Implementing the ban on corporate directors
This is an outline of the 'Implementing the ban on corporate directors' consultation launched by the UK's Department for Business, Energy and Industrial Strategy in December 2020.
Background to the consultation
In December 2020, BEIS issued three consultations to take forward its plans to reform the powers and role of Companies House (CH). These consultations follow the government’s response to the 2019 consultation on Corporate Transparency and Register Reform, published in September 2020. Aspects of that are ongoing (see Business Law note on Corporate Transparency and Register Reform).
The consultations cover the following areas:
- improving the quality and value of financial information on the UK companies register;
- powers of the registrar; and
- implementing the ban on corporate directors.
Issues raised in the consultation
The power to prohibit corporate directors has existed for some years but has not hitherto been implemented. It would now be implemented, as follows:
- Appointment (it is a one-off test) of a corporate director (CD) to a company (C) will not have legal effect unless CD is i) within scope and ii) all of CD’s directors are natural persons and they have been ID-verified by CH.
- Post-appointment C must take all reasonable steps to assure itself that CD maintains only natural persons as its directors.
- Scope of CD will be:
- UK companies;
- overseas companies;
- possibly LLPs with a question of which members should be ID-verified; and
- possibly limited partnerships (LPs) with a question of which partners should be ID-verified.
- This regime may possibly be extended so that that same approach as respects C will apply as respects an LLP or LP that wishes to appoint a corporation as its designated member or general partner respectively.
Please note: there are separate proposals that all UK companies’ director appointments and all LLPs’ designated member and LPs’ general partner appointments will be ID-verified by CH (see link to Corporate Transparency and Register Reform above).
Broadly speaking, we support the proposals. They seem to strike a good balance between improving the quality or accessibility of information on the register to deter criminal use whilst allowing business some flexibility to use corporate directors for legitimate purposes.
We are concerned that the controls on use by UK companies of non-UK corporate directors may not be as robust as those applying to UK corporate directors even though these types of arrangement are associated with higher risk of criminal use. We understand that BEIS is considering how equivalent controls could be implemented