Gillie Belsham Global Head of Aviation, Joint Head of Energy & Infrastructure, Partner
Are banks and other lenders persons with significant control under a new transparency regime for English companies?
We recently highlighted that from 6 April 2016 all English companies and limited liability partnerships will be required to keep a register of every person with significant control (PSC) over them, save in the case of several narrow exceptions.
A question that is being asked with increasing frequency is whether a lender – or other finance parties in an existing or proposed loan structure – might be considered a PSC?
Official guidance on the meaning of “significant influence or control” contains certain “excepted roles” that would not ordinarily need to be included in the register. Obvious examples here include persons that provide advice or direction in a professional capacity, such as lawyers, accountants, and management consultants. A “Lender” is specifically listed as an excepted role. However, it is possible that a person who has a role or relationship of the kind listed as an excepted role with the company may be a PSC if the role or relationship:
a) Differs in material respects or contains significantly different features from how the role or relationship is generally understood; or
b) Forms one of several opportunities which that person has to exercise significant influence or control.
In connection with the role of lender, potential areas of concern include:
• Where a lender has taken or has security over more than 25% of the shares in the company or the voting rights attached to the shares (subject to certain exceptions);
• Where a lender has taken security over the rights attached to shares in the company so as to permit the lender to appoint or remove a majority of the board (although the lender taking such a right, or such a consequence arising from lender security, would be rare in practice);
• Loan agreements and other finance documents that include covenants or undertakings that could arguably be described as types of absolute decision rights or veto rights related to the running of the business of the company – for example a covenant containing a straightforward restriction on the borrower’s ability to make capital expenditure or to dispose of assets, or which restricts certain changes to the business of the borrower; and
• The role as lender exceeds the role as it is generally understood, for example, if a lender has majority voting rights under a loan facility agreement together with a number of other rights (whether or not in its capacity as lender) such as a right to appoint a board observer or a nominal shareholding.
In all circumstances, the question of whether existing or future loan arrangements give rise to the requirement that the lender be registered as a PSC will need to be determined on a case-by-case basis.
It should also be noted that the actual entity that should be listed on the PSC register will depend on whether the lender is registrable under the relevant legislation or guidance and an analysis of the chain of ownership. Accordingly, the entity will only be registrable on the PSC register if, in addition to meeting the significant influence or control requirement, it keeps its own PSC register or is publically listed in an EEA state (including the UK) or in Israel, Japan, Switzerland or the USA. It is possible that other individuals or entities connected with the lender may also need to be listed on the PSC register.
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