It has been almost two years since the introduction of the Persons with Significant Control Register (the “PSC Register”) in the UK, but it is quickly evident during due diligence exercises that not all directors have a clear understanding of their obligations.
The PSC Register is designed to ensure the ownership of corporate bodies in the UK is known publicly, with penalties for those who do not provide such information. Since the EU’s Fourth Money Laundering Directive passed the deadline for transposition in EU member states last summer (June 2017), all EU companies will be subject to broadly similar rules. Outside Europe, however, such publications are not always necessary. In the UK, companies (with only a few exceptions for publicly traded companies) are required to keep a register of ‘people with significant control over the company’ and to make that public. Whether or not a person has ‘significant control’ is determined, in its simplest form, by whether that person (a “PSC”):
- owns more than 25 percent of the shares in the company (or has a right to more than 25 percent of the profits)
- has more than 25 percent of the voting rights
- is able to appoint or remove a majority of the directors
- has the right to, or does, exercise significant influence or control (but this will only be relevant where none of 1, 2 or 3 apply), and/or
- has the right to, or does, exercise significant influence or control over the activities of a trust or firm which is not a legal identity, but would, in its own right, satisfy any of 1, 2, 3 or 4 if it were an individual.
How this applies to RLEs
Similar rules apply to other companies, known as relevant legal entities (“RLEs”), which have ‘significant control’ over a subsidiary. A company is only considered a RLE, however, if it is also subject to PSC disclosure requirements. This ensures that the individual humans who actually control the subsidiary can ultimately be identified., Anyone investigating ultimate ownership of a subsidiary, therefore, can follow the chain of PSC Registers from the subsidiary through all of the RLE parent companies, to the ultimate PSC of the holding company. For clarity, once a company has found its own RLE(s), it is not required to report on that RLE’s ownership, reducing the administrative burdens on companies, although making it more difficult to find the ultimate PSC.
Registration of the information in the PSC Register
Company directors need to ensure that they have taken reasonable steps to identify the PSC(s) and/or RLE(s) (if any) of the company. This primarily involves asking presumed PSCs and RLE(s) to provide their information with the power to restrict the shareholder’s voting rights until such information is provided. Having done so, they must register this information in their PSC Register, alongside their other statutory registers. Alternatively, privately owned companies can opt to maintain their PSC Register directly with Companies House. Strictly speaking, directors who fail to do this could face imprisonment or a fine, . In addition, PSCs and RLEs which know or ought reasonably to know they should be contained on the PSC Register should inform the company. If there are no PSCs or RLEs, a declaration evidencing this must be in the PSC Register.
In relation to updates, the timetable is relatively short. Companies have just 14 days from the date of a transaction or change to update their PSC Register and, thereafter, have another 14 days to update Companies House. The net effect of this is that all transactions should be public within 28 days of completion, which will have ramifications for any companies, buyers or sellers trying to do something under the radar of third parties.
The system is not water-tight.
Notwithstanding the above, there are questions as to the effectiveness of PSC Registers. Above all, there is no third party verification of the information contained therein, or of the details held by Companies House. Whilst it is an offence to submit false information to Companies House, it is unlikely to be subject to verification. This differs from some European states where more stringent reporting requirements are used. The consequence of this is that the system is open to abuse or, at the very least, negligent misuse. Ultimately, therefore, caution should be taken before relying on the contents of a PSC Register or Companies House filings.
Barlow Robbins LLP, Guildford, Surrey
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