The Small Business Enterprise and Employment Act 2015

The Companies Act 2006 and the Insolvency Act 1986 – Major Changes are Here!

The Small Business, Enterprise and Employment Act 2015 (‘SBEE’) became an Act of Parliament on 26 March 2015.  The title of the legislation gives no real clue as to the nature and scope of the changes that, on any analysis, are major changes to the governance and regulation of all companies and also to Insolvency Law practice and procedure. This article looks at the major changes and the likely implications for companies and their advisers.

When Will the Changes Come into Force?

Some of the statutory provisions are already in force, others are coming into force on 1st October 2015 and some at a later date.  We look below at the major changes to Company Law and Insolvency Law.

What Are The Major Company Law Changes?

  1. Company transparency as to who is a director is to be increased by:
  • The requirement that company directors are natural persons, thus restricting the practice of companies acting as corporate directors, save in limited instances.
  • Changes to the definition and the scope of the duties of shadow directors.
  1. SBEE applies directors’ duties to shadow directors so far as they are capable of applying with effect from 26 May 2015.  A ‘shadow director’ is a person in accordance with whose directions or instructions the directors are accustomed to act.

The general statutory duties that apply to de jure and de facto directors under the Companies Act 2006 do not all apply to shadow directors.   The Companies Act 2006 Act states:

“The general duties apply to shadow directors where, to the extent that, the corresponding common law rules or equitable principles so apply.”

SBEE now extends those obligations to shadow directors.

  1. The creation of a register of people with ‘significant control’ of companies.

This change is intended to make it easier to see who owns or controls the company and who makes the decisions about how it is run.  Companies will now be required to obtain and hold information on who ultimately controls them.  There will be a central register that records not only ownership of the company but also who influences and controls the company, for example, by being able to vote on shares owned by other people (the People with Significant Control register).

Companies will be required to hold and maintain their own PSC register from January 2016 and to file this information with Companies House by April 2016, when they deliver their Confirmation Statement, which is to replace the annual return. The company is required to confirm this information annually.

Who is a ’person with significant control’?  Such a person is any individual who:

  • Owns, directly or indirectly, more than 25% of the shares;
  • Holds, directly or indirectly, more than 25% of the voting rights;
  • Has the right, directly or indirectly, to appoint or remove the majority of the board of directors;
  • Otherwise has the right to exercise or actually exercises significant influence or control over the company; or
  • Has the right to exercise or actually exercises significant influence or control over a trust or firm that is not a legal entity, which in turn satisfies conditions a. to d. above.

Comments on People with Significant Control

Where there are corporate groups, another group company rather than an individual is likely to satisfy one or more of those conditions and these legal entities which are within the definition of a ‘person with significant control’ are called ‘relevant legal entities’.

Not all relevant legal entities are registerable on the PSC register. For example, where there is a corporate chain, each of the companies (other than the company at the bottom of the chain) falls within the definition of a relevant legal entity but only the entity at the top of the chain will be registerable.

The purpose of this is to avoid duplication as the information on ownership and control can be tracked through the corporate chain to the registerable relevant legal entity at the top.

  1. Company filing requirements

Companies will no longer be required to deliver an annual return to Companies House.  Instead, a company will be required to deliver a ‘confirmation statement’ every 12 months that certain information has been filed with Companies House and will need to include details of changes of relevant information.

  1. Striking off of companies.

From 10 October 2015, section 103 of SBEE comes into effect and shortens the notice periods for striking a company off the register of Companies.

Major Insolvency Law Changes

  1. New powers for administrators to bring claims.

Sections 117 – 119 of the SBEE introduce provisions enabling ‘wrongful trading’ and ‘fraudulent trading’ claims to be brought by administrators, on the same basis as liquidators are currently entitled to do.  This change comes into force on 01 October 2015.

  1. New powers for office holders to assign causes of action and to deal with the proceeds of certain claims brought by them.

At present, claims that come into existence because of the company’s insolvency and which can only be commenced in the name of the Insolvency Practitioner, cannot be assigned. This includes claims for wrongful and fraudulent trading, transactions at an undervalue claims and preference claims under the Insolvency Act 1986.  In future, such claims will be assignable.  This change will come into force on 01 October 2015.

Another significant change imposed by SBEE provides that where a liquidator or administrator recovers proceeds from this type of claim, these proceeds will be segregated from the assets available to meet the claims of the holders of any floating charge security and will be distributed to unsecured creditors (after the payment of expenses incurred in the insolvency).   This change will come into force on 01 October 2015.

  1. Liquidators no longer need (since 26 May 2015) to obtain sanction/permission to commence legal proceedings and to carry on the business of the company so far as may be beneficial for the winding-up of the company.
  1. The period of office of an administrator, can now be extended by consent (from the previous period of 6 months) by 1 year. This power is now in force.
  1. Restrictions on the powers of an administrator to dispose of, hire or sell property to a “connected person”.  This change is likely to have a significant effect on the process that needs to be followed for there to be a sale of a company’s business to a company controlled by the company’s directors, in particular where the sale is by way of pre-pack.
  1. Personal Insolvency.

With effect from 01 October 2015, a creditor seeking to recover an undisputed debt cannot present a Bankruptcy Petition against a debtor unless the debt owed is at least £5,000 (the previous level was £750).  This will inevitably affect the way in which NDP advises its clients, not only in terms of debt collection strategy but also in relation to issues of giving extended credit.

Comment on the Changes to Company Law and Insolvency Law

These changes to Company Law and Insolvency Law are significant and will affect the way in which businesses (and their advisers) operate on a day to day basis.  As always, the devil will be in the detail.

We here at NDP can help. Contact us for help and assistance on these and related issues or why not call us on 0121 200 7040 for a free, no obligation chat?

We are regularly referred disqualification, misfeasance and permission cases by Insolvency Practitioners, Accountants, Independent Financial Advisers, Banks, local law societies and other solicitors. All of these are areas which will be affected by The Small Business, Enterprise and Employment Act 2015.

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