Abolition of Corporate Directors

The Small Business, Enterprise and Employment Act 2015 (SBEE Act) will abolish corporate directors from 1st October 2015.  Steven Grant, Company Commercial Partner, explains here that companies will no longer be allowed to be a director of another company and advises that those using corporate directors would be well placed to start considering how the SBEE Act will affect them, and whether they will need to restructure their boards.

The Government has introduced these measures as part of the Transparency and Trust proposals and the international spotlight on corporate transparency at the G8 Summit and the G20 Summit. There is a concern about so called ‘shell’ companies (companies with no assets and no trade) and confusing structures being used to facilitate crime and so it is outlawing corporate directors except where they represent a low risk of illicit activity and are of high value to the company.

The Government have consulted interested parties on the currently proposed exemptions and are considering the results.  These are due to be published at a later date.

Among others, the proposed exemptions include:

• Where a company is trading on UK regulated and prescribed markets, including the Alternative Investment Market
• Where a company is trading on certain foreign markets
• Corporate trustees
• Some for private companies, depending on their size and whether they have a group structure

LLPs are likely to be fully exempt, although this will be reviewed after five years if LLPs are appearing to be used to facilitate criminal offences.

Small and medium sized businesses (SMEs) are not likely to be able to take advantage of any of the exemptions; not least because ‘shell’ companies are naturally small. The Government has concluded that SMEs are unlikely to be unduly disadvantaged, as they tend not to use corporate directors.

From when the proposals come into force, companies will have one year to replace their corporate directors with natural directors, unless they fall under one of the exceptions. It will be an offence to attempt to appoint a corporate director unless an exception applies, and the appointment will be void.  If a company fails to remove their corporate directors, then they will automatically cease being directors after the year is up.

These proposals must also be reviewed every five years according to section 88 of the SBEE Act by the Secretary of State, so this is a topic worth keeping an eye on as more exceptions may be created or removed depending on how well the Act’s objectives are being met.

Overall the exemptions for corporate directors are not likely to be many, and companies with corporate directors should be considering whether re-structuring is necessary.

For advice on how your company could be effected by the SBEE Act, contact Steven or the Commercial team on 02380 717717 or visit their section of the website here.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.