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Corporate Matters

A quarterly newsletter from our Corporate team keeping you informed of the latest legal news and developments.

Latest Issue

In the latest issue of Corporate Matters our tax expert Mark Whiteside looks at the key tax changes for businesses from the Autumn Statement.

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Persons with Significant Control - an overview of the new regime

Wednesday 6th April 2016

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Corporate Matters - Special Issue 

From 6 April 2016 the new Persons with Significant Control (PSC) regime means most UK companies are required to maintain a PSC register. Failure to do so is a criminal offence. 
From 30 June 2016, companies will need to supply Companies House with the information on their PSC register along with the company's confirmation statement, which will replace the annual return. From that date, new companies will need to supply this information on incorporation so that it can be made publicly available.

1.  Who is required to keep a PSC Register?

Not all UK companies will need to maintain a PSC register. Companies to which Chapter 5 of the Disclosure and Transparency Rules (Chapter 5) applies will not be subject to the new requirements, so UK companies with shares listed on the Main Market of the London Stock Exchange, AIM and the ISDX Growth Market will be exempt. UK companies with voting shares admitted to trading on another EEA regulated market or on specified markets in Switzerland, the US, Japan and Israel will also be exempt. While additional regulations apply the regime to UK-incorporated limited liability partnerships (LLPs) and Societas Europaea, this note focuses on how the regime applies to UK companies.

2.  Identifying PSCs

Only an individual can be a PSC. However, where the owner or controller of a UK company is a legal entity, such as a company or LLP, rather than an individual, that legal entity will need to be put on the company's PSC register if it is a registrable relevant legal entity (RRLE) in relation to the company.
The tests for identifying PSCs or RRLEs are the same:
  • Directly or indirectly holding more than 25% of the shares in the company;
  • Directly or indirectly holding more than 25% of the voting rights in the company;
  • Directly or indirectly holding the right to appoint or remove a majority of the board of directors of the company;
  • Otherwise having the right to exercise, or actually exercising, significant influence or control over the company; or
  • Having the right to exercise, or actually exercising, significant influence or control over an arrangement such as a trust, which is not a legal entity but which meets any of the above conditions in relation to the company, or would do so if it were an individual.

3.  Exercising significant influence or control

Statutory guidance (see below) provides greater information and examples on this point. However, if a person can ensure that the company, trust or firm generally acts as they want, this is indicative of significant influence. If they are able to direct the activities, this would be indicative of control.
Right to exercise significant influence or control
This is a right which if exercised would lead to the actual exercise of significant influence or control. If someone has such a right, then they will need to be entered in the PSC register, even if they have not exercised the right as yet. Examples are where a person has:
  • Absolute decision rights over decisions relating to the running of the business of the company, e.g. adopting or amending a business plan, changing the nature of its business, or making additional borrowings; or
  • Absolute veto rights over decisions relating to the running of the business, e.g. adopting or amending a business plan, or making additional borrowings,
and “absolute” means that a person has such rights without reference to or collaboration with anyone else.
However, if a person holds absolute veto rights in relation to fundamental matters for the purpose of minority shareholder protection, e.g. in relation to changing the articles of association or issuing shares etc., this is unlikely on its own to be either significant influence or control. 
Actually exercises significant influence or control

When deciding whether a person actually exercises significant influence or control over a company, all relationships that such person has with the company or those who manage it must be taken into account to see whether the cumulative effect of such relationships means they exercise significant influence or control. Examples are:
  • Where a person is significantly involved in the management and direction of the company, e.g. where they regularly advise the board and such advice influences decisions which are made. This will include shadow directors and could also include consultants; or
  • Where a person’s recommendations are always or almost always followed by the shareholders holding the majority of voting rights in the company when they decide how to vote, e.g. where a founder no longer holds a majority stake but his advice is always or almost always followed as to how to vote.
“Excepted roles”
The statutory guidance provides details of those roles or relationships which would not in themselves automatically mean a person has a right to exercise or actually exercises significant influence or control over a company. Examples include a person who:
  • Provides advice or direction in a personal capacity, e.g. lawyers or accountants or management consultant;
  • Deals with the company under a third party commercial or financial agreement, e.g. a supplier, customer or lender; or
  • Is acting under an enactment such as a regulator, liquidator or receiver; or
  • Is a director of the company, including the managing director, a sole director or a non-executive director/chairman who holds a casting vote.
Even if a person falls within a category of excepted roles, it is key to note that they may still have a right to exercise or actually exercise significant influence or control, e.g. where the role they undertake includes elements which exceed the role as it is usually understood or exercised, or it forms one of several opportunities which a person has to exercise significant influence or control.
Trusts and firms

Much of the guidance above in relation to significant influence or control over a company also applies to trusts and firms. However, it should be noted that a person has the right to direct or influence the running of the activities of a trust or firm if, e.g., they have the right to appoint or remove any of the trustees or partners, to direct the distribution of assets or funds, direct investment decisions, amend the trust or partnership deed, or revoke the trust or terminate the partnership. A person is likely to actually exercise significant influence or control over a trust or firm if they are regularly involved in the running of the trust or firm, e.g. they give instructions which are generally followed. An active settlor or beneficiary of a trust may therefore exercise significant influence or control.

4. Recording information on the PSC Register

A company's PSC register cannot be empty as it must always include information about its PSCs or RRLEs (even where the company knows or reasonably believes that there are none), or an update on the company's status. Where a company is taking reasonable steps to identify its PSCs or RRLEs but has not yet identified them, that fact should be entered on the PSC register. 
Regulations 10 to 17 of the 2016 Regulations and Annex 2 to the BIS non-statutory guidance (available here) set out the precise wording to be included, depending on the circumstances. This official wording also needs to be used when the company files information on the central public register at Companies House and must be included with the required relevant information about individual PSCs and RRLEs in the company's PSC register.
Where a company has taken all reasonable steps and is confident that no individuals or legal entities meet any of the specified conditions, so that the company has no PSCs or RRLEs, that fact must be recorded on its PSC register.
The information to be entered on the company’s PSC register for a PSC comprises the following on the individual:
  • Name;
  • Date of birth;
  • Nationality;
  • Country or state or part of the UK where the PSC usually lives;
  • Their service address;
  • Their usual residential address;
  • The date the individual became a PSC, which will be 6 April 2016 for existing companies compiling their PSC register for the first time;
  • The specific condition or conditions for being a PSC that the individual meets with a quantification of their interest where relevant;
  • Any restrictions on disclosing the PSC’s information that are in place.
Where the company is required to record information on a RRLE on its PSC register it must enter the following on the entity:
  • Name;
  • Registered address or principal office;
  • The entity's legal form and governing law;
  • The register that the entity appears in (with details of the state) and its registration number;
  • The date that the entity became an RRLE in relation to the company, which will be 6 April 2016 for existing companies compiling their PSC register for the first time;
  • The specific condition or conditions for being a PSC that the RRLE meets, with a quantification of its interest.
Specific Conditions
For each of the PSCs and/or RRLEs, where one or more of those conditions relates to share ownership or voting rights (relevant to the first, second and the fifth conditions), it must be made clear in the whether the PSC or RRLE holds:
  • More than 25% but not more than 50%;
  • More than 50% but less than 75%; or 
  • 75% or more;

of the shares or voting rights in the company.

However, where one of the first three conditions is met (through a shareholding, voting rights, or rights to appoint or remove a majority of the board), the company will not also have to record if and how the person or RRLE meets the fourth condition relating to significant influence or control over the company.

5. Identifying PSCs

Companies have a duty to take reasonable steps to identify their PSCs and RRLEs. Failure to do so is a criminal offence, which can be committed both by the company and any officer who is in default. The maximum penalty is a prison term of up to two years, a fine, or both.

PSCs and RRLEs also have to notify the company of their status within one month of the relevant person or legal entity becoming a PSC or RRLE.  Again, failure to do so is a criminal offence.

6. Duty to update the register

Both companies and PSCs, whether individuals or RRLEs, have a duty to keep the company's PSC register up-to-date. As a result, if the company becomes aware that circumstances have changed and information on the PSC register is incorrect.

7. Accessing Information

From 6 April 2016, companies will need to keep their PSC register accessible at their registered office or at another location notified to Companies House.   From 30 June 2016, private companies will be able to elect to maintain their PSC register at Companies House only.

For a private company electing to hold its PSC register at Companies House, it should be aware that the full date of birth of an individual PSC will be recorded on the central public register and the information on that PSC register must be kept up-to-date. Changes must also be noted as they occur and the company cannot wait for the annual confirmation statement to notify changes as companies maintaining their own PSC register at their registered office or alternative location can do. Failure to note changes as they occur is a criminal offence.

8. Inspection Fees

Companies maintaining their own PSC register must make it available for inspection at no charge. Copies of it can be requested for a charge of £12 per request, regardless of how many parts of the PSC register have to be copied.

As with requests to inspect the register of members, anyone applying to inspect or have a copy of the PSC register must provide their name and address, and specify their purpose in seeking the information. The company must respond to the request within five working days by either complying with it or, if the company believes the request is not being made for a proper purpose, it can apply to the court for a determination as to whether or not the company should comply.

9. Further Guidance

Please note that this is not an exhaustive guidance note on the PSC regime. It is intended to provide a brief and informative overview of the PSC regime only and is not intended to provide legal advice and parties should seek specific advice on their own circumstances.  

The PSC regime itself is quite complex and to assist in its interpretation the government has released both statutory and non-statutory guidance. The non-statutory guidance (in summary and long form) offers detailed guidance and useful examples to cover the more common scenarios and can be found here
If you have not already been in contact with us in relation to the PSC regime and you are concerned about your position, please do not hesitate to contact your usual contact within the Corporate team or Adrian Rogers.
Partner, Corporate
Tel: 0151 600 3127

Budget 2016: A look at the key tax changes for businesses

Thursday 17th March 2016

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Corporate Matters - Issue 11 

A number of significant tax changes were announced as part of the 2016 Budget, some with almost immediate effect and others to take effect in the near future.

The Chancellor was keen to emphasise that the new ‘business tax road map’ was designed in part to support smaller businesses and enterprise, albeit within the constraints of weaker economic growth forecasts. Some of the detail will only become clear when draft legislation is published.

Businesses should consider whether steps ought to be taken prior to any changes becoming effective in April, or whether it would be more beneficial to postpone transactions until after that date.

Some of the highlights from a tax perspective include: 
  • Extending Entrepreneurs’ Relief to 'long-term investors' in unlisted trading companies (where investments are made in return for newly issued shares on or after 17 March 2016, provided that those shares are held for at least 3 years from 6 April 2016, and subject to a separate £10m lifetime cap);
  • Reinstating Entrepreneurs’ Relief to 'associated disposals' of privately-owned assets when sold as part of a normal business succession to family members (correcting previous changes made in Finance Act 2015, which were seen as going too far in targeting perceived tax avoidance);
  • Limiting the Capital Gains Tax exemption (to £100k of lifetime gains) for disposals of employee shareholder status shares (ESS) acquired after 16 March 2016;
  • Cutting Capital Gains Tax rates from 28% (higher rate) and 18% (basic rate) to 20% and 10% respectively, from April 2016 (save for residential property and carried interest, which will remain subject to existing rates);
  • Cutting the rate of Corporation Tax to 17% by 2020;
  • Applying a number of new tax measures to larger and/or multi-national companies (such as withholding tax on outbound royalty payments, limiting tax relief on interest payments, and bringing offshore property developers within the UK tax net);
  • Increasing Corporation Tax on loans to participators in close companies (if not repaid within
    9 months after the end of the accounting period) from 25% to 32.5% from April 2016, to align those rules with the new dividend tax rates;
  • From April 2017 public sector employers that contract with personal service companies for the supply of workers may need to operate PAYE (and from April 2018 employer’s NICs will become payable on employee termination payments which exceed the current £30k income tax threshold);
  • Introducing fundamental changes to SDLT on acquisitions of commercial property, effective from
    17 March 2016, by removing the existing ‘slab’ system and introducing a new 5% rate of SDLT for consideration above £250k (as well as a new 2% rate of SDLT on leases with a rental NPV above £5m);
  • Higher rates of SDLT (+3%) on acquisitions of ‘additional’ residential property to be effective from April 2016, as previously announced, but with no exemption for large scale property investors.

If you like to discuss any specific issues relating to the budget or for any other corporate matter please contact us.

Partner, Corporate
Tel: 0151 600 3269



Directors’ duties and responsibilities: Shareholders in dispute

Friday 12th February 2016

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Corporate Matters - Issue 10

In this series of articles looking at directors' duties we previously examined "Directors duties under the Companies Act 2006". In this second edition we examine the duties owed by directors where the shareholders of a company are in dispute.

The Non-Shareholder Director

The role of a non-shareholder director of a company where the owners are in conflict can be particularly difficult. In such circumstances, a director will invariably come under pressure to take sides in the dispute. In these circumstances it is important for a director to remember their duty to exercise independent judgment. Directors must make their own decisions on what they consider to be in the best interests of the company and must avoid substituting their judgment for that of one of the conflicting shareholders.

Directors each have a duty to promote the success of their company for the benefit of its shareholders as a whole. Directors must avoid adopting a course of action for the company which is unfairly prejudicial to a particular shareholder or group of shareholders. Such action (for example, awarding a large bonus to one of the conflicting shareholders without justification) is likely to give rise to a claim for unfair prejudice from the aggrieved shareholder.

The Shareholder Director

While the role of the non-shareholder director may be unenviable, the position of a shareholder director involved in a shareholder dispute can be even trickier.

A shareholder director needs to remember that they have two distinct and separate roles in the company, one as an owner (in the form of shareholder) and one as a director. Shareholder directors need to take care to ensure that a dispute in their ownership capacity does not improperly prevent them from discharging their duties as a director. 

As with non-shareholder directors, a shareholder director is obliged to promote the success of the company for the benefit of its members as a whole and will be in breach of their duties if they seek to take action which promotes only their position. Further, a shareholder director needs to be particularly mindful of their duty to avoid conflicts of interest. Directors must also remember their duty to act within the limits of their power and authority, particularly in line with any restrictions imposed by the company’s articles of association. Where a director is in breach of their duties, an aggrieved shareholder can bring a derivative action (where they stand in the shoes of the company) to bring a claim against the defaulting director.

Where a shareholder director is in conflict, it is often tempting for that director to consider diverting business opportunities away from its original company to a new business entity. Such an action is a breach of the duties that director owes to his original company and could lead to the company bringing an action for all of the profits lost from the diversion of the business opportunities.

Shareholders’ Agreements

It is often beneficial (in order to avoid shareholder conflicts and to set out rules for resolving them if they arise), to put in place a shareholders agreement. Such an agreement can save significant time and cost in the event of a dispute and will generally set out each party’s respective roles, responsibilities and powers. Where such an agreement exists, it is important that the directors of a company ensure that they conduct the business of the company in accordance with its terms.

In the next edition we will look at directors duties of insolvent companies.

For more information on directors' duites and responsibilities please contact: 

Daniel Hayhurst
Solicitor, Corporate
Tel: 0151 600 3155 

Changes in legislation: Entrepreneurs’ Relief in members' voluntary liquidations and withholding tax on peer-to-peer loans

Friday 12th February 2016

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Corporate Matters - Issue 10

Potential loss of Entrepreneurs’ Relief in members’ voluntary liquidations (MVLs)

Capital distributions made to an individual on the winding-up of a company (including by way of MVL) are subject to capital gains tax, rather than income tax. This typically means lower tax rates and also the ability to claim Entrepreneurs’ Relief if certain conditions are satisfied.

HMRC has for some time been concerned that these rules are capable of being exploited.

A new anti-avoidance rule will therefore be introduced in April 2016, whereby distributions from a winding-up will be treated as income (rather than capital), if:

  • an individual shareholder in a “close” company receives a distribution in respect of shares on a winding-up;
  • within a period of two years after the winding-up that individual continues to be involved in a similar trade or activity; and
  • the main purpose (or one of the main purposes) of the arrangements was obtaining a tax advantage.

Taxpayers should therefore consider whether planned MVLs can be accelerated prior to 6 April 2016, if necessary.

HMRC guidance: withholding tax on peer-to-peer (P2P) loans

HMRC has recently published further guidance on the tax treatment of peer-to-peer (P2P) loans, which says that interest payments will continue to be exempt from income tax deductions at source, but only for the time being.

Typical lending models used in the P2P industry, with multiple lenders and multiple borrowers each with different tax profiles and often across different jurisdictions, makes it extremely complicated to apply existing withholding tax rules.

HMRC has therefore concluded that interest payments made on P2P loans may continue to be made without withholding tax deductions until an appropriate solution is identified.

If you would like more information on either of these matters please contact:

Mark Whiteside

Partner, Corporate
Tel: 0151 600 3269

Lessons from the courts: A new penalty rule test

Friday 12th February 2016

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Corporate Matters - Issue 10

A new penalty rule test – might a seller’s deferred consideration now be at greater risk?

For a 100 years or so English Law has been clear that a contractual penalty which bore no relationship to the actual loss suffered by the injured party was unenforceable. However, the recent case of Cavendish Square Holdings BV v Talal El Makdessi saw the Supreme Court establish a new test for penalty clauses which is likely to see less clauses deemed unenforceable sanctions. Clauses will no longer have to satisfy the ‘genuine pre-estimate of loss’ test to be enforceable; the courts will now look at the legitimate interests a party is seeking to protect and whether a specified remedy is extravagant or unconscionable in that context.

In the context of sales of companies, it is likely that tying the payment of deferred consideration to compliance with restrictive covenants and other harsh ‘bad leaver’ provisions will both be that much more enforceable as a result. We therefore expect to see buyers seeking greater protection as they will be more confident that it will be enforceable. For further analysis please read our blog here.

For more information on on this matter please contact:

Simon Lewis

Senior Associate, Corporate
Tel: 0161 836 8930




Do you know what to do? A look at people with significant control and what do if bailiffs arrive

Friday 12th February 2016

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Corporate Matters - Issue 10

Persons with Significant Control – what information do I need to provide?

We have previously reported on the upcoming requirement for companies to keep a register of people with significant control (PSCs). These registers must now be kept from 6 April 2016 and the information must be sent to Companies House from 30 June 2016 via your confirmation statement (which replaces the annual return). The information which must be provided for the PSC register is as follows:

  • Name;
  • Date of birth;
  • Nationality;
  • Country, state or part of the UK where the PSC usually lives;
  • Service address;
  • Usual residential address (this must not be provided when making your register available for inspection or provide copies);
  • The date he or she became a PSC in relation to the company (for existing companies the 6 April 2016 should be used);
  • Which conditions for being a PSC he or she meets. For conditions 1 & 2 this must include the level of their shares and voting rights, within the following brackets: Over 25% up to 50%, More than 50% less than 75%, and 75% or more;
  • Whether an application has been made for the individual’s information to be protected from public disclosure.

What to do if a bailiff arrives?

Where a creditor has a judgment debt against a company, it can obtain a writ of control from the court and instruct a bailiff (now called an enforcement officer) to attend at a company’s premises to take control (and if necessary uplift and sell) the company’s goods to the value of the debt. A Landlord can instruct an enforcement officer for arrears of rent and HM Revenue and Excise can do likewise for tax arrears, even without a court judgment. 

The Enforcement Officer has to give the company 7 clear days’ notice in writing before attending at the premises to take control of the goods.

A director needs to take urgent action on receiving such a notice to safeguard the business and assets (although the company cannot put its assets beyond the reach of the creditor). That would sometimes involve attempting to reach an accommodation with the creditor but enforcement action can be an indication that the Company is insolvent and the directors should take appropriate professional advice. The company can also apply to court to stay the action (for a period of time or indefinitely) if there are special circumstances. 

If those actions fail and the enforcement officer attends commercial premises, he can use reasonable force to get access by any usual means of entry (but cannot use force against people).

The enforcement officer can take control of the company’s goods but it is more difficult for the enforcement officer to validly take control over cash, third party goods (such as leased assets) and jointly owned goods. He will normally take an inventory of the company’s goods (signed by the debtor) called a Controlled Goods Agreement and may then give an additional period of time for the debtor to make payment. If the debtor does not stick to the agreement then the enforcement officer will re-enter the premises and typically uplift and sell the goods at auction to satisfy his costs and the judgment debt. 

If you would like more information on these issues please contact either: 

Robert Turner

Partner, Corporate
Tel: 0161 836 8821


William Bayly

Trainee Solicitor, Corporate
Tel: 0161 836 8896




Directors’ duties and responsibilities

Friday 23rd October 2015

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Corporate Matters - Issue 9

In the first of a series of articles on directors’ duties and responsibilities, we examine the general duties owed by directors under the Companies Act 2006:

1. Duty to act within powers

Directors must act in accordance with the Company’s constitution (including the Company’s Articles of Association and any resolutions or agreements (such as shareholder or investment agreements) of a constitutional nature) and may only exercise their powers for their proper purpose.  

2. Duty to promote the success of the Company

Directors must act in a way which they consider, in good faith, to be most likely to promote the success of the Company for the benefit of its members as a whole.  When considering what is most likely to promote the success of the Company, directors should consider:

  • The likely consequence of any decision in the long-term;
  • The interests of the Company’s employees;
  • The need to foster the Company’s business relationships with suppliers, customers and others;
  • The impact of the Company’s operations on the community and the environment;
  • The desirability of the Company maintaining a reputation for high standards of business conduct;
  • The need to act fairly as between the members of the Company.

3. Duty to exercise independent judgement

Directors must exercise independent judgement and make their own decisions. For example, if a director is appointed by a particular shareholder, that director must still make independent decisions which he considers to be in the best interests of the Company. This duty does not restrict the directors acting in accordance with an agreement which is entered into by the Company which restricts the future actions of the Company (for example a shareholders or investment agreement).

4. Duty to exercise reasonable care, skill and diligence

Directors must discharge their duties with the general knowledge, skill and experience that may be reasonably expected of a person carrying out the functions carried out by that director in the Company. Further, where a director has some additional or special knowledge or skill (above what would normally be expected of such director) that director is obliged to apply that knowledge or skill in discharging his duties.   

5. Duty to avoid conflicts of interest

Directors must not place themselves in a position where there is a conflict, or possible conflict, between the duties they owe their company and either their personal interests or the duties they owe to a third party. The Companies Act 2006 allows the shareholders of a company to authorise any conflict of interest a director may have, the shareholders of a company can also choose to include in the Articles of Association a provision allowing non-conflicted directors to authorise a conflict of interest of a conflicted director.

6. Duty not to accept benefit from third parties

A director must not accept any benefit (including a bribe) from a third party which is conferred because of his being a director or his doing or not doing anything as a director. This duty will not be infringed if the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest. This duty continues to bind former directors in relation to things done or omitted by them before they cease to be a director of the relevant company.   

7. Duty to declare interest in proposed transaction or arrangement with the Company

A director must declare the nature and extent of any interest (direct and indirect) in a proposed transaction or arrangement with the Company. The declaration must be made before the Company enters into the relevant transaction or arrangement.   

In subsequent articles/blogs we will look at particular scenarios, including insolvency, and how directors should act in such circumstances.

For more information on directors' duites and responsibilities please contact: 

Daniel Hayhurst

Tel: 0151 600 3155 
Email Daniel







Legislative developments: Small Business, Enterprise and Employment 2015 Act update

Friday 23rd October 2015

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Corporate Matters - Issue 9

In April 2015 we detailed the changes that would be implemented within the Small Business, Enterprise and Employment Act 2015 Act, which received Royal Assent on 26th March 2015 and is set to amend a number of sections in the Companies Act 2006. 

As of October 2015:

  • Directors of UK companies must be individuals. Any purported corporate director appointments after the commencement of this provision will be void, with possible criminal sanctions. Any existing corporate directors will cease to exist from October 2016.
  • There will now only be an obligation to specify the month and year of a directors date of birth. 
  • The current ‘consent to act’ as a director or secretary provision is to be replaced. Newly appointees will now be added to the register by Companies House after notification by the company. Companies House will then write to the appointee informing them of their general and legal duties. Appointees may apply to Companies House for removal from the register, however quick removal provisions in the event of a dispute have been postponed until December 2015.  
  • The length in process of striking off an inactive company via the Registrar of Companies will be reduced from between five and six months to between three and four months. 

As of April 2016, it is proposed that the register of people with significant control (PSCs) will be implemented, as detailed more extensively in April’s issue. Typically, for an individual to amount to a PSC they would need to hold more than 25% of the nominal value of shares and/or hold more than 25% of the voting rights.

Alternatively, a person can fulfil the PSC criteria by having “significant influence of control” or the right to exercise it, for which there is little guidance as to its meaning. The eventual publication of any guidance will allow companies and shareholders to better inform themselves as to what fulfils the criteria, allowing them to identify such individuals. Once identified, they will be obliged to register the required information, which will appear in public records, unless certain exceptional circumstances apply.

The Government is currently in the process of developing non-statutory and statutory guidance to support its implementation. 

For more information on the Small Business, Enterprise and Employment Act 2015 please contact: 

Rupert Gill

Tel: 0151 600 3106
Email Rupert



Lessons from the courts: Completion accounts

Friday 23rd October 2015

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Corporate Matters - Issue 9

The recent case of Mihail Tartsinis v Navona Management Co. confirmed again how important it is to ensure that there is no confusion between parties as to the principles upon which completion accounts are to be prepared when used as a price adjustment mechanism in merger and acquisition transactions. 

In this case it was agreed that the completion accounts should be prepared in accordance with International Financial Reporting Standards (IFRS). The Buyer, however, failed to include in the Share Purchase Agreement (SPA) specific principles as to how one of the Target’s most expensive assets, its subsidiary’s fleet of ships, should be valued. This is something that should have been clearly set out because historically the Target had valued the fleet at net book value (which was significantly higher than it should have been taking into account deteriorating market conditions) rather than market value. A difference of about $14.1m. 

Following completion, the Buyer prepared a set of completion accounts, however it did so incorrectly by valuing the fleet at net book value. Completion accounts prepared correctly in accordance with IFRS would not have valued the fleet at net book value but far less. 

Realising its error, the Buyer refused to pay the additional sums claimed by the Seller. The Court however ruled that the Buyer could not challenge its own accounts and was obliged to pay the net book figure. 

Unable to rectify the completion accounts, the Buyer appealed to the Court to instead rectify the mistake in the SPA. Fortunately for the Buyer, the Court was prepared to consider evidence of pre-contractual agreements and it finally ordered rectification of the contract. 

Such assistance from the Court is not guaranteed however and due care should be taken when negotiating accounting principles and producing completion accounts. 

For more information on completion accounts please contact: 

James Petts

Tel: 0161 836 8805
Email James

Bribery Act 2010 – first section 7 disposal

Friday 23rd October 2015

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Corporate Matters - Issue 9

More than four years since the “strict liability” corporate offence of “failing to prevent bribery” under section 7 of the Bribery Act 2010 (the “Act”) was introduced, the Scottish Crown Office and Procurator Fiscal Service announced the first disposal of such an offence. It re-emphasises the need for companies to constantly review and (if necessary) refresh their anti-bribery and corruption policies and procedures.

On 25 September 2015, the Civil Recovery Unit in Scotland recovered £212,800 from Brand-Rex Limited (“Brand-Rex”) under an agreed civil settlement, after Brand-Rex self-reported the fact that it had benefited from unlawful conduct by a third party.

Brand-Rex develops and supplies cabling solutions for network infrastructure and industrial applications. Between 2008 and 2012, it operated a lawful incentive scheme for its UK distributors and installers offering rewards, including foreign holidays, for meeting or exceeding sales targets.

However, one of Brand-Rex’s independent installers (an “associated person” for the purposes of section 7 of the Act) offered their rewards to an employee of one of his customers who was in a position to influence purchasing decisions in relation to cabling.

Upon becoming aware of the issue, Brand-Rex engaged external solicitors and forensic accountants to investigate. This led Brand-Rex to self-report the matter to the authorities in the context of its likely failure to prevent bribery by an associated person under section 7 of the Act, a step which played a key role in it being deemed suitable for a civil recovery settlement rather than facing criminal prosecution.

Although a complete defence to the section 7 offence, Brand-Rex did not seek to argue that it had in place adequate procedures to prevent bribery by its associated persons. Instead, Brand-Rex paid £212,800 under the civil settlement, which was calculated based on the gross profit made by Brand-Rex as a result of the misuse of the incentive scheme. Going forward, the company agreed to enhance its anti-bribery and corruption (“ABC”) policies and procedures and to engage in an appropriate ABC training programme.

This case highlights a number of relevant points.

  • The risks that companies face under section 7 if they do not maintain adequate procedures to prevent bribery by associated persons.
  • The need to constantly review and (if necessary) refresh ABC policies and procedures, and to ensure that they are adequate to prevent bribery by associated persons.
  • The need to review ABC due diligence processes in relation to business partners and other third parties such as acquisition targets.
  • The benefits of undertaking a full internal investigation into alleged wrongdoing and making a prompt self-report to the appropriate authorities, which was inevitably a major factor in avoiding criminal charges (although this might have been different for a company in England rather than Scotland).
  • The risk of providing incentives to associated persons in a form that can be passed on to third parties.

For more information about the Bribery Act please contact:

Andrew Millar

Tel: 0161 836 8965