‘Persons with significant interest register’ – all you need to know about the upcoming changes

What is the PSC register?

Since 6 April 2016, all UK companies and limited liability partnerships (LLP’s) have been required to keep a register of any ‘persons with significant control’ (“PSC”) of the company or LLP.

For more information on the PSC register, see our previous blog here.

Current requirements

PSC information must be delivered to Companies House:

  • upon the incorporation of a company; and
  • each year as part of a company’s confirmation statement.

Under the current regulations, a company is only required to notify Companies House of any changes to the PSC information when the confirmation statement is filed, i.e. once a year. This means that until the confirmation statement is filed, the information on the PSC register may be inaccurate, therefore in contradiction to the reason why the PSC register was created in the first place.

Study by Global Witness

Global Witness, in collaboration with other organisations, conducted a study into the PSC register. Analysis of the data collected identified some worrying results, the most significant of which are as follows:

  • almost 3,000 companies had beneficial owners with a ‘tax haven’ address;
  • 267 disqualified directors were registered as PSCs;
  • up to 76 people appearing on the US Sanctions List were listed as PSCs; and
  • there was a major lack of consistency with regard to data input – ‘British’ was inputted over 500 different ways.

The study highlights that whilst the notion of the PSC register desirable, the practical workings of it require attention.  See here for more information on the study.

Proposed changes

In order to address the concerns highlighted by the Global Witness study, the following changes will take effect on 26 June 2017:

  • any changes to PSC information must update on the registers held by the company or LLP within 14 days, at notified to Companies House within 28 days;
  • the type of company/entity required to submit PSC information will diversify. This is likely to include AIM and ISDX companies (although proposed new regulations are yet to be made public); and
  • Forms PSC01 to PSC09 must be used to update the PSC information.

Companies House also stated that it intends to undertake new work to improve the accuracy and completeness of PSC data it receives.

If you require any assistance in updating your PSC register, then please contact Alex Hall in our Corporate and Commercial Team.

Alex Hall

Alex Hall
Legal Executive
Corporate and Commercial
AHall@LawBlacks.com
0113 227 9239

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What Does “Reasonable Endeavours” Mean?

The words “reasonable endeavours” or “best endeavours” can sometimes be found in contracts but what do they actually mean?

The High Court was recently asked to consider this question in the case of Astor Management AG v Atalaya Mining PlcThe case concerned the sale of an interest in a copper mine.  Under the terms of the agreement most of the purchase price was deferred and payable by Atalaya upon it securing a debt facility to operate the mine.  Atalaya was required to use “all reasonable endeavours” to obtain that facility by 31 December 2010.

Ultimately, Atalaya did not obtain the debt facility by the target date but instead raised the necessary funds via loans from its parent company.  Astor argued that the deferred payment was still payable because Atalaya had failed to comply with its obligations to use all reasonable endeavours to obtain a debt facility.  Atalaya denied that this was the case and said that the obligation to use reasonable endeavours was unenforceable because there were no objective criteria to assess the reasonableness of its endeavours to obtain the facility.

The Court had to consider whether the payment obligation had been triggered and whether there was a legally enforceable obligation to use all reasonable endeavours to obtain the facility and, if so, whether the obligation expired on 31 December 2010.

It found that by obtaining funding from its parent company Astor had not triggered the payment of the deferred consideration because that funding did not constitute a debt facility.

However, the Court disagreed with Atalaya’s arguments regarding reasonable endeavours and found that the undertaking within the agreement was enforceable.  It said “the role of the court in a commercial dispute is to give effect to what the parties have agreed, not to throw its hand in the air and refuse to do so because the parties have not made its task easy”. 

The Court also rejected Atalaya’s argument that the obligation to use all reasonable endeavours fell away after 31 December 2010.  Atalaya was under an obligation to obtain the debt facility by this date if practicable and, if not, that obligation continued and it was required to use all reasonable endeavours to obtain the facility as soon as practicable afterwards.

To avoid litigation, parties to a contract should ensure that it clearly sets out what each party is required to do.  For example, an undertaking by a contracting party should stipulate:

  • what specific steps that party is required to take and by when;
  • how they should communicate their progress to the other party;
  • how long the party should be bound by the undertaking;
  • what the consequences would be if the party giving the undertaking failed to comply by the agreed date.

    Picture of Luke Patel

    Luke Patel

Luke Patel
Partner
Commercial Dispute Resolution Team
LPatel@LawBlacks.com
0113 227 9316
@LukeLawBlacks

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The GDPR – 12 months and counting

The General Data Protection Regulation (GDPR) was approved and adopted by the EU Parliament in April 2016. The regulation will take effect after a two-year transition period and come into force on 25 May 2018.

The impact of these changes and identifying potential compliance issues under the GDPR will be a challenge for many organisations. The maximum fine that can be imposed for serious infringements is €20 Million, or up to 4% of annual global turnover.

Within your own organisation, key individuals and decision makers should be made aware that the law is changing and they shall have one day from today to ensure their data protections affairs are in order.

This article highlights ten very straightforward steps you can consider implementing in the next 12 months to ensure your organisation is compliant with GDPR.

1.)  Brexit and GDPR

Our clients regularly ask us: should we continue with planning and preparation for the imminent changes to GDPR in light of Brexit?

The short answer is ‘yes’. The UK Government has already said that Brexit will not affect the commencement of GDPR with and this is unlikely to change.

Even if there was a wholesale change of direction, if your organisation sells goods or services to citizens in other EU countries it will be required to process data about those individuals and as a result, the EU will consider the GDPR to apply to you regardless.

2.)  The rights of individuals

The GDPR includes the following rights for individuals:

  1. the right to be informed;
  2. the right of access;
  3. the right to rectification;
  4. the right to erasure;
  5. the right to restrict processing;
  6. the right to data portability;
  7. the right to object; and
  8. the right not to be subject to automated decision-making including profiling.

Of the above, data portability is a new right.

Recommendation: This is an excellent time for your organisation to check internal procedures and to work out how you would react to a request in connection with the above list – consider whether your systems would help you to locate the relevant data and who would make the necessary internal decisions.

3.)  Consent

Your organisation will not be required to automatically ‘repaper’ or refresh all existing DPA consents in preparation for the GDPR. However, the nature of the consent required will place more demands on your business. 

Recommendation: Your organisation should review how you seek, record and manage consent and whether further changes need to be made to ensure the GDPR standard is met in future. Note that consent must be:

  1. freely given, specific, informed and unambiguous;
  2. there must be a positive opt-in and consent cannot be inferred from inactivity, silence or pre-ticked boxes; and
  3. the withdrawl of consent must be as easy as giving it.

4.)  The lawful basis for processing personal data

Under the GDPR, individuals’ rights will be modified depending on the legal basis your organisation has for processing their personal data. 

Recommendation: Your organisation should identify the lawful basis for your processing and document and update your privacy notice to clarify this. It will also be necessary to explain the lawful basis for processing personal data in your privacy notice and when you answer a subject access request.

5.)  Subject access requests

The GDPR rules are changing with regards access requests. After 25 May 2018, your organisation will:

  1. not be able to charge for complying with a request;
  2. have a month to comply with a request, rather than the current 40 days;
  3. be able to refuse or charge for requests that are manifestly unfounded or excessive; and
  4. if you refuse a request, your organisation must without undue delay (and at the latest) within one month: (a) tell the individual why; and (b) set out that they have the right to complain and to a judicial remedy.

Recommendation: Your organisation should consider updating your procedures and plan in connection with how to handle requests.

6.)  Information held by your organisation

The GDPR requires you to maintain records of your organisation’s processing activities. 

Recommendation: Your organisation should document all personal data you hold, where it came from and who you share it with. We recommend considering undertaking an information audit across your organisation in preparation for GDPR.

7.)  The communication of privacy information

When collecting personal data, the collector is required to share certain information (such as their own identity and how they intend to use the information to be disclosed). This is usually done through the use of a privacy notice. The GDPR will now require additional items to be included.

Recommendation: Your organisation should review its current privacy notices and put a plan in place for making any necessary changes in time for GDPR implementation.

Also consider the new right of Data Portability which is data portability which is the right for a data subject to receive personal data concerning them (which they have previously provided in a ‘commonly used and machine readable format’) and have the right to transmit that data to another controller.   It only applies:

  1. to personal data an individual has provided to a controller;
  2. where the processing is based on the individual’s consent or for the performance of a contract; and
  3. when processing is carried out by automated means.

8.)  Data breaches

Where a data breach is likely to “result in a risk for the rights and freedoms of individuals” its notification will become mandatory. Controllers must notify:

  1. the competent supervisory authority within 72 hours; and
  2. affected data subjects without undue delay.

Recommendation: your organisation should ensure it has the correct procedures in place to detect, report and investigate a personal data breach (some organisations are already required to notify the ICO and possibly some other bodies, when they suffer a personal data breach and this has been given as a warranty or occasionally as the basis for an indemnity, in modern commercial agreements). Where a breach results or is likely to result in a high risk to the rights and freedoms of individuals, your organisation will have to notify those concerned directly in most cases. Failure to report a breach when required to do so could result in a fine, as well as a fine for the breach itself.

9.)  Data Protection Officers (“DPO”)

DPOs must be appointed in the case of:

  1. public authorities;
  2. organisations engaging in large scale systematic monitoring; or
  3. organisations engaging in large scale processing of sensitive personal data. 

Recommendation: Consider whether your organisation falls into one of the above categories. If not, there is no requirement to appoint a DPO.

10.)  Children

The GDPR will for the first time bring in special protection for children’s personal data.

Recommendation: If your organisation offers online services to children and relies on consent to collect information, a parent or guardian’s consent in order to process their personal data lawfully may be required. 

If you have any queries about this article please do not hesitate to contact the authors:

 

Tate Chakrabarty                                             Phil Gorksi
Associate Solicitor                                           Solicitor
Corporate and Commercial Team             Commercial Dispute Resolution Team
TChakrabarty@LawBlacks.com                 PGorski@LawBlacks.com
0113 227 9260                                                    0113 227 9318

 

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Failing to Make It Over the Finishing Line

Part 36 is a provision in the Civil Procedure Rules that creates a certain type of settlement offer which can carry significant costs and/or interest penalties if it is not accepted by the opposing party and that party then fails to beat the offer at trial.  Part 36 Offers are made on a “without prejudice save as to costs” basis meaning that the Court is not made aware of them until after it has given judgment but before it has made an Order in relation to who should pay for the cost of the proceedings.

Part 36 Offers are designed to encourage parties to settle without going to trial and, if used wisely, they can be a potent negotiating tool.  Making a Part 36 Offer should not be seen as a sign of weakness but instead as an appropriate means of putting pressure on an opponent to settle the dispute.

In the case of Marathon Asset Management LLP v Seddon & Bridgeman, Marathon pursued a claim against Mr Seddon and Mr Bridgeman, two former employees, for taking confidential information belonging to Marathon before they left the company.  Marathon sought damages of £15m against their former employees but the Court only awarded nominal damages of £1 against each Defendant as they had not used the information that they had taken and, in any event, Marathon had suffered no financial loss as a result.

Recently, the matter returned to Court for the Judge to deal with the issue of costs.  Usually, the successful party in litigation is awarded his costs of that litigation.  However, even though Marathon had technically “won” (as it was awarded damages against the Defendants), the Judge ordered it to pay the majority of the Defendants’ costs on the basis that Marathon had failed to accept a Part 36 Offer made by the Defendants during the proceedings – the Defendants had made a £1.5m Part 36 Offer to Marathon but that offer had been rejected.

As Marathon had failed to beat the Part 36 Offer (as it was only awarded damages of £2) the Judge considered it to be a “game changer” in terms of deciding whether Marathon should be entitled to its costs.  He ruled that Marathon should pay the Defendants’ costs from the date when the Part 36 Offer was rejected.  In the words of the Judge: “the offer made by the Defendants should have rendered that dispute entirely academic… the costs consequences should be visited on parties in Marathon’s position who, instead of taking a realistic attitude, open their mouths too wide”.

This case should act as a stark warning to litigants to consider Part 36 Offers carefully and to accept any which are sensible instead of continuing to litigate.

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Luke Patel

Luke Patel
Partner
Commercial Dispute Resolution Team
LPatel@LawBlacks.com
0113 227 9316
@LukeLawBlacks

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Russian billionaire changes his mind in special contribution divorce case

Yet another special contribution case has hit the headlines, with the news yesterday that a Russian billionaire has been ordered to pay £453million to his ex-wife, or roughly 41.5% of the total matrimonial assets. The wife had claimed that the husband was worth over £1billion.

The judgement has not yet been published, the specific facts of the case are not yet apparent and neither the Husband nor the Wife were present in court for the ruling.

It has been reported however that the Husband changed his mind after initially indicating that he would try to argue a ‘special contribution’ in the marriage, the success of which would significantly affect the manner in which the assets would be divided.

The judge delivering the ruling, Mr Justice Haddon-Cave said that the Husband and the Wife had made “equal contributions to the welfare of the family”.

The case is the latest in a trend of family finance cases before the courts where one party to the marriage is claiming a special contribution. In such cases the more wealthy party (usually the husband) tries to argue that their financial contribution to the family wealth is so extraordinary that it would be inequitable to disregard it and that the court should depart from the usual sharing principle.

There have been very few successful special contribution arguments reported in the family courts and indeed only three in twelve years. Very recently the case of Work v Gray (2017) debated the concept of ‘genius’, a word which the appeal judge Holman J had said was “unhelpful”.

In Work v Gray Holman J was not convinced that the Husband was a genius and instead was in the right place at the right time with regard to his work in establishing the family wealth. Accordingly he decided that the Wife’s contribution in raising the family was equal to the financial contribution.

At the Supreme Court, the Husband’s counsel argued that instead of having regard only to the qualities of the person making the contribution, the court ought to review the size of the contribution. Further if the size was not sufficient to justify a special contribution, then the court should then revert back to the question of the individual skills of the person making the contribution.

This argument was rejected and the court ruled that if successful, it “would unfairly elevate a financial contribution above other forms of contribution”.

Hence the principle laid out 17 years ago by Lord Nicholls in the landmark case of White v White (2000) still stands firm: “it matters not which of them earned the money and built up the assets. There should be no bias in favour of the money-earner and against the home-maker and the child-carer.”

These decisions being made by the court suggest a marked reluctance of the Judiciary to accept special contribution. It has been reported that the footballer Ryan Giggs will try and advance such an argument in his forthcoming divorce. Specific remarks made by Holman J regarding ‘highly paid footballers’ in the failed appeals of Work v Gray suggest he will struggle to succeed.

The question for the judiciary therefore is not with regard to the size of the contribution but the special individual skills of the contributor. Does the individual have that spark of genius that sets him/her apart and is that enough to justify a departure from equality? Three successful cases in twelve years suggest that such individuals are few and far between.

Andrew Smith

Andrew Smith
Associate Solicitor
Family Law Team
AJSmith@LawBlacks.com
0113 3222807

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Shareholder’s Undertaking Not Good Enough

In civil proceedings, where a claim is brought by a corporate entity the defendant can, if it has evidence that the claimant is unlikely to be able to pay its legal costs in the event the claimant loses, apply to the court for an order for security for costs.  If granted, the claimant would be required to pay money into court to cover the defendant’s costs before the claim can proceed.  Security for costs applications are therefore a useful weapon in a defendant’s armoury if they are faced with a potentially impecunious claimant company.

Nowadays claimants can obtain after the event (ATE) insurance to cover their legal costs if they are unsuccessful with their claim. However, ATE policies can be expensive and may not always be a viable option.  Claimants who have cover are better able to defeat applications for security for costs on the basis that the defendant’s costs are covered by the policy.

In the case of Dunn Motor Traction Limited v National Express Limited, the claimant was pursuing a £20m claim in respect of profits which it claimed it had lost due to the defendant wrongfully terminating a contract between the parties.  The defendant applied for security for costs as the claimant had conceded that due to the effect of the termination of the contract its financial position had dramatically deteriorated to the extent that it might not be able to meet the defendant’s costs if it lost the case.

The claimant did not have an ATE insurance policy but its sole shareholder, Mr Dunn, provided an irrevocable undertaking to indemnify the claimant in respect of its costs liability to the defendant.  The claimant argued that this was comparable to cases that have held that the existence of an ATE insurance policy provided satisfactory security.

However, the High Court disagreed.  The judge found that the approach taken by the courts towards ATE policies did not apply to an indemnity provided by a shareholder.  The reasons for this were because the counterparty to an ATE policy is a “responsible and reputable insurer” whereas the shareholder of a claimant company is, effectively, the adversary of the party seeking security for costs.  Further, whereas ATE policies were a central feature of the ability of parties to gain access to justice, an indemnity provided to a company by its owner in respect of the company’s liability to bear legal costs was not.  Security for costs was therefore granted in favour of the defendant.

This case demonstrates that indemnities from third parties such as shareholders are not adequate security in the same way as ATE insurance policies and that claimants, particularly corporate entities, need to consider obtaining ATE insurance cover if there is likely to be any doubt regarding their ability to meet adverse cost liabilities.

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Luke Patel

Luke Patel
Partner
Commercial Dispute Resolution Team
LPatel@LawBlacks.com
0113 227 9316
@LukeLawBlacks

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Chinese Village’s Rush for Divorce

Divorce is something that should be given serious thought, so we were surprised to hear of what’s been happening in the small Chinese village of Jiangbei recently.

In the village, a mass of couples are filing for divorce in the hope of striking it rich. This comes after the news that the area is being demolished to make way for a new high-tech industrial zone. http://www.bbc.co.uk/news/world-asia-china-39150594

Compensation has been offered to the residents of Jiangbei in the form of one 220 square metre house, but the savvy villagers have realised that they could qualify for 2 homes if they were divorced. If single residents were to receive a new house by way of compensation while married couples were limited one co-owned home, then a divorced couple could surely claim compensation as singles. The expectation is that divorced couples could claim an additional 70 square metre property and also some cash in compensation.

As a result, several dozen couples have filed for divorce, but this isn’t a case of money over love – many couples have stated they will continue to live together and expect to remarry at a later date. It remains to be seen whether any of the divorced couples will really obtain the additional compensation, but it seems the villagers are willing to take the risk.

Sarah Scullion

Sarah Scullion

Sarah Scullion
Paralegal
Family Team
0113 227 9215
SScullion@LawBlacks.com

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