James Mews, Counsel
Offshore trustees are being asked to provide information to underlying UK companies to enable them to complete their Persons of Significant Control Register (PSC Register). The UK changed its Companies Act 2006 (PSC Law) in 2017 resulting in a requirement for a public register of persons with significant control (PSC) or influence being maintained by most UK companies. Persons such as trustees with reserved powers, protectors with the power to remove trustees, or beneficiaries with powers may be registrable. This has resulted in a number of changes to trusts where such persons do not wish to be registered.
The PSC Law creates criminal offences for offshore trustees who fail to update the register in response to a notice. This briefing note tells you how to respond to requests and how to consider changing your trust instrument if a PSC wishes not to be disclosed. Pinel Advocates has given advice to some of Jersey’s largest trustees on this issue on an ongoing basis.
Background
A PSC register must be kept by most UK companies (and LLPs). 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 a UK company, such as through a trust, may receive a notice from the company requiring them to provide information for inclusion on the PSC Register.
The term “significant influence or control” is clarified by statutory guidance. The guidance sets out non-exhaustive examples of rights that would, in themselves, give rise to significant influence or control, as well as attempting to illustrate behaviour that would constitute significant influence or control. The examples of rights giving significant influence or control over a trust are:
1. The right to appoint or remove any of the trustees, except through application to the courts or as a result of a breach of fiduciary duty by the trustees.
2. The right to direct the distribution of trust funds or assets.
3. The right to direct investment decisions.
4. The right to amend the trust.
5. The right to revoke the trust.
Are trustees registrable?
Where a trust holds more than 25% of the shares in a UK company, directly or indirectly, all the trustees are likely to be registrable if they are individuals. Where there is a corporate trustee, unless a UK company that is subject to making disclosures (RLE) stands between the offshore trustee and controlling individual(s), it is likely that the ultimate controlling individual(s) in respect to the trust company will be registrable. The directors of the corporate trustee will not be registrable where they hold their office as a result of their employment only.
Are beneficiaries, settlors and protectors registrable?
Settlors who retain certain common administrative powers (such as the power to appoint and remove trustees) will fall within the definition of significant influence or control as extended by the statutory guidance. Protectors will often be given powers which will make them registrable. Beneficiaries with powers such as the ability to direct investment or with a fixed interest of more than 25% in respect of a trust will be registrable. Settlors, protectors and beneficiaries who wish to remain off the PSC register should note that once they become registrable they will remain on the register as a former PSC.
How should trustees respond to a notice?
A trustee who is served with a PSC or RLE notice requiring them to identify PSCs and RLEs has only one month in which to respond. Failure to respond, or failure to respond accurately, is a criminal offence under UK law. In the case of a corporate trustee, both the trustee and its officers commit the offence.
Trustees will need to consider whether there are any PSCs or RLEs of whom they are aware. They will need to be particularly careful in assessing whether there are any individuals who have significant influence or control over the affairs of the trust. It may be that with sufficiently robust trust administration, trustees will be able to say that there are no PSCs or RLEs. However, the statutory guidance on significant influence or control has been widely drawn and so trustees will need to act cautiously as stated above.
Risks to your business
The risks to your business are significant. Being in breach of the PSC Law is a criminal offence. Therefore, if you are uncertain as to the position of parties relative to trusts that you administer then take advice quickly. In particular, settlors, protectors or beneficiaries who may be named publicly will not thank you if you do not act quickly.
Conclusion – get your house in order
Trustees should review their portfolios to ensure that they meet the requirements of the PSC Law. These are onerous and surprisingly far reaching.
For more information, please contact James Mews, Counsel.