companies House about the shortened update period and sends the statements and information specified in Clause 7(1).	Clause 7 is not drafted sufficiently clearly. We recommend that the clause be re-drafted to be easier to follow.
			The new update period commences the next day after the completion of the aforementioned steps. It is not the intention to afford an overseas entity the option of specifying the end of the update period in the 14 days preceding the completion of the steps specified in Clause 7(5). This is because it is only the completion of the steps in Clause 7(5) which terminates an existing update period. In the question posed, the overseas entity would effectively terminate an existing update period before complying with the steps in Clause 7(5), which is not the intention.
3	Cl 15(1)	The clause has “description” as the object of the phrase “in relation to”. The “requirements” do not relate to “a description”. Should the clause read: “… requirements in relation to overseas entities of a description specified in the regulations”?	We agree with this suggestion and the legislation will be amended accordingly.
4	Cl 21(2)	Why does “or body” appear in Cl 21(2), despite Interpretation Act 1978, Sched 1?	We agree with this suggestion and the legislation will be amended accordingly.
5	Cl 26(1)	As the Court must direct removal (see subsections (2) and (3)), the words “and that the court directs should be removed from the register” should appear underneath paragraph (b). Subsection (1) then takes on the form of a “sandwich”.	We agree with this suggestion and the legislation will be amended accordingly.
6	Sched 1, para 3(1)	Why does the required information about a beneficial owner, in contrast to a managing officer (or a director: see CA 2006, s 163), not include any former name? The ENs relating to s 790K of the CA 2006 say former name and business occupation “are not thought relevant in the context of people with significant control” (ENs to the Small Business, Enterprise and Employment Act 2015, para 426). Why is this the case?	Taking the second point first: for directors in the UK, it is considered desirable to have the ability to link names to previous or former activity and any former names in order to assist in identifying if someone appointed a director is disqualified or otherwise barred from becoming a director (for example, where being appointed as a director might be subject to them not being a former or discharged bankrupt). It is therefore considered proportionate and necessary to require former names for directors. With respect to the first point, within this Bill we have included a requirement for managing officers to provide former names because we believe that it is desirable to have the ability to link names in a similar way: within the context of this Bill, the definition of a managing officer of an overseas entity includes director, manager or secretary (Clause 36). We do not believe that the same points hold true for beneficial owners and therefore do not require it of them.
7	Sched 1, paras 3(1)(d), 4(e) and 5(f)	How should an entity determine the date on which an individual became a registrable beneficial owner by virtue of their actual exercise of significant control over the entity? That is, when does actual exercise of significant control begin?	The date the threshold conditions are met, as set out in schedule 2.
8	Sched 2, para 7(1)(f)	The Secretary of State may prescribe a description of legal entity as “subject to, its own disclosure requirements”, the effect of which is that it will become a registrable beneficial owner if it is a beneficial owner and not exempt. This is broadly similar to the power (itself referred to at para 7(1)(c)) in section 790C(7)(d) of the Companies Act 2006). But that power is circumscribed by requiring the Secretary of State to “have regard to the extent to which entities of that description are bound by disclosure and transparency rules … equivalent to” those applying to entities falling within other paragraphs of s 790C(7). Why is this limitation not carried through to regulations under paragraph 7(1)(f)?	We have not replicated this limitation in order to provide flexibility and to future-proof the Bill because we want to ensure that we have maximum flexibility to add to the definition of “subject to its own disclosure requirements” if circumstances change. An example might be where the information that an overseas entity is required to provide is available on a public register elsewhere, but this is not a ‘free to access’ register: we may make a decision to specify that a company subject to these sorts of requirements is “subject to its own disclosure requirements”. This would be by secondary legislation subject to the affirmative procedure.
9	Sched 2, para 22, ENs para 157	Are the ENs accurate? They describe the conditions in Sched 2, para 22 as cumulative. If either condition (a) or (b) in para 22 is satisfied, the rights attached to shares held by way of security are treated as held by the person who granted the security (the borrower).	The policy intention is for paragraphs (a) and (b) to be alternative cases and that in both cases the shares held by way of security provided by the person are to be treated as held by that person. The clause provides for two separate scenarios in subparagraphs (a) and (b). The wording reflects paragraph 23 of Schedule 1A to the Companies Act 2006 and other similar provisions of that Act. We will consider changing the Explanatory Notes before the Bill is introduced.
10	Explanatory Notes, generally	There are minor and/or typographical errors in the ENs, in particular: para 42(a) omits “registrable” before “beneficial” para 67, “to” after “sends” para 81 refers to Clauses 21 and 22 as 20 and 21 para 89 refers at the end of line 4 to a notice period: it should be “notice to be given of an application” para 128 is divided into sub-paragraphs numbered differently to other subdivisions para 128(i) omits “and” after “regime” para 182 refers to a disposition being un-registrable “under paragraphs 3 and 4” paras 185 and 186 refer to an offence “under paragraphs 4 or 5”, and “4 and 5”. There is no offence under paragraph 4 para 221, “od” [sic] and lower-case reference to “schedule 4A” (which occurs elsewhere)	We are grateful for these comments.
11	Sched 2, para 23	In relation to the definition of “foreign limited partner”, the Law Society of Scotland says the following are not clear— (1) the meaning of “arrangements” (para 23(6)), and (2) the scope of “characteristics” (para 23(5) and (6))	Both will be addressed in regulations, the content and structure of which is still being considered. The regulations will take into account the meaning of “arrangements” and scope of “characteristics” as outlined in The Register of People with Significant Control Regulations 2016, Regulation 8. http://www.legislation.gov.uk/uksi/2016/339/regulation/8/made
12	Sched 4, para 7 (new Sched 1A to 2012 Act, para 1(1) and para 2(1)).	The Law Society of Scotland suggests that it is not clear whether subparagraphs (i) to (iii) of para 1(1)(a) are intended to qualify a “qualifying registrable deed” as well as a “registrable deed”. It makes a similar point in relation to para 2(2)(a) and “which is a standard security”. It seems reasonably clear, given the way “qualifying registrable deed” is defined in para 7(1), that the additional qualifications apply only to “registrable deed” in each case. Is this the Department’s view?	Yes, this is the Department’s view
13	Cl 7 Sched 3, para 3 (new Sched 4A to 2002 Act, para 7) Sched 4, para 7 (new Sched 1A to 2012 Act, para 7(2) & (3)) Sched 5, para 3 (new Sched 8A to 1970 Act, para 7)	The Law Society of Scotland points out that the duty in Clause 7 to update the register could be interpreted either— (1) as being satisfied simply by delivering the information referred to, regardless of its accuracy (the making of deliberate or reckless errors in which might be an offence under Cl 28), or (2) as requiring that the information submitted be accurate (which might mean the land registries would have to check it before registering any disposition / deed, as a result of para 7 of each of the inserted Schedules referred to). Which is the intended policy, and is the Department satisfied that the drafting is sufficiently clear?	The Department is satisfied that the drafting is sufficiently clear: it is an offence to provide false information and the overseas entity must provide correct information to discharge their statutory obligations. Land Registries must be satisfied that an overseas entity is a registered overseas entity prior to registering relevant dispositions.

1

Cl 2(2)

“Legal entity” might include individuals. They are also “legal persons”. Might it be helpful to exclude individuals expressly–as does, for example, Sched 3 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012?

In our view it is already clear that the definition of “legal entity” does not catch individuals. The word “entity” connotes an organisation, body or institution. In ordinary usage it would be unusual to refer to a natural person as an “entity”. The context also makes it clear that we do not intend to catch individuals because individuals do not have beneficial owners. Moreover, Schedule 2 clearly draws a distinction between legal entities and individuals.

2

Cl 7(5)

The Explanatory Notes (ENs) suggest the intention to be that an update period can be shortened by early delivery of an updating statement (and information) coupled with a notice that the new period is to run from the following day.

How does the Bill operate to cause the update period to end on the day that the information is provided?

Does Cl 7(5)(b), coupled with Cl 7(1), in fact allow the entity to specify the end of the period to be any of the 14 days preceding the giving of the information?

The answers to these questions are worked through below.

An update period is defined in clause 7(4). It is either: -

(a) the period of 12 months beginning with the date of the overseas entity’s registration; and then subsequently–

(b) each period of 12 months beginning with the day after the end of the previous update period.

The update period, defined above, can be shortened. This is made clear by clause 7(5).

In order to shorten the update period, the overseas entity needs to deliver the statements and information specified in Clause 7(1) and notify the registrar of the shortened update period.

When these steps are completed the current update period ends automatically. In practice, this will be the day that the overseas entity notifies Companies House about the shortened update period and sends the statements and information specified in Clause 7(1).

Clause 7 is not drafted sufficiently clearly.

We recommend that the clause be re-drafted to be easier to follow.

The new update period commences the next day after the completion of the aforementioned steps.

It is not the intention to afford an overseas entity the option of specifying the end of the update period in the 14 days preceding the completion of the steps specified in Clause 7(5). This is because it is only the completion of the steps in Clause 7(5) which terminates an existing update period. In the question posed, the overseas entity would effectively terminate an existing update period before complying with the steps in Clause 7(5), which is not the intention.

3

Cl 15(1)

The clause has “description” as the object of the phrase “in relation to”. The “requirements” do not relate to “a description”. Should the clause read: “… requirements in relation to overseas entities of a description specified in the regulations”?

We agree with this suggestion and the legislation will be amended accordingly.

4

Cl 21(2)

Why does “or body” appear in Cl 21(2), despite Interpretation Act 1978, Sched 1?

We agree with this suggestion and the legislation will be amended accordingly.

5

Cl 26(1)

As the Court must direct removal (see subsections (2) and (3)), the words “and that the court directs should be removed from the register” should appear underneath paragraph (b). Subsection (1) then takes on the form of a “sandwich”.

We agree with this suggestion and the legislation will be amended accordingly.

6

Sched 1, para 3(1)

Why does the required information about a beneficial owner, in contrast to a managing officer (or a director: see CA 2006, s 163), not include any former name? The ENs relating to s 790K of the CA 2006 say former name and business occupation “are not thought relevant in the context of people with significant control” (ENs to the Small Business, Enterprise and Employment Act 2015, para 426). Why is this the case?

Taking the second point first: for directors in the UK, it is considered desirable to have the ability to link names to previous or former activity and any former names in order to assist in identifying if someone appointed a director is disqualified or otherwise barred from becoming a director (for example, where being appointed as a director might be subject to them not being a former or discharged bankrupt). It is therefore considered proportionate and necessary to require former names for directors.

With respect to the first point, within this Bill we have included a requirement for managing officers to provide former names because we believe that it is desirable to have the ability to link names in a similar way: within the context of this Bill, the definition of a managing officer of an overseas entity includes director, manager or secretary (Clause 36).

We do not believe that the same points hold true for beneficial owners and therefore do not require it of them.

7

Sched 1, paras 3(1)(d), 4(e) and 5(f)

How should an entity determine the date on which an individual became a registrable beneficial owner by virtue of their actual exercise of significant control over the entity? That is, when does actual exercise of significant control begin?

The date the threshold conditions are met, as set out in schedule 2.

8

Sched 2, para 7(1)(f)

The Secretary of State may prescribe a description of legal entity as “subject to, its own disclosure requirements”, the effect of which is that it will become a registrable beneficial owner if it is a beneficial owner and not exempt. This is broadly similar to the power (itself referred to at para 7(1)(c)) in section 790C(7)(d) of the Companies Act 2006). But that power is circumscribed by requiring the Secretary of State to “have regard to the extent to which entities of that description are bound by disclosure and transparency rules … equivalent to” those applying to entities falling within other paragraphs of s 790C(7). Why is this limitation not carried through to regulations under paragraph 7(1)(f)?

We have not replicated this limitation in order to provide flexibility and to future-proof the Bill because we want to ensure that we have maximum flexibility to add to the definition of “subject to its own disclosure requirements” if circumstances change. An example might be where the information that an overseas entity is required to provide is available on a public register elsewhere, but this is not a ‘free to access’ register: we may make a decision to specify that a company subject to these sorts of requirements is “subject to its own disclosure requirements”. This would be by secondary legislation subject to the affirmative procedure.

9

Sched 2, para 22, ENs para 157

Are the ENs accurate? They describe the conditions in Sched 2, para 22 as cumulative. If either condition (a) or (b) in para 22 is satisfied, the rights attached to shares held by way of security are treated as held by the person who granted the security (the borrower).

The policy intention is for paragraphs (a) and (b) to be alternative cases and that in both cases the shares held by way of security provided by the person are to be treated as held by that person. The clause provides for two separate scenarios in subparagraphs (a) and (b). The wording reflects paragraph 23 of Schedule 1A to the Companies Act 2006 and other similar provisions of that Act. We will consider changing the Explanatory Notes before the Bill is introduced.

10

Explanatory Notes, generally

There are minor and/or typographical errors in the ENs, in particular:

para 42(a) omits “registrable” before “beneficial”

para 67, “to” after “sends”

para 81 refers to Clauses 21 and 22 as 20 and 21

para 89 refers at the end of line 4 to a notice period: it should be “notice to be given of an application”

para 128 is divided into sub-paragraphs numbered differently to other subdivisions

para 128(i) omits “and” after “regime”

para 182 refers to a disposition being un-registrable “under paragraphs 3 and 4”

paras 185 and 186 refer to an offence “under paragraphs 4 or 5”, and “4 and 5”. There is no offence under paragraph 4

para 221, “od” [sic] and lower-case reference to “schedule 4A” (which occurs elsewhere)

We are grateful for these comments.

11

Sched 2, para 23

In relation to the definition of “foreign limited partner”, the Law Society of Scotland says the following are not clear—

(1) the meaning of “arrangements” (para 23(6)), and

(2) the scope of “characteristics” (para 23(5) and (6))

Both will be addressed in regulations, the content and structure of which is still being considered.

The regulations will take into account the meaning of “arrangements” and scope of “characteristics” as outlined in The Register of People with Significant Control Regulations 2016, Regulation 8.

http://www.legislation.gov.uk/uksi/2016/339/regulation/8/made

12

Sched 4, para 7 (new Sched 1A to 2012 Act, para 1(1) and para 2(1)).

The Law Society of Scotland suggests that it is not clear whether subparagraphs (i) to (iii) of para 1(1)(a) are intended to qualify a “qualifying registrable deed” as well as a “registrable deed”. It makes a similar point in relation to para 2(2)(a) and “which is a standard security”.

It seems reasonably clear, given the way “qualifying registrable deed” is defined in para 7(1), that the additional qualifications apply only to “registrable deed” in each case. Is this the Department’s view?

Yes, this is the Department’s view

13

Cl 7

Sched 3, para 3 (new Sched 4A to 2002 Act, para 7)

Sched 4, para 7 (new Sched 1A to 2012 Act, para 7(2) & (3))

Sched 5, para 3 (new Sched 8A to 1970 Act, para 7)

The Law Society of Scotland points out that the duty in Clause 7 to update the register could be interpreted either—

(1) as being satisfied simply by delivering the information referred to, regardless of its accuracy (the making of deliberate or reckless errors in which might be an offence under Cl 28), or

(2) as requiring that the information submitted be accurate (which might mean the land registries would have to check it before registering any disposition / deed, as a result of para 7 of each of the inserted Schedules referred to).

Which is the intended policy, and is the Department satisfied that the drafting is sufficiently clear?

The Department is satisfied that the drafting is sufficiently clear: it is an offence to provide false information and the overseas entity must provide correct information to discharge their statutory obligations. Land Registries must be satisfied that an overseas entity is a registered overseas entity prior to registering relevant dispositions.

Appendix 6: Schedule of minor and drafting issues