The U.K. government recently enacted amendments to the U.K. Companies Act 2006, which requires non-listed U.K. companies and limited liability partnerships to maintain and file a register of people with significant control (PSC) or influence over them with Companies House (PSC Register). As of April 6, 2016, U.K. companies were required to maintain a PSC Register and make it available for public inspection. Effective June 30, 2016, U.K. companies will be required to file their PSC Register with Companies House, where such information will be publicly accessible. The PSC Register aims to bring greater transparency to the ultimate beneficial ownership and control of U.K. companies.
Blakes is a Canadian law firm and does not practise English law. This Bulletin is intended to provide information on a foreign development that has the potential to affect many of our Canadian clients. If specific legal advice is required, we can assist you in obtaining a referral to a U.K. law firm.
WHAT DOES THIS MEAN FOR CANADIAN SHAREHOLDERS WHO OWN OR CONTROL A SIGNIFICANT INTEREST IN A U.K. SUBSIDIARY?
Individuals and certain Canadian companies who own or control a significant interest in a U.K. subsidiary should take steps to understand their position for the following reasons:
- A U.K. subsidiary may be required to list the Canadian shareholder on its PSC Register, thereby making such Canadian shareholder's beneficial ownership, significant influence over, or control of the U.K. subsidiary public information (whereas previously such information would have remained private)
- A Canadian parent company or significant shareholder will want to ensure that its U.K. subsidiary is complying with domestic laws in the U.K. (by ensuring that its U.K. subsidiary has in place and maintains a PSC Register)
IS THE CANADIAN SHAREHOLDER A PSC OR A RELEVANT LEGAL ENTITY (RLE)?
Canadian shareholders who are either PSCs or RLEs may be required to be listed on the U.K. subsidiary's PSC Register.
U.K. companies are required to list on their PSC Registers both PSCs and registrable RLEs.
An individual is a PSC (and will need to be listed on its U.K. subsidiary's PSC Register) if he or she meets one or more of the following criteria:
- Directly or indirectly holds over 25 per cent of shares in the U.K. company
- Directly or indirectly holds over 25 per cent of voting rights in the U.K. company
- Directly or indirectly holds the right to appoint or remove a majority of the board of directors of the U.K. company
- Has the right to exercise, or actually exercises, significant influence or control over the U.K. company
- Has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm (which is not a legal entity), which itself satisfies one or more of the first four conditions
The broad meanings of the fourth and fifth conditions are addressed by statutory guidance.
A Canadian legal entity is an RLE (and will need to be listed on its U.K. subsidiary's PSC Register) if it meets the following criteria:
- It would have come within the definition of a PSC over the company if it had been an individual (criteria set out above)
- Has voting shares admitted to trading on a regulated market in the U.K., or European Economic Area (other than the U.K.), or on specified markets in Switzerland, the U.S., Japan and Israel
WHAT IF THE CANADIAN SHAREHOLDER HOLDS AN INDIRECT INTEREST IN THE U.K. SUBSIDIARY?
If a Canadian shareholder holds its interest in the U.K. subsidiary through one or more legal entities, each holding a "majority stake" in the entity below it until the last legal entity in the chain, which holds the share or right in the U.K. subsidiary under any of the five PSC criteria, such Canadian shareholder may be registrable on the U.K. subsidiary's PSC Register in certain circumstances. "Majority stake" means:
- Holding a majority of voting rights,
- Being a shareholder and having the right to appoint or remove a majority of the board,
- Being a shareholder and controlling a majority of the voting rights pursuant to an agreement with other shareholders, or
- Having the right to exercise, or actually exercising, dominant influence
An individual at the top of a corporate chain will be registrable on a U.K. subsidiary's PSC Register if he or she holds a majority stake and none of the intermediate legal entities below are themselves registrable (which could be the case if the intermediate holding companies are non-U.K. legal entities that are themselves not registrable).
A Canadian legal entity at the top of a corporate chain will only be registrable if it holds a majority stake and is an RLE (which, as noted above, means it has voting shares admitted to trading on a regulated market in the U.K., or European Economic Area other than the U.K., or on specified markets in Switzerland, the U.S., Japan and Israel).
WHAT ARE THE CONSEQUENCES FOR FAILURE TO COMPLY?
U.K. companies must take reasonable steps to identify their PSCs and RLEs. Failure to comply is a criminal offence and may result in fines and/or imprisonment.
PSCs and RLEs must provide the required information when requested, or even if not requested, if they know (or ought reasonably to know) that they are a PSC or RLE. Failure to provide the required information is a criminal offence and may result in fines and/or imprisonment and restrictions on the transfer of shares and payment of dividends.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.