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As part of the Government’s initiative to encourage transparency and accountability for those controlling a company, the Small Business, Enterprise and Employment Act 2015 (2015 Act) will introduce restrictions on the appointment and continued use of corporate directors.

The current position under UK company law is that at least one director on the board of a company must be a natural person. Subject to this requirement, any legal person, including a company or a limited liability partnership, may be a director of the company.

Section 87 of the 2015 Act will change the current position and will require all directors to be natural persons and prohibit the appointment of corporate directors.

When will the ban on corporate directors be implemented?

The ban on corporate directors was scheduled to come into force in October 2016 but the the Department of Energy and Industry Services (BEIS) has delayed its implementation. While no new implementation date has been set, BEIS has indicated that it still intends to implement the ban.

Will there be any exceptions to the blanket ban?

BEIS has confirmed that there will be exceptions to the ban but, to date, the exceptions have not been published. This delay in publication is likely a key factor in the delayed implementation of the ban. BEIS has indicated that it intends to publish regulations setting out the exceptions to the prohibition in due course.

Although the Government has reached the conclusion that directors should normally be individuals and that corporate directors will be prohibited generally, it seems to have decided that corporate directors will continue to be allowed in certain circumstances where their use presents a low risk to illicit activity or where high standards of corporate governance or disclosure operate (for example, in relation to listed companies).

In the most recent questionnaire published by the Department of Business, Innovation and Skills (the predecessor to the BEIS) it was proposed that a company may still be able to appoint a corporate director if that corporate director has only natural persons as its directors and certain details about those individuals are publicity maintained and accessible.

If this recent proposal is adopted it would mean that any company, public or private, could potentially continue to appoint corporate directors provided that the aforementioned criteria is satisfied, going some way to dilute the effect of the prohibition.

I have an interest in and/or am a director in a company that is a corporate director or I have an interest in and/or am a director on the board of a company with a corporate director, what steps should I be taking at the moment?

Until the draft regulations setting out the exceptions are published by BEIS it is not clear whether a particular corporate director will need to be replaced or not. Where no exception applies the corporate director will require to be removed before the end of a 12 month transition period.

If a company you own or are a director of has a corporate director the first step will be to identify who the corporate director is and, once the exceptions have been confirmed, ascertain whether any of the exceptions will apply.

Likewise, if you have an interest in or are a director on the board of a company that is a corporate director, it will be important to ascertain whether any of the exceptions will apply once published.

Stronachs LLP would be happy to assist any company which currently has a corporate director on the board of a company by providing more detailed advice around the legislation, the proposed changes and provide updates on the exceptions as and when these are approved and confirmed. If you require any assistance please contact William.miller@stronachs.com) in the first instance.

William Miller, Company Registrar

 

Chambers UK 2018

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