Small Business, Enterprise and Employment Act 2015 :All Company Directors Must Now be Natural Persons

This is part of a series of posts on the Small Business, Enterprise & Employment Bill that has now come into force on 26 March 2015 following the grant of Royal Assent and is now the Small Business, Enterprise and Employment Act 2015 (“the Act”).

This series of posts is intended to update the readers of the key changes, which should radically transform the transparency of the marketplace as regards the operation, control, ownership and risk associated to limited companies in the UK.

We have not addressed all of the issues described in our previous posts, to avoid duplication, but would welcome any queries from the reader in this respect.

The commencement of these changes is different dependant on which part of the Act is being reviewed (Section 164 of the Act defines commencement) and we have highlighted below the relevant commencement dates. Where we below stated “to be announced” this means it has not yet come into force and will commence upon the making of a Commencement Order.

The changes as set out below will be extremely important to all directors, companies and individuals with business in the future and it cannot be emphasised too strongly how important it is that you are prepared for these proposed changes. At Francis Wilks & Jones we can advise on all matters subject to these posts.

All Company Directors must now be natural persons – COMMENCEMENT ORDER TO BE ANNOUNCED

Sections 87 and 88 of the Bill removes the ability to appoint corporate directors to the Board of Companies and insert a statutory requirement that ALL company directors must now be natural persons. There is however a provision that enables the Secretary of state to make exceptions to this rule, but we presume this will largely be in respect of government institutions, companies limited by guarantee and not-for-profit organisations.

A breach of this, both by the appointing company, the appointed company (if one is wrongly appointed) and directors of both of these companies (including shadow directors) may make these companies/their directors liable to criminal proceedings. The sentence is limited to a fine. However, it is important to note that the existence of any such criminal proceedings may make directors unable to continue acting in that capacity or alternatively they could later be deemed in breach of their fiduciary duties.

The amendments (new Section 156C of the Companies Act 2006) do provide for current corporate directors. They can remain appointed until 12 months from the day that the Act comes into force, and so these corporate directors (in respect of all UK companies) must be removed no later than 25 March 2016.

If you require any assistance on the impact or effect of any of these changes, or indeed you require assistance in making these changes and advice on the consequences,then please contact Francis Wilks & Jones.

All Company Directors Must Now Be Natural Persons

This is part of a series of posts on the Small Business, Enterprise & Employment Bill(“the Bill”) that is proposed to come into force in April 2015.

Sections 76 and 77 of the Bill removes the ability to appoint corporate directors to the Board of Companies and insert a statutory requirement that ALL company directors must be natural persons. Section 77 requires that the Secretary of State review the effectiveness of this amendment at the end of 5 years beginning on the day when the Act comes into force and for future periods, at every 5 year stage.

The Bill provides that any appointment of a corporate director is void and accordingly this may have consequential effects on directors who resign and appoint corporate directors in their place. Such actions will effectively lead to a finding that the director has resigned and abandoned the company and therefore may have breached his/her fiduciary duties (with the personal liability that may arise from such breaches).

The Bill does provide the Secretary of State with a power to make exceptions from this rule but in the absence of any immediate regulations being incorporated the prohibition will continue.

This will obviously be greatly concerning to many companies and, to avoid the associated turmoil, the Bill provides that for the initial 12 months following commencement of the Act corporate directors can continue to act on behalf of a company BUT will cease to be directors on the expiry of this initial 12 month period.Accordingly, it is recommended that steps are taken immediately as the Act is anticipated to commence in April (2015).

This reflects the increased transparency sought by government and as a result of this and the change to the disclosure of beneficial owners it is anticipated that the use of companies as tax shelters, or as shelters for any other investment purpose may subside. However, I anticipate that in reality this will lead to the introduction of more complicated schemes being introduced to manage these changes.

If you require any assistance on the impact or effect of any of these changes, or indeed you require assistance in planning for these changes, then please contact Francis Wilks & Jones.