We have previously (in September 2016’s Corporate Insight’s blog) explained the regulations requiring disclosure of a company’s persons of significant control (also known as PSCs) and the extension of the regime (in June this year).
The compliance with these regulations was put into context by the ‘Paradise Papers’ and the BBC Panorama investigation into who really controls Everton Football Club. The investigation’s review of the leaked papers alleged that Farhad Moshiri was in some way funded by Arsenal shareholder Alisher Usmanov, either by loan or gift dating back to their joint investment made into Arsenal, and that Mr Usmanov retains control over the investment in Everton.
All parties strongly deny any wrongdoing and we do not comment on the truth of the allegations, but it is a useful example to consider the filing made by Everton Football Club Limited (one of the oldest companies on the register having been incorporated in 1892 and so predating the PSC regulations by some time…).
The regulations require a company to investigate who are the individuals or UK registered companies who own more than 25% of the voting rights and shares in its capital and declare this each year in the annual compliance statement and within 14 days of any change.
Everton have indeed made filings at Companies House to confirm that Mr Moshiri is the sole PSC, with a direct or indirect holding between 25% and 50%. We have no reason to doubt this is correct.
What, however, should a company do if they discover that a holding is in fact held on behalf of or controlled by a third party? The situation can be complicated, but the regulations go beyond the 25% ownership of shares and voting rights and an individual should be recognised as a person of significant control if any one of the following apply:
(a) They directly or indirectly hold the right to appoint a majority of directors; or
(b) They otherwise actually exercise or have the right to exercise significant control; or
(c) They control a trust or firm which is not a ‘legal person’ (usually meaning it is not a company), but if it was would be a PSC by reason of its holding or control of the company.
Two tests could therefore show that an unexpected person is in fact the PSC.
Firstly, a UK company must also follow the chain of ownership through any overseas holding companies which hold a 25% share, and declare the identity of an individual controlling the shares. This may not be the registered shareholder if they are acting at the direction of another.
The last test would also capture the position where a 25% or more holding of shares is held by an individual for another person, that beneficial shareholder is likely to be a person of significant control. If the shares and rights are exercised jointly, then both could be PSCs, even if their divided holdings would be less than 25% each.
While a company must make enquiries of its shareholders, it is ultimately an obligation for the shareholder personally to declare to the directors.
The intention of the legislation is to create transparency in who owns UK companies. Its effectiveness depends on the willingness of the UK agencies to prosecute for a failure to act properly. The Panama and Paradise papers and ongoing disclosures of complicated and controversial offshore structuring could provide a test sooner rather than later.