A central register of beneficial owners and a review of ‘pre-pack’ takeovers of failed businesses are among measures proposed in a shake-up of company law today.
A discussion paper published by the department for Business, Innovation & Skills sets out how the UK proposes to carry out its commitment at last month’s G8 summit to create a central registry of companies’ beneficial owners.
It also proposes the abolition of bearer shares and measures to tackle misuse of corporate directors and nominee directors.
The paper also sets out ways of making directors, including directors of banks, more accountable for misconduct or company failure. Regulators would have greater powers to disqualify directors in specific sectors and courts will be able to take more account of the social impacts of directors’ actions.
Vince Cable (pictured), business secretary, announced the measures at a conference on responsible capitalism. ‘We’re now shining a light on who really owns and controls companies in the UK,’ Cable said.
‘We’re also proposing tough measures to beef up the system for holding directors to account if they don’t play by the rules or take their responsibilities seriously. This will mean honest, hard-working directors are not disadvantaged and will give the public greater confidence that irresponsible directors will face consequences for their actions.’
The central registry information on beneficial ownership would be maintained by Companies House and hold information on individuals with more than 25% of shares or voting rights in a company, or who otherwise control the way a company is run.
There is currently no requirement for companies to hold information on beneficial owners as a matter of course.
The Financial Action Task Force, the inter-governmental body that sets standards on combating money laundering and terrorist financing, recommends that: ‘Competent authorities should be able to obtain, or have access in a timely fashion to, adequate, accurate and current information on the beneficial ownership and control of companies and other legal persons’.
This recommendation is reflected in EU proposals for a fourth money laundering directive, currently being negotiated.
Today’s discussion paper admits that obtaining information on beneficial ownership may be difficult. ‘Our starting point is to give all companies the power to ask detailed questions in relation to their beneficial ownership.
‘The Companies Act 2006 already enables public companies to do this, but not private companies. We then consider what additional obligations might be required to ensure that information on all companies’ beneficial ownership is provided to the registry.’
Key questions include whether information in the registry should be made public, what information is to be provided and how it is to be updated, the paper says.
The Law Society’s company law committee said it was pleased that the government is seeking views rather than setting its proposals in stone. ‘Clearly BIS are interested in the views of practitioners which is good news,’ said Kathleen O'Reilly, chair.
‘We are keen to ensure that the attractiveness of UK company law is maintained. We welcome the opportunity to consider the objectives and the detail of the BIS action plan, including, for example, on how BIS sees the proposed beneficial ownership register working in practice and what the proposed role of Companies House will be.’
The ‘trust’ section of the paper proposes giving courts the power to make compensation awards against a director when making a disqualification order and allowing liquidators to sell or assign fraudulent trading actions to creditors. A review into the use of pre-pack administrations will look at whether such deals encourage growth and employment and provide value for creditors.
In the legal sector, this was the controversial insolvency vehicle through which DWF acquired the collapsed Cobbetts earlier this year, while leaving creditors likely to recoup little or nothing of what they are owed.
The review follows a call by the Business, Innovation & Skills select committee earlier this year, which said such deals are not transparent enough to unsecured creditors. The review will report back early next year.
The Confederation of British Industry reacted coolly to the paper.
'We back the broad drive for greater trust and transparency to promote more responsible capitalism but this must be proportionate without adding extra red tape for the sake of it,' said Katja Hall, chief policy director. Company law should be consistent, with directors’ duties common across all parts of the economy, so we’re concerned with the emergence of a piecemeal approach.'