January 15, 2021 Corporate Transparency and Register Reform – Banning Corporate Directors

The Department for Business, Energy & Industrial Strategy has published three follow up consultations to the Corporate Transparency and Register Reform Consultation.

During January, Elemental will provide an overview of each of the three consultations which all close on 3 February 2021.

This second article reviews the consultation on implementing the ban on corporate directors. The government is seeking to bring into force the ban on corporate directors that has been law since 2015 but has not been in force. A corporate director is simply a company that has been appointed as a director of another company rather than a person.

Banning Corporate Directors

The prohibition on corporate directors was included in the Small Business, Enterprise and Employment Act 2015 (SBEEA) following the government response to the Transparency and Trust discussion paper in July 2013.

Prior to bringing the ban into force, any circumstances where corporate directors may still be used needs to be established.

Previous Consultations

The government has previously sought views on how the ban on corporate directors should function.

A 2014 discussion paper suggested that exception should apply to listed companies, large companies in group structures, charitable companies, and trustee companies of pension funds.

Fearing the possible complexity this could introduce, a further consultation in March 2015 simplified the model and suggested that two principles should apply to qualify for an exemption. Namely:

• All the directors of the ‘corporate’ director must themselves be natural persons; and
• The jurisdiction in which the entity acting as a corporate director is established requires certain details of the ‘directors’ of that entity to be included in an accessible and publicly-maintained register.

Regulating for the Exception

The government now proposes two principles as a starting point. A company can be appointed as a director if:

• All of its directors are, in turn, natural persons; and
• Those natural persons are, prior to corporate director appointment, subject to the Companies House identity verification process.

The government believes that these principles can be applied to overseas companies without damaging the integrity of the policy and so it is proposed that overseas companies will be able to act as corporate directors if its own directors have their identification verified by Companies House.

The Ban is Coming

It is clear that the ban on corporate directors is now closer to being implemented. Companies with corporate directors should consider whether the corporate director will be able to meet the principles in the proposed exception and, if not, what alternative arrangements can be made.

How Elemental Can Help

The consultation is open until 3 February 2021 and you can respond here. The government expects to respond confirming its plans in 2021.

Elemental can provide support to ensure that you are compliant. For more information on our company secretarial services or to speak to one of our experts, please get in touch.