Legal Services Bill [HL]

House of Lords

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Legal Services Bill [HL]

Legal Services Bill [HL]
Schedule 13 — Ownership of licensed bodies
Part 3 — Approval of restricted interests after licence is issued
194

29    (1)
The investor and the licensed body may before the end of the prescribed
period appeal to the relevant appellate body against the imposition of any
or all the conditions.
      (2)
The relevant appellate body may dismiss the appeal, or allow the appeal
and—
5
(a)
order the licensing authority to approve the investor’s holding of the
notifiable interest without conditions, or subject to such conditions
as may be specified in the order, or
(b)
remit the matter to the licensing authority.
      (3)
A party to the appeal may before the end of the prescribed period appeal to
10
the High Court on a point of law arising from the decision of the relevant
appellate body, but only with the permission of the High Court.
      (4)
The High Court may make such order as it thinks fit.
      (5)
If the investor’s holding of the notifiable interest is subject to conditions as a
result of an order made on an appeal under this paragraph, for the purposes
15
of this Schedule the conditions are to be treated as having been imposed
under paragraph 28.
Duration of unconditional or conditional approval
30
In a case within paragraph 21(1)(a), the licensing authority’s approval under
paragraph 27 or 28 remains effective only if the investor acquires the
20
notifiable interest—
(a)
before the end of such period as may be specified in the notice under
paragraph 27(2) or 28(7), or
(b)
if no such period is specified, before the end of the period of one year
beginning with the date of that notice.
25
Objection to acquisition of notifiable interest
31    (1)
If the licensing authority is not satisfied that the approval requirements are
met in relation to the investor’s holding of the notifiable 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
30
notifiable interest, it must give the investor and the licensed body a warning
notice.
      (3)
But the licensing authority may object to the investor’s holding of the
notifiable interest without giving a warning notice if it considers it necessary
or desirable to do so for the purpose of protecting any of the regulatory
35
objectives.
      (4)
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
      (5)
The licensing authority must consider any representations made within the
prescribed period.

Legal Services Bill [HL]
Schedule 13 — Ownership of licensed bodies
Part 3 — Approval of restricted interests after licence is issued
195

      (6)
If the licensing authority objects to the investor’s holding of the notifiable
interest, it must notify the investor and the licensed body of its objection as
soon as reasonably practicable.
      (7)
The notice must—
(a)
specify the reasons for the objection, and
5
(b)
explain the effect of Part 5 of this Schedule.
32    (1)
The investor and the licensed body may before the end of the prescribed
period appeal to the relevant appellate body against the objection.
      (2)
The relevant appellate body may dismiss the appeal, or allow the appeal
and—
10
(a)
order the licensing authority to approve the investor’s holding of the
notifiable interest without conditions, or subject to such conditions
as may be specified in the order, or
(b)
remit the matter to the licensing authority.
      (3)
A party to the appeal may before the end of the prescribed period appeal to
15
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.
      (5)
If the investor’s holding of the notifiable interest is subject to conditions as a
result of an order made on an appeal under this paragraph, for the purposes
20
of this Schedule the conditions are to be treated as having been imposed
under paragraph 28.
Powers of licensing authority where no change of interests
Imposition of conditions (or further conditions) on existing restricted interest
33    (1)
The relevant licensing authority may impose conditions (or further
25
conditions) on a person’s holding of a restricted interest in a licensed body
(or a restricted interest of a particular kind) if—
(a)
it is not satisfied that the approval requirements are met in relation
to the person’s holding of that interest, or
(b)
it is satisfied that a condition imposed under paragraph 17 or 28 or
30
this paragraph on the person’s holding of that interest has not been,
or is not being, complied with.
      (2)
The licensing authority may act under sub-paragraph (1) only—
(a)
if it considers that, if the conditions are complied with, it will be
appropriate for the investor to hold the restricted interest without the
35
approval requirements being met, and
(b)
before the end of such period (beginning with the time when the
licensing authority becomes aware of the matters in question) as may
be prescribed.
      (3)
If the licensing authority proposes to impose conditions (or further
40
conditions) on the person’s holding of the restricted interest, it must give the
person and the licensed body a warning notice.
      (4)
But the licensing authority may impose conditions (or further conditions) on
the person’s holding of the restricted interest without giving a warning

Legal Services Bill [HL]
Schedule 13 — Ownership of licensed bodies
Part 3 — Approval of restricted interests after licence is issued
196

notice if it considers it necessary or desirable to do so for the purpose of
protecting any of the regulatory objectives.
      (5)
The warning notice must—
(a)
specify the nature of the conditions proposed and the reasons for
their imposition, and
5
(b)
state that representations may be made to the licensing authority
within the prescribed period.
      (6)
The licensing authority must consider any representations made within the
prescribed period.
      (7)
If the licensing authority imposes conditions (or further conditions) on the
10
person’s holding of the restricted interest, it must notify the person and the
licensed body as soon as reasonably practicable.
      (8)
The notice must—
(a)
specify the reasons for the imposition of the conditions, and the time
from which they are to take effect, and
15
(b)
explain the effect of Part 5 of this Schedule.
34    (1)
The person and the licensed body may before the end of the prescribed
period appeal to the relevant appellate body against any or all of the
conditions (or further conditions).
      (2)
The relevant appellate body may dismiss the appeal, or allow the appeal
20
and—
(a)
modify or quash the conditions imposed by the licensing authority
under paragraph 33, or
(b)
remit the matter to the licensing authority.
      (3)
A party to the appeal may before the end of the prescribed period appeal to
25
the High Court on a point of law arising from the decision of the relevant
appellate body, but only with the permission of the High Court.
      (4)
The High Court may make such order as it thinks fit.
      (5)
If the person’s holding of the restricted interest is subject to any conditions
as a result of an order made on an appeal under this paragraph, for the
30
purposes of this Schedule those conditions are to be treated as having been
imposed under paragraph 33.
Variation and cancellation of conditions
35    (1)
A person whose holding of a restricted interest in a licensed body is subject
to a condition imposed under paragraph 17, 28 or 33 may apply to the
35
relevant licensing authority—
(a)
for the condition to be varied, or
(b)
for the condition to be cancelled.
      (2)
The licensing authority may, on its own initiative, cancel a condition
imposed under one of those paragraphs.
40
      (3)
If the licensing authority varies or cancels a condition under this paragraph,
it must notify the person and the licensed body as soon as reasonably
practicable.

Legal Services Bill [HL]
Schedule 13 — Ownership of licensed bodies
Part 3 — Approval of restricted interests after licence is issued
197

Objection to existing restricted interest
36    (1)
The relevant licensing authority may object to a person’s holding of a
restricted interest in a licensed body (or a restricted interest of a particular
kind) if—
(a)
it is not satisfied that the approval requirements are met in relation
5
to the person’s holding of that interest, or
(b)
it is satisfied that a condition imposed under paragraph 17, 28 or 33
on the person’s holding of the interest has not been, or is not being,
complied with.
      (2)
The licensing authority may act under sub-paragraph (1) only before the end
10
of such period (beginning with the time when the licensing authority
becomes aware of the matters in question) as may be prescribed.
      (3)
If the licensing authority proposes to object to a person’s holding of the
restricted interest, it must give the person and the licensed body a warning
notice.
15
      (4)
But the licensing authority may object to the person’s holding of the
restricted interest without giving a warning notice if it considers it necessary
or desirable to do so for the purpose of protecting any of the regulatory
objectives.
      (5)
The warning notice must—
20
(a)
specify the reasons for the proposed objection, and
(b)
state that representations may be made to the licensing authority
within the prescribed period.
      (6)
The licensing authority must consider any representations made within the
prescribed period.
25
      (7)
If the licensing authority objects to the person’s holding of the restricted
interest, it must notify the person and the licensed body of its objection as
soon as reasonably practicable.
      (8)
The notice must—
(a)
specify the reasons for the objection, and
30
(b)
explain the effect of Part 5 of this Schedule.
37    (1)
The person and the licensed body may before the end of the prescribed
period appeal to the relevant appellate body against the objection.
      (2)
The relevant appellate body may dismiss or allow the appeal.
      (3)
If the relevant appellate body allows the appeal it may also—
35
(a)
order the licensing authority to impose under paragraph 33 such
conditions on the person’s holding of the restricted interest as may
be specified in the order, or
(b)
remit the matter to the licensing authority.
      (4)
A party to the appeal may before the end of the prescribed period appeal to
40
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.
      (5)
The High Court may make such order as it thinks fit.

Legal Services Bill [HL]
Schedule 13 — Ownership of licensed bodies
Part 4 — Additional restrictions
198

      (6)
If the person’s holding of the restricted 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 33.
Part 4
5
Additional restrictions
Power to impose share limit
38    (1)
Licensing rules may provide that—
(a)
a non-authorised person may not have an interest in shares in a
licensed body which exceeds a limit specified in the rules (“the share
10
limit”);
(b)
the total proportion of shares in a licensed body in which non-
authorised persons have an interest may not exceed a limit specified
in the rules.
      (2)
Licensing rules made under sub-paragraph (1)(a) may provide that a person
15
may be treated as having an interest in shares by virtue of an associate of the
person having such an interest.
      (3)
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) a
breach of licensing rules made under sub-paragraph (1) does not make it
20
unlawful for the business of the partnership to be carried on, or for the
partners to carry it on in partnership.
Obligation to notify where share limit exceeded
39    (1)
This paragraph applies in relation to a licensed body if licensing rules made
by the relevant licensing authority make the provision mentioned in
25
paragraph 38(1)(a).
      (2)
Any non-authorised person who acquires an interest in shares in a licensed
body which exceeds the share limit must notify the licensed body and the
licensing authority of the acquisition within such period, after the person
becomes aware of it, as may be specified by order made by the Secretary of
30
State on the recommendation of the Board.
      (3)
It is an offence for a person to fail to comply with a requirement imposed by
sub-paragraph (2).
      (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.
35
      (5)
It is a defence for a person charged with an offence under sub-paragraph (3)
to show that at the time of the alleged offence the person had no knowledge
of the facts by virtue of which the duty to notify arose.
40    (1)
This paragraph applies if a person under the duty to notify imposed by
paragraph 39(2)—
40
(a)
had no knowledge of the facts by virtue of which that duty arose, but
(b)
subsequently becomes aware of those facts.

Legal Services Bill [HL]
Schedule 13 — Ownership of licensed bodies
Part 5 — Enforcement
199

      (2)
The person must give the licensed body and the licensing authority the
required notification within such period, after the person becomes so aware,
as may be specified by order made by the Secretary of State on the
recommendation of the Board.
      (3)
A person who fails to comply with the duty to notify imposed by sub-
5
paragraph (2) is guilty of an offence.
      (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.
Part 5
Enforcement
10
Divestiture
Applicability of divestiture rules
41
Paragraphs 42 to 46 apply to a licensed body which is a body corporate with
a share capital (referred to in those paragraphs as a “relevant licensed
body”).
15
The divestiture condition
42    (1)
The divestiture condition is satisfied in relation to a non-authorised person
and a relevant licensed body if—
(a)
the person holds a restricted interest in the licensed body in the
circumstances mentioned in sub-paragraph (2), and
20
(b)
the person holds that interest, in whole or in part, by virtue of the
person’s interest in shares in any body (in this Part of this Schedule
referred to as “the relevant shares”).
      (2)
The circumstances are that the person holds the restricted interest—
(a)
as a result of the person taking a step in circumstances in which that
25
constitutes an offence under paragraph 24(1) (whether or not the
person is charged with or convicted of an offence under that
paragraph),
(b)
in breach of conditions imposed under paragraph 17, 28, or 33, or
(c)
in contravention of an objection by the licensing authority under
30
paragraph 31 or 36.
      (3)
For the purposes of sub-paragraph (1)(b), a person has an interest in shares
if the person or an associate of the person has an interest in the shares.
43    (1)
If the relevant licensing rules make the provision mentioned in paragraph
38(1)(a), the divestiture condition is also satisfied in relation to a non-
35
authorised person and a relevant licensed body if the person has an interest
in shares in the body which exceeds the share limit.
      (2)
In this Part of this Schedule, “excess shares” means the number of shares by
which the shares in which the person has an interest exceed the share limit.
      (3)
If licensing rules made under paragraph 38(2) so provide, for the purposes
40
of this paragraph a person has an interest in shares in which an associate of
the person has an interest.

Legal Services Bill [HL]
Schedule 13 — Ownership of licensed bodies
Part 5 — Enforcement
200

Application for divestiture
44    (1)
If the divestiture condition is satisfied in relation to a non-authorised person
and a relevant licensed body, the licensing authority may give the person a
restriction notice under paragraph 45 and apply to the High Court for an
order under paragraph 46.
5
      (2)
The licensing authority may not make an application to the High Court for
an order under paragraph 46 unless—
(a)
it has notified the person that it intends to do so if the divestiture
condition is satisfied in relation to the person and the body at the end
of the relevant period, and
10
(b)
the relevant period has expired.
      (3)
The relevant period is such period (not less than the prescribed period) as
may be specified in the notice.
Restriction notice
45    (1)
A restriction notice is a notice directing that such of the relevant shares or
15
excess shares (as the case may be) as are specified in the notice are, until
further notice, subject to one or more of the following restrictions.
      (2)
The restrictions are—
(a)
a transfer of (or agreement to transfer) those shares, or in the case of
unissued shares a transfer of (or agreement to transfer) the right to be
20
issued with them, is void;
(b)
no voting rights are to be exercisable in respect of the shares;
(c)
no further shares are to be issued in right of them or in pursuance of
any offer made to their holder;
(d)
except in a liquidation, no payment is to be made of any sums due
25
from the company on the shares, whether in respect of capital or
otherwise.
      (3)
A copy of the restriction notice must be given to the body to whose shares it
relates.
      (4)
A restriction notice ceases to have effect—
30
(a)
in accordance with an order of the High Court under paragraph
46(4);
(b)
if no application has been made to the High Court for an order under
paragraph 46 before the end of such period as may be prescribed, at
the end of that period;
35
(c)
if the licensed body ceases to be licensed by the licensing authority.
Divestiture by High Court
46    (1)
If the divestiture condition is satisfied by virtue of paragraph 42 the High
Court may, on the application of the licensing authority, order the sale of the
appropriate number of the relevant shares.
40
      (2)
The appropriate number of the relevant shares is the number of those shares,
the sale of which will result in the non-authorised person no longer
holding—
(a)
a restricted interest in the licensed body, or