Pulling the strings: draft guidance issued on the meaning of "significant influence and control"

Article

06 January, 2016

Ahead of the provisions coming into force in April 2016, the BIS has published draft guidance on the meaning of "significant influence and control" as it appears within the Small Business, Enterprise and Employment Act 2015 ('SBEEA'). SBEEA amends the Companies Act 2006 to require companies to hold and keep available for inspection a register of people with significant control (a 'PSC') over the company. In addition to clear cut scenarios such as where a person owns over 25% of a company's shares or voting rights, a person will also need to be included on the register where they, somewhat more ambiguously, "exercise or has the right to exercise significant influence or control over a company".

The SBEEA reforms are designed to remove doubts as to who truly owns and controls UK companies. It is the government's view that the use of nominee shareholders by hidden beneficial owners can facilitate problems such as tax evasion, money laundering and terrorist financing, and their hope is that the new found transparency will increase trust in UK companies and ultimately encourage investment. If a person or legal entity with a relevant interest (such as a shareholding) fails to comply with the SBEEA provisions the company can place restrictions on their interest to prevent them from exercising rights such as disposing of the shares or using the voting powers that come with the shares. Companies who issue shares in contravention of such restriction can also commit an offence under SBEEA.

Consequently it is important that companies know when such a person needs to be included on the register. The draft BIS guidance seeks to address the fact that the meaning of the "significant influence and control" provision is not entirely clear, however it does not provide an exhaustive statement of what constitutes significant influence or control. Instead, it sets out a series of principles and examples that are indicative of a person exercising, or holding the right to exercise, significant influence or control.

The draft guidance states that the right to exercise significant influence or control may be obtained in a variety of ways, such as via a company's constitution, particular share rights, or securities held over a company. Clear examples are veto rights or the ability to make absolute decisions relating to the running of the company's business. Veto rights exercisable for the purpose of protecting the interests of minority shareholders will not however, on their own, constitute significant influence or control. An example of actually exercising significant influence or control would be involvement in the day to day management of the company where a non-director regularly directs or influences a significant section of the board.

The draft guidance also sets out 'safe harbours' where, in most circumstances, a person will not be deemed to possess significant influence or control under SBEEA. These include professional advisors such as lawyers or accountants, employees acting in the course of their employment and parties to commercial or financial agreements such as suppliers and lenders. Nevertheless, the guidance does make it clear that a person whose role or relationship differs significantly from how their role is traditionally perceived may still be a person with significant influence or control.

The consultation period accompanying the guidance runs until 11 January 2016, after which the responses will be considered and a final copy of the guidance produced in time for the provisions going live in April 2016. Businesses are recommended to look out for the final version and any alterations to draft guidance discussed above.

If you have any questions about the upcoming requirements of SBEEA or need assistance with any other Corporate & Restructuring matter, please do not hesitate to contact Nick Pickup on 0800 689 0831 or email Nick Pickup

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