THE GOVERNMENT has unveiled a series of measures aimed at cracking down on reckless directors and companies that use various opaque business structures to hide illicit funds from HM Revenue & Customs.
As part of government plans to tackle “the darker side of capitalism”, unveiled by business secretary Vince Cable in April, companies will be forced to reveal who their true owners are on a public register, while rogue directors will be slapped with tougher sanctions when they are found guilty of wrongdoing.
Under the rules, which require parliamentary approval, shareholders with more than a 25% stake in a UK-registered company will have to provide personal details such as their name, nationality and date of birth to a register of information held by Companies House.
“For consumers, investors and the wider public to really trust a company, they need to know who is really in charge,” Vince Cable said, adding that the government will “take tough action tackling the darker side of capitalism and the smoke and mirrors that have existed for too long”.
“No longer will UK companies be able to use complex structures and trails of paperwork to hide information and keep the public in the dark,” he concluded.
As part of the measures to force company owners out into the open, the government will also outlaw so-called bearer shares, which allow investors to hide their identity and to transfer control untraceably, as anyone owning one will be forced to replace them with registered shares.
The measures are intended to help authorities crack down on tax evasion and money laundering, and to improve the investment climate in the UK.
Cable said the government will also limit the use of corporate directors – where a company instead of an individual is director – though there will be some exemptions for lower-risk cases which is subject to further discussion with business.
“Scrapping bearer shares and applying stricter scrutiny to corporate directorships (where a company rather than a person is appointed as a director) will serve to increase accountability,” said Roger Barker, director of corporate governance at the Institute of Directors, who welcomed the government’s decision to rethink its original plan to create a register of nominee directors.
“There should be no distinction in law between nominee directors and any other kind of director. Anyone taking on the role of company director should be aware of the significant responsibilities which they are assuming,” Barker said.
However, the idea of a public register has not met with universal approval.
According to The Guardian, Deloitte said a public register would discourage foreign investors in UK property and “over-expose the financial position of potentially vulnerable individuals such as children who are the beneficiaries of trusts, or indeed any beneficial owner who has valid reasons to want to protect their privacy”.
The Law Society had also warned that the “proposals may damage the attractiveness and competitiveness of the UK as a jurisdiction for the incorporation of companies” and that the effect of introducing the proposals “will be to drive investors to form companies outside the UK”.
And while the UK already has one of the strongest disqualification regimes in the world – with disqualification periods ranging from two years up to 15 years for the worst offending directors – new measures will see rogue directors facing stronger deterrents to breaking the law and harsher sanctions if they do.
Disqualification law is to be changed so judges now have a duty to take into account a wider range of matters when considering whether to disqualify an individual, such as their previous business failures, the nature of any losses, overseas conduct and breaches of specific law.
The government will also be allowed to intervene and ask the court to award compensation against a disqualified director in order to put money back into the pocket of the victims, while overseas directors convicted of an offence relating to a commercial matter could be barred from being a director in the UK.
“These measures will protect the British economy and our reputation as a good and fair place to do business,” Cable said. “It is only right that we should put the toughest possible sanctions in place, make sure we stamp out unfair practices, and deter those who are looking to act dishonestly.”
The period after which disqualification proceedings must begin following an insolvency is also to be increased. Currently standing at two years, this will be increased to three years to allow for more complex cases.