More than two years have passed since David Cameron announced plans to introduce a public register of beneficial ownership of overseas companies owning property in the UK (the "Register"). Those plans are finally taking shape as the Department for Business, Energy and Industrial Strategy ("BEIS") has just published its draft Registration of Overseas Entities Bill. The Bill sets out a scheme for introducing a regime that will require overseas entities to register details of their beneficial owners if they want to own, let or dispose of land in the UK and includes stiff penalties for non-compliance. The Bill has generally been welcomed by campaigners for transparency in business.
The following are some of the key features set out in the Bill:
- "Overseas Entity" has been defined as a legal entity that is governed by the law of a country or territory outside the UK and includes bodies corporate, partnerships and other entities that are legal persons under the law by which they are governed.
- The Register is to be kept by Companies House and is to be available for public inspection (subject to limitations on the disclosure of certain sensitive information).
- A beneficial owner (X) of an Overseas Entity (Y) is defined as
a person or other legal entity that satisfies one or more of the
- Condition 1 – X holds, directly or indirectly, more than 25% of the shares in Y;
- Condition 2 – X holds, directly or indirectly, more than 25% of the voting rights in Y;
- Condition 3 – X holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of Y;
- Condition 4 – X has the right to exercise, or actually exercises, significant influence or control over Y;
- Condition 5 – (a) the trustees of a trust, or the members of a partnership, unincorporated association or other entity, that is not a legal person under the law by which it is governed, meet any of the conditions above (in their specified capacity as such) in relation to Y and (b) X has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or entity.
- Not all beneficial owners need to be registered – Schedule 2 of the Bill sets out the circumstances in which a person or entity will be exempt from registration.
- Once registered, an Overseas Entity will be under a duty to update the Register every year.
- The Bill envisages two key methods of enforcement – restrictions on the Overseas Entity's ability to acquire and dispose of property in the UK and criminal liability for breach.
- For properties in England and Wales, a "Qualifying
Estate" means either a freehold interest or a
leasehold interest which was granted for more than seven years. The
Bill sets out various restrictions on Overseas Entities dealing
with Qualifying Estates:
- firstly, an Overseas Entity will not be able to make an application to register itself at the Land Registry as the registered proprietor of a Qualifying Estate unless it is on the Register or it is exempt from the registration requirements;
- secondly, on registration at the Land Registry the Land
Registrar must enter a restriction against the title to any
Qualifying Estate if it is satisfied that the registered proprietor
is an Overseas Entity which registered its interest by an
application made on or after 1 January 1999. The obligation to
register this restriction applies regardless of whether the
Overseas Entity is exempt or not. The restriction will prohibit the
registration of any transfer (including the assignment of a lease
that was granted for a term of more than seven years), the grant of
a lease for more than seven years or the grant of a legal charge
("Restricted Disposition(s)") of that
Qualifying Estate unless:
- the entity is a registered Overseas Entity, or is an exempt Overseas Entity, at the time of the Restricted Disposition;
- the Restricted Disposition is made pursuant to a statutory obligation or a court order;
- the Restricted Disposition is made pursuant to a contract made before the restriction is entered in the Register; or
- the Restricted Disposition is made in the exercise of a power of sale or leasing conferred on the proprietor of a registered charge or a receiver appointed by such a proprietor – this concession will come as a relief to lenders.
- thirdly, where an Overseas Entity that is entitled to be registered at the Land Registry as proprietor of a Qualifying Estate on or after the day on which the relevant provisions come into force makes a Restricted Disposition, that Restricted Disposition must not be registered unless one of the Exception Criteria is satisfied save that, if made pursuant to a contract, that contract must have been made before the Overseas Entity became entitled to be registered.
- The Bill contains provisions to ensure that Overseas Entities
which already own property also comply with the Register:
- firstly, Overseas Entities that acquired Qualifying Estates and were registered as the registered proprietor at the Land Registry pursuant to an application made on or after 1 January 1999 will have an 18-month transitional period starting on the date the relevant provisions come into force ("Commencement Date") to either comply with the Register or establish their exempt status. Failure to comply will amount to an offence punishable by a fine and/or imprisonment for up to two years. However, the Overseas Entity could, instead, choose to dispose of its Qualifying Estate during the transitional period rather than comply with the Register;
- secondly, before the end of the period of 12 months starting on the Commencement Date, the Land Registrar is under a duty to place a restriction against the title of any Qualifying Estates in respect of which the Land Registrar is satisfied that the registered proprietor is an Overseas Entity who became registered proprietor pursuant to an application made before the Commencement Date. The restriction will prohibit any Restricted Dispositions unless one of the Exemption Criteria is satisfied. However, that restriction will not take effect until the end of the period of 18 months beginning on the Commencement Date so, again, the Overseas Entity may choose to dispose of its Qualifying Estate within this period.
- The Bill introduces stiff penalties for non-compliance
including both fines and potential prison sentences. For
- the most serious offence under the Bill occurs where an Overseas Entity makes a registrable disposition of a Qualifying Estate in breach of one of the imposed restrictions on Restricted Dispositions. A person found guilty of this offence is liable to a fine and/or up to five years' imprisonment; and
- those who knowingly or recklessly provide false information in response to an information notice (seeking details of beneficial owners) may be subject to a fine and/or up to two years' imprisonment.
- Interestingly, a Restricted Disposition made in breach of the restrictions imposed by the Bill will still be deemed valid. The issue will be that if the Restricted Disposition cannot be registered at the Land Registry the disponee will not acquire legal title to the same – something that will be commercially unacceptable to most disponees.
BEIS is seeking views on the draft Bill. The full Bill can be found by following this link. The consultation closes at 5pm on 17 September 2018 and we know from announcements earlier this year that the government wants the Register to go live in 2021.
Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.
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.