Ban on corporate directors - Government considers fresh approach

One of the changes introduced by the Small Business, Enterprise and Employment Act 2015 is that, from October, it will no longer be possible to use one company as a director of another company unless an exception applies. The Department for Business, Innovation and Skills has published a questionnaire which suggests a fresh approach to exceptions. Previous consultations proposed exceptions only for particular types of companies and groups; this questionnaire instead suggests that qualification for an exception should depend on whether the corporate director itself has natural persons as directors and whether information on them is publicly available.

Background

The ban on corporate directors will take effect in October 2015 (Section 87 of the Act). Any purported appointment of a corporate director will be void. There will be exceptions, in which case those companies (as before) must have at least one director who is a natural person.

The exceptions will be the subject of separate regulation. The Government has previously consulted on implementing exceptions for the use of corporate directors in certain group structures.

Questionnaire

Following responses to its initial consultation, BIS has recognised that corporate directors are used for various legitimate purposes and not just in large groups. It has now published a questionnaire proposing a more principles-based approach. The suggestion is that companies will still be able to appoint a corporate director if that corporate director only has natural persons as its directors and certain details about those individuals are publicly available. This will address the Government’s concerns about individuals hiding their influence over companies by using a chain of corporate directors, without penalising those who use corporate directors, including non-executive directors’ service companies and corporate service providers, for legitimate purposes. This change of tack would mean that any company could potentially continue to appoint corporate directors if these transparency criteria were satisfied.

The questionnaire asks whether this approach would work for companies and poses various questions regarding how it might operate if LLPs or foreign companies were appointed as corporate directors.

The questionnaire is available here and it closes on 27 April 2015.