The People with Significant Control regime now applies to AIM companies
As you may be aware, most companies incorporated in the UK are required to comply with a regime set out in Part 21A of the Companies Act 2006 (the "Act") and certain other regulations, known collectively as the "People with Significant Control" regime.
This imposes certain obligations on a company, including: (i) taking reasonable steps to identify and notify people with significant control of the company ("PSCs") and registrable relevant legal entities ("RLEs"); (ii) recording certain information in relation to these persons in a specific register (the "PSC Register"); and (iii) updating Companies House in respect of the same.
Previously, AIM companies had been exempt from this regime. However, on 26 June 2017, new regulations(*) came into force in the UK which effectively removed this exemption. Accordingly, from 26 June 2017, AIM companies must now comply with the PSC regime.
Please note that compliance with the regime is in addition to the existing significant shareholder disclosure obligations for an AIM company under AIM Rule 17 and DTR 5.
What do AIM companies now have to do and by when?
From 26 June 2017:
take reasonable steps to identify PSCs or RLEs (see below as to what this might entail);
once identified, notify the PSCs and RLEs using a specific form to obtain relevant information from them; and
within 14 days of obtaining the information, record the information in a dedicated PSC Register.
From 24 July 2017:
produce, keep and maintain a dedicated PSC Register; and
file its PSC information and any updates and changes to its PSC Register with Companies House, within 14 days of updating its PSC Register.
How does a company identify who is a PSC and an RLE?
Broadly, an individual is a PSC if he or she meets one or more of the following conditions in relation to the company:
he/she holds, directly or indirectly, more than 25% of the shares in the company;
he/she holds, directly or indirectly, more than 25% of the voting rights in the company;
he/she holds the right, directly or indirectly, to appoint or remove a majority of directors of the company;
he/she has the right to exercise, or actually exercises, significant influence or control over the company; or
he/she has the right to exercise, or actually exercises, significant control or influence over the activities of a trust or firm that, in each case, does not have legal personality under its governing law, where the trustees or members of that trust or firm meet any of conditions one to four (in their capacity as such) in relation to the company, or would do so if they were individuals.
There are detailed provisions and guidance which help a company apply these tests.
Although the PSC Register is primarily intended to record the details of individuals, it also requires the holdings of certain legal entities to be recorded (which, for the most part, will be companies). These legal entities are called "relevant legal entities" (RLEs).
To be capable of registration as an RLE, the entity must satisfy all of the following:
it must be a legal person under the law by which it is governed;
it must meet one or more of the specified PSC conditions as if it were an individual (i.e. the tests above as to whether an individual is a PSC, must also be met in respect of a legal entity that appears in the company's chain of ownership); and
the entity must be subject to its own disclosure requirements (i.e. broadly speaking the entity itself must be subject to the PSC regime or be admitted to trading on a regulated market in an EEA State).
From 26 June 2017, an AIM company is required to take "reasonable steps" to identify if there are PSCs or RLEs in respect of the company.
The Act is not prescriptive as to what "reasonable steps" might entail. However, the BEIS Guidance for Companies has attempted to clarify the situation. What is reasonable should be determined on a case-by-case basis but the guidance states that a company should consider: (i) all documents and information available to it; (ii) interests held not only by individuals and legal entities, but also by trusts and firms that do not have legal personality; (iii) every interest in light of certain additional rules of interpretation(**); and (iv) leads in respect of potential direct or indirect interests in the company.
The guidance also explains that a company should consider the following documents when investigating PSCs/RLEs: its register of members, its articles of association, its statements of capital, any relevant agreements (including shareholder agreements), voting patterns, covenants or agreements which concern the appointment or removal of directors, and the other rules and guidance set out in Part 3 of Schedule 1A to the Act.
Once the company has identified persons whom it reasonably believes are PSCs or RLEs, it is required to notify such person of that fact and obtain specific information from them so it can record it on the PSC Register. The Act sets out a form for the notices that a company should send to those persons to obtain the necessary information. AIM companies should (where applicable) now be sending out the relevant forms to such persons.
Failure to take reasonable steps is a criminal offence by the company and every officer in default (potentially punishable by imprisonment or a fine). However, provided the company can show that it has taken reasonable steps, a failure to identify a PSC or RLE does not constitute an offence.
The PSC Register and Companies House filings
The PSC Register constitutes a statutory register (such as the register of members, register of allotments and so on) that companies are required to keep pursuant to the Act.
It should include the relevant details of all registrable PSCs and RLEs. There is a presumption that all PSCs and RLEs are registrable in a company's PSC Register, but this is rebuttable in certain circumstances.
Relevant details for a PSC include: their name, service address, country or state of usual residence, nationality, date of birth, usual residential address, date and nature of their control (i.e. which limb of the tests above they satisfy).
If a company is not in a position to complete its register, it must include certain wording to reflect the progress of the company's investigations. It is not acceptable just to leave the PSC Register blank.
For example, where the company has not yet confirmed the required particulars of a registrable PSC, the register must state that: "The company has identified a registrable person in relation to the company but all of the required particulars of that person have not been confirmed."
Where the company has not otherwise completed its investigations, the register must state that: "The company has not yet completed taking reasonable steps to find out if there is anyone who is a registrable person or a registrable relevant legal entity in relation to the company."
Where a company has completed its investigations and concluded that no individual or legal entity is registrable by that company, the register must state that: "The company knows or has reasonable cause to believe that there is no registrable person or registrable relevant legal entity in relation to the company."
If there are any changes to the information regarding a PSC, a company must enter those changes or updated information into its PSC Register within 14 days and file such information at Companies House within 14 days of updating its PSC Register.
What to do now
Companies must not be caught out by the new regime, since failure to comply could result in criminal liability (whether imprisonment or a fine).
The obligations to identify and notify PSCs and RLEs are already in force. As such companies should already be reviewing relevant documentation to identifying potential PSCs and RLEs. Once identified, companies should send out the forms prescribed by the Act in order to inform the persons that the company believes they are PSCs/RLEs and to obtain the necessary information from them.
If this process has not yet started or you are unsure about how to comply with the regime (whether in identifying PSCs, compiling the PSC Register or making the relevant filings at Companies House) we would recommend that you get in touch with your usual contact at Fieldfisher. The regime can be fairly complicated and there is already an abundance of technical guidance, which we can advise you on.
(*) "Information about People with Significant Control (Amendment) Regulations 2017 (SI 2017/693)"
(**) Set out in Part 3 of Schedule 1A to the Act