From 6 April 2016, virtually all UK incorporated companies (and LLPs, but in this blog I’ll refer to companies only) will have to maintain a register of individuals or entities who control them. As a result, individuals who either own, directly or indirectly, more than 25% of the shares or voting rights of such companies, or who hold the right to appoint or remove a majority of directors or have the right to exercise, or actually exercise, significant influence or control over the company may receive a notice from the company requiring them to provide information for inclusion on the People with Significant Control (PSC) Register.
Trusts (UK or offshore) are caught by these new provisions too because the law provides that, if the trust were to be regarded as an individual and, as such, would satisfy any of the above conditions, then those persons who exercise, or have the right to exercise, significant influence or control over the trust are PSCs that need to appear on the company’s PSC Register.
Of course, the trustees themselves (if natural persons) are likely to constitute PSCs but trustees will need to examine the dynamics of their trust carefully. Could the settlor or the protector of the trust be regarded as having significant influence or control over the activities of the trust too? The draft Statutory Guidance on the meaning of ‘significant influence or control’, published by the Department for Business Innovation & Skills (BIS) in January 2016, states that:
‘5.5. A person has the right to exercise “significant influence or control” over a trust or firm if that person has the right to direct or influence the running of the activities of the trust or firm, for example:
a) Right to appoint or remove any of the trustees or partners, except through application to the courts, or as a result of a breach of fiduciary duty by the trustees;
b) Right to direct the distribution of funds or assets;
c) Right to direct investment decisions of the trust or firm;
d) Right to amend the trust or partnership deed; or
e) Right to revoke the trust or terminate the partnership.
5.6. A person is likely to exercise significant influence or control over a trust or firm if they are regularly involved in the running of the trust or firm, for example a person who issues instructions, which are generally followed, as to the activities of the trust or firm to the trustee(s) or members of the firm.
This may be a settlor or beneficiary who is actively involved in directing the activities of the trust.’
Trustees may face a dilemma. On the one hand, they owe fiduciary obligations to keep the trust confidential and yet the PSC Register will be available for public inspection. On the other hand, failure to provide information on receipt of a notice from the company is a criminal offence which, at worst, carries a two year prison sentence, or a fine. Trustees who qualify as PSCs are also under a proactive obligation to provide updated PSC information to the company as and when necessary. Affected trustees should start thinking about how they will respond to PSC notices now, as once a notice is received, trustees must respond within a month.