Archive for July, 2017
Deirdre O’Neill, Corporate Associate, discusses new prospects for prospectus regulation.
Thank you for taking time to read our update. Each time I write one of these pieces it seems that there has been another recent election which has produced an unexpected result. Just to warn you, the next MH update is due in the Autumn.
Although we seem beset with political uncertainty and although elections often produce a ‘wait and see’ approach to transactions the firm is in good heart and we have seen promising levels of activity across the firm for public and private equity, M&A and real estate over the last quarter. Regulatory issues continue to increase and there is an important update below on changes relating to the PSC regime.
On other fronts now that summer is here the annual London Lawyers’ Walk took place with a strong contingent from MH taking part. The walk is 10 kilometres (although, as it is a London walk, I really think it should be measured in miles) and we enjoyed a break for refreshments at the half way point by the Serpentine in the evening sun.
Thank you for your continued support.
The PSC Regime
Since the PSC regime was introduced on 6 April 2016, unlisted UK companies and limited liability partnerships (“LLPs”) have been required to identify individuals who have significant control over the company or LLP and to publicly disclose their details in a separate company register (“PSC Register“).
With effect from 26 June 2017, the regime for investigating and recording information about people with significant control (“PSCs”) over companies and other entities was extended and enhanced to comply with the European Fourth Money Laundering Directive ((EU) 2015/849) . These changes have been introduced into UK law by The Information about People with Significant Control (Amendment) Regulations 2017 (“Regulations”).
Who is a PSC?
A PSC of a company is someone who satisfies one or more of the following five criteria in relation to it:
- Holding, directly or indirectly, more than 25% of the shares.
- Holding, directly or indirectly, more than 25% of the voting rights.
- Holding, directly or indirectly, the right to appoint or remove directors.
- Having the right to exercise, or actually exercising, significant influence or control over the company.
- Having the right to exercise, or actually exercising, significant influence or control over the activities of a trust or firm which is not a legal entity and which meets any of the above conditions.
There are equivalent requirements to establish who is a PSC of an LLP.
BIS has published some useful, albeit not comprehensive, guidance on the meaning of “significant influence or control”. The guidance also sets out a non-exhaustive list of examples of a right to exercise significant influence or control. This includes a person having absolute decision rights or veto rights related to the running of the business, for example changing the company’s business plan or the appointment or removal of the CEO.
It should be noted that the PSC register cannot be blank. Even if a company has no PSCs then that fact should be noted. The guidance prescribes official wording that must be included in a company’s register in this respect.
Indirect holdings held through companies are attributed to an individual if the individual has “control” over those companies. Control is determined using the concept of “majority stake”, which relates to having a majority control of voting rights or having the right to appoint or remove directors of, or having dominant influence over, the company.
Interests Held by Companies
While a company cannot be a PSC, it will be entered on a PSC register if it is a “relevant legal entity” (“RLE”). A company is an RLE if it meets one or more of the specified conditions and is itself required to keep a PSC register, or subject to DTR5, listed on a regulated market or on a specified overseas exchange. The RLE will be “registrable” unless its interests in a company are all held indirectly through one or more legal entities, at least one of which is a registrable RLE in relation to that company. The practical result is that, in a group of UK incorporated companies, each wholly owned subsidiary will only need to record its immediate parent in its PSC register.
Extended Scope of the Regime
When the PSC regime originally came into force, companies subject to Rule 5 of the Disclosure Guidance and Transparency Rules did not have to keep a PSC register. The Regulations now remove this exemption and companies whose shares are admitted to a ‘prescribed market’ that is not a regulated market have now become subject to the PSC regime. This principally affects companies whose shares are admitted to AIM or the NEX Exchange Growth Market (formerly ISDX Growth).
AIM companies must therefore start investigating and collecting information in relation to their PSCs. There is a short grace period for new companies subject to the regime – they must have their PSC register in place by Monday 24 July 2017.
All UK registered LLPs (including Scottish LLPs) are already subject to the PSC regime. However, the Scottish Regulations now introduce a parallel PSC regime for (i) all Scottish limited partnerships (“SLPs”) and (ii) Scottish general partnerships for so long as they are ‘Scottish qualifying partnerships’ (“SQPs”).
SLPs and SQPs are not required to keep their own PSC register but must file the information with Companies House from Monday 24 July 2017. SLPs and SQPs should therefore start making enquiries of their PSCs without further delay.
PSC Register Updates – new 14 day deadlines
From 26 June 2017 (or 24 July 2017 for entities newly within scope of the regime), PSC information needs to be updated on an event-driven basis and entities required to keep a PSC register must:
- update their PSC register within 14 days of either a PSC confirming his/her details (for individuals) or the entity obtaining the relevant information (for relevant legal entities); and
- notify Companies House (using forms PSC01 to PSC09) of the changes to its register within 14 days of the change being made to the entity’s own register. This replaces the old system where the information was supplied to Companies House annually on the Confirmation Statement (CS01).
Given that failure to comply with the PSC regime could result in a company’s officers committing a criminal offence – which could lead to fines and/or imprisonment – it is very important that these new deadlines are adhered to.
Actions to take?
Given the short transitional and filing periods provided in the Regulations, relevant companies should act quickly to assess any actions they may need to take. In particular:
- For relevant AIM or NEX companies – identify any PSCs (or RLEs) and prepare a PSC register containing the relevant details and prescribed statements by no later than 24 July 2017. Further information can be found in the guides referenced below.
- Companies and LLPs already subject to the regime – should familiarise themselves with the new updating timeframes and check to see whether any changes in PSC information have occurred prior to 26 June 2017 (that have not been previously notified to Companies House), which need to be notified by 10 July 2017.
- For confirmation statements due shortly, ensure the new form of CS01 is used and any relevant PSC notifications are made on forms PSC01 to PSC09.
BIS has reissued its various guides on the PSC regime. These can be found here.
For assistance on the PSC regime please contact one of the people named below or your usual contact at Marriott Harrison LLP.
Government proposes new register for overseas property owners
On 5 April 2017, the government published a “call for evidence” inviting feedback on a proposed new register of beneficial owners of overseas legal entities that either own or want to buy UK property and will now be considering responses following the deadline of 15 May.
The proposal comes in the wider context of the government’s commitment to making property ownership more transparent.
As there is no international equivalent, the government has taken the UK Company PSC register as its starting point so that many features will be similar in the new register which will also be held by Companies House and published on their website free of charge.
Its proposed that the scope of the register extends to all overseas legal entities capable of holding UK property, or bidding on central government procurement contracts and will record details of the beneficial ownership of such entities who wish to buy, or already own, UK property – including long leases of over 21 years.
By beneficial ownership, the government means the natural person e.g. the individual who benefits from the legal entity and who exercises control over it and the assets it holds. It is proposed that the precise definition should be based on that used to identify people with “significant control” for the purposes of the PSC Register – most commonly being a person who holds more than 25% of the shares of the company or voting rights in the company – but adapted to accommodate different types of entity.
It is intended that overseas entities will not be able to buy, sell, charge or grant a long lease until they register. Overseas entities who already own properties will be given a year to register or sell. At the end of the transitional year, the right to sell, charge or grant a long lease will be lost until registration takes place – a note to that effect being entered on the title register at the Land Registry.
Entities wishing to buy or take a long lease will have to apply to register their beneficial ownership at Companies House before doing so and obtain a registration number to provide the Land Registry on an application to register their title following completion. The government is also exploring the option of making the transfer of title document void if an overseas entity does not have a valid registration number on completion. On registration, a note will be entered on the title reflecting the new register`s requirements having been complied with.
Whilst the full granularity of new register still needs to be finalised, the government have made their intentions clear that it is not likely a question of if but rather when and how. As lawyers for overseas clients, we are on stand by to provide further updates as and when there are further announcements. Watch this space.
Making Adjustments for Disabled Employees and Job Applicants
Disability as a Protected Characteristic
The Equality Act 2010 (the “Act”) protects, amongst others, employees and job applicants who have a disability, which is a protected characteristic under the Act. The Act considers a person to have a disability if they have a physical or mental impairment which has a substantial and long-term effect on their ability to carry out normal day-to-day activities. Some conditions such as cancer and multiple sclerosis, for example, fit clearly into this category, whilst other conditions, for example Asperger’s syndrome, dyslexia, and other mental conditions such as depression, are not self-evident and may only impact or become evident in particular situations. Employers need to be particularly careful about making adjustments for these less ‘obvious’ disabilities, as the Government Legal Service (GLS) recently discovered to its detriment.
In the case of Government Legal Service v Brookes UKEAT/0302/16, the Employment Appeal Tribunal (EAT) upheld the decision of an Employment Tribunal (ET) that by requiring a job applicant with Aspergers to take a multiple choice test as part of a job application, the Government Legal Service (GLS) was liable for indirect discrimination.
The Facts of the Case
Ms Brookes, a law graduate, applied for a job with the GLS whose recruitment processes are highly competitive. Job applicants are required to complete and pass a multiple choice situational judgment test in order to progress to interview stage. Prior to sitting the test Ms Brookers contacted the GLS and asked for permission to provide her answers in short written form, as multiple choice questions would disadvantage her as somebody with Aspergers. The GLS refused her request and instead offered extra time for tests at a later stage providing that Ms Brookes pass the preliminary round. Ms Brookes did not pass the situational judgment test and was therefore unsuccessful in her job application.
Ms Brookes brought a claim to the ET for disability discrimination. She claimed that the multiplice choice situational judgment test put her at a particular disadvantage compared to other candidates who did not have Aspergers, that this was unjustified and that GLS had not made any reasonable adjustments to the test to enable her to overcome her disadvantage.
Indirect Disability Discrimination
Under the Act indirect discrimination occurs where an employer applies a provision, critierion or practice (PCP) to everyone in the same way but the effect of it is to particularly disadvantage a disabled person. It is possible for the employer to justify indirect discrimination if it can show that it is a “proportionate means of achieving a legitimate aim”, which essentially means that it is fair and reasonable and that all alternative arrangements were considered.
The ET and EAT Rulings
The ET upheld Ms Brookes’ claim of disability discrimination and considered that her requested adjustment was reasonable. Medical experts provided evidence that multiple choice tests generally place those with Aspergers at a particular disadvantage compared to people who do not have Aspergers, as people with Aspergers often lack social imagination. The GLS could not provide an alternative reason as to why Ms Brookes failed the situational judgment test. The ET concluded that although in setting the multiple choice test the GLS was pursuing a legitimate aim of testing the job applicants’ decision-making skills, the means of achieving this aim were not proportionate. The GLS could have granted Ms Brookes’ reasonable request for adjustment.
The ET ordered the GLS to pay Ms Brookes compensation amounting to £860 and recommended that it make her a written apology. The EAT dismissed the GLS’ subsequent appeal, recognising that whilst the GLS needed to test the job applicants’ skills, the way in which it did this (psychometric testing) was not an exhaustive method.
Recommendations for Employers
This case demonstrates how important is it for employers to consider and make reasonable adjustments for disabled employees and job applicants. Employers are advised to ask on application forms whether the applicant requires any reasonable adjustments to be made and if so, to enquire for more details from the applicant. If the applicant requires an adjustment which is practicable and does not make the recruitment procedure less effective, then employers should consider making that adjustment. The law does not require employers to make tests easier for disabled people, and thereby lower recruitment standards for disabled people.