Aiming for too much transparency?
UK AIM companies are currently exempt from the requirement to maintain a register of people with significant control, or PSC register. This may change in June 2017 with the implementation of the Fourth Money Laundering Directive. At best, this would be an administrative inconvenience, but directors would need to consider whether to undertake investigations into shareholdings and relationships between shareholders. Failure to comply would render both the company and directors potentially liable to fines and imprisonment.
The current PSC regime in the UK exempts companies from the requirement to maintain a PSC register if they are subject to Chapter 5 of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules (DTR 5). DTR 5 applies to UK companies with shares traded on a regulated market (such as the main market of the London Stock Exchange), as well as to companies with shares traded on a prescribed market like AIM. The exemption applies as DTR 5 imposes an obligation on these companies to publish substantial information about major shareholders, so little would be gained by requiring them to maintain a PSC register.
The Fourth Money Laundering Directive requires all Member States to implement measures to increase corporate transparency by June 2017 and the Government is considering what changes may be required to the UK PSC regime to bring it into line with the Directive. In relation to quoted companies, the Directive allows an exemption for companies with shares traded on a regulated market, but does not expressly exclude companies traded on a prescribed market even if they are subject to the same disclosure requirements as those on a regulated market. The Government may therefore conclude that implementation of the Directive means AIM companies can no longer benefit from the exemption to maintain a PSC register.
What would this mean for UK AIM companies?
Every UK AIM company would have to set up a PSC register, even if there was nobody who had to be registered as a PSC. In addition to maintaining its own PSC register, PSC information would also be passed to Companies House to go on the public record as part of the company's annual confirmation statement.
The basic conditions determining whether a person must be entered on a UK company's PSC register are holding more than 25% of the shares or voting rights. The DTR 5 regime means that shareholders in a UK AIM company must notify the company if they hold 3% or more of the voting rights. AIM companies could therefore use this information to establish whether any shareholder meets the conditions for being a PSC.
The problem is that the DTR 5 regime is not identical to the PSC regime. In particular:
- the DTR 5 regime only relates to voting rights, whereas the PSC regime also takes into account the percentage of total share capital held (including non-voting shares) by reference to its nominal value;
- there are different rules relating to indirect holdings, arrangements between shareholders, control of voting rights and so on;
- some categories of holdings are disregarded for the purposes of DTR 5.
Moreover, DTR 5 makes the shareholder responsible for notifying the company, and the company is obliged only to notify the market once it has received notification. Under the Companies Act 2006, a public company has powers to investigate interests in its shares, but no obligation to do so. The PSC regime, however, places significant responsibilities on the company. An AIM company would be required to take reasonable steps to find out if it has any PSCs and to identify them, including issuing statutory notices on anyone it knows or has reasonable cause to believe to be a PSC, and on anyone who may have relevant information. If a statutory notice is not complied with, the company would have to consider whether to use the power conferred on it to impose transfer, voting and dividend restrictions on the relevant shares.
If a company fails to take reasonable steps to identify any PSCs, it commits a criminal offence and may be fined. An offence would also be committed by any director or other officer who failed to take all reasonable steps to prevent the company committing this offence, and those directors and officers might face 12 months imprisonment as well as a fine.
It remains to be seen whether the Government can persuade itself that it is not required to remove the PSC register exemption from AIM companies in order to implement the Fourth Money Laundering Directive or that, in the light of Brexit, it should not do so. It certainly seems to recognise the lack of logic inherent in imposing greater disclosure burdens on AIM companies than apply to companies with shares traded on the main market.
If AIM companies are to be required to maintain PSC registers, it may be that the Government can be prevailed upon to issue guidance clarifying its view of the reasonable steps they would be required to take to identify PSCs and, in particular, to what extent they may rely on information provided under the DTR 5 regime. But even if such guidance were forthcoming, the directors of each AIM company would need to be aware of the positive obligation to undertake investigations if there were any circumstances giving reasonable cause to believe that anyone met the conditions for being a PSC.