Transparency & Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business Discussion Paper

Transcription

1 Transparency & Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business Discussion Paper Response of the Law Society of England and Wales September 2013

2 Introduction The Law Society is the representative body for over 145,000 solicitors in England and Wales. It negotiates on behalf of the profession, and lobbies regulators, Government and others. This submission has been prepared on behalf of the Society by members of its Company Law Committee, which is made up of senior and specialist lawyers practising in this field. We have been asked for our view on the proposals set out in the Transparency & Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business Discussion Paper ( the Discussion Paper ). Generally 1. We are concerned that the proposals may damage the attractiveness and competitiveness of the UK as a jurisdiction for the incorporation of companies. We believe that the effect of introducing the proposals will be to drive investors to form companies outside the UK and that the UK could therefore lose a considerable amount of business as a result. If the UK is in the vanguard of the countries to introduce such requirements, other countries may in due course implement less onerous requirements and this could put the UK at a serious disadvantage in terms of attracting new business to the UK. In relation to the EU Third Money Laundering Directive, the Commission is considering introducing measures to enhance the transparency of legal persons and arrangements, but we do not know yet what those measures will be. Furthermore, even if they were to propose equivalent measures to those being proposed by the Government, there are numerous jurisdictions outside the EU which could be used for the formation of companies. There is mention in the consultation paper of the UK encouraging other members of the G8 to take steps to adopt similar measures but it has been reported that the State of Delaware has announced that it has no intention of introducing a requirement for a beneficial ownership register. We do not wish to see a scenario where the UK loses out as a jurisdiction in which to incorporate. 2. We are unconvinced that the proposals will be effective in averting the misuse of companies by persons engaged in criminal activities, as it seems unlikely that such persons would comply with the proposed requirements. We question whether it would not be more appropriate to review the powers which regulatory authorities have to investigate holdings in companies and bolster those where they are thought to be deficient, rather than impose further burdens on law abiding investors or companies. The Discussion Paper refers to the inadequate powers of certain law enforcement agencies to access information. We suggest that reviewing the powers of investigative authorities may be a more effective method of addressing the issue in question. 3. Indirect investors in private companies currently have a reasonable expectation that, if they so wish, they will be able to keep their interests private. Even if the proposed regime does not require beneficial ownership interests to be publicised, there will always be the risk of leaks and this alone may be sufficient to put off entirely legitimate investors from forming or investing in UK incorporated entities.

3 4. In addition, even if the law does not require information about beneficial ownership to be made public, there will undoubtedly be considerable disquiet at the risk of unauthorised leaks of such information and over the potential for the release of such information to authorities in other countries. 5. Currently, UK professional advisers, corporate service providers (CSPs) and other business service providers must comply with the anti-money laundering legislation in the UK. Where companies engage one of these firms, the firm concerned must collect identity verification information on the beneficial owners involved. We are not clear how a central beneficial ownership registry will dovetail with the existing anti-money laundering regime and what additional protections it will provide. There is also difficulty with the definition of beneficial ownership, e.g. who exercises control through other means may impact on a number of legitimate business arrangements. As the concept could be complex, professional legal advice may need to be obtained. This imposes a further cost on business. 6. The aim of the Red Tape Challenge was to reduce the administrative burdens imposed on business. Also, one of the primary reasons for some of the changes introduced by the Companies Act 2006 ( the Act ) was to achieve a partial deregulation for private companies. The current proposals seem to be diametrically opposed to these aims. 7. We query why interests in shares in private companies have been singled out as being a likely vehicle for the facilitation of criminal offences, where interests in real or moveable property are ignored. We are not suggesting that new legislation should be introduced to require disclosure of indirect interests in the latter classes of assets, but the difference in treatment does seem to us to be somewhat illogical. 8. Our view is that the proposals regarding disclosure of beneficial interests are likely to impose a further burden on UK businesses. 9. One possibility, which is not considered in the Discussion Paper, is dispensing with the requirement for details of beneficial owners to be filed at Companies House, and instead requiring companies to maintain a register of beneficial owners at their registered office alongside the main share register. We set out below our responses to the questions posed. We acknowledge that this is a Discussion Paper and welcome the opportunity to participate in the debate. Beneficial ownership and a central registry: 1. We understand that the proposed definition of beneficial ownership will encompass holders of shares or voting rights or control of 25%+. It is important that the definition is very clear because otherwise it could give rise to complex issues of interpretation, which will be likely to involve people with material interests in companies having to obtain professional legal advice. We note that in the Discussion Paper there are references to parties acting collectively. This may have implications for private equity partnerships (and other fund structures) acting through a general partner manager some of them may share the same general partner. We consider it important that any legal definition should:

4 be clear and easy to apply to a set of circumstances; only impose an obligation on a person who knows of the relevant interest to make a notification. For example, investors who entrust their funds to discretionary fund managers may be unaware of their underlying interests. The Act contains a developed and well understood definition of an interest in shares in Part 22 (section 820 et seq.) and it would be sensible to use the same definition. As a policy matter it is highly desirable to avoid the same term being defined in different ways in company legislation. 2. The types of company and legal entity that should be in scope of the registry? It would be consistent for the new rules to apply to charitable companies as well and, possibly, guarantee companies, although the latter are principally used for non-profit making purposes and there are very few remaining guarantee companies with shares. We note that, currently, there is no requirement to file details of the members of a guarantee company with the annual return. We consider that LLPs should be exempt. LLPs are not required to file the underlying members agreement at Companies House, so the economic split between members is not public. This is an attractive feature of an LLP and was heavily debated when the legislation relating to LLPs was introduced. Requiring levels of beneficial ownership in LLPs to be disclosed would reverse this. The rules would be harder to apply for LLPs. A member of an LLP holds both management and economic rights and these are not necessarily linked. It is common for a member s voting rights, profit rights and capital invested not to be proportionate to one another. LLPs are tax transparent, so tax in relation to the LLP s business falls on the members, not the LLP itself. So any tax evasion by corporate members would be picked up by disclosure of the beneficial owners of corporate members not of the LLP itself. The Discussion Paper suggests that the beneficial ownership disclosure requirements should only apply to UK incorporated companies, i.e. those registered in the UK. They will not apply to overseas companies registering here under the overseas company regime nor will they apply to foreign companies operating in the UK. As mentioned above, we are concerned that this will place the UK at a competitive disadvantage as, if other jurisdictions adopt a lighter touch regime in this respect, we suspect that many companies will be established in those jurisdictions rather than in the UK. This could provide a significant incentive for businesses to incorporate overseas and then use the overseas company to undertake its activities in the UK. What will the position be for Industrial and Provident Societies that register with Companies House? 3. Whether there should be exemptions for certain types of company? If so, which? We agree that companies whose securities are listed on the Official List should be exempt as persons who have material interests in their shares/voting rights are obliged to notify their interests under chapter 5 of the

5 UKLA's Disclosure and Transparency Rules ("DTRs"). UK companies whose shares are admitted to trading on AIM are also subject to chapter 5 of the DTRs and they should therefore be exempted likewise. We cannot think of other companies which should be exempted from the requirements. Charitable companies have been mentioned in the Discussion Paper but, if the prime motivation behind the new legislation is to deter the use of companies to facilitate criminal activity, there must presumably be a risk that charitable companies could be used for this purpose in the same way as non-charitable companies. It should be noted that the new charitable incorporated organisation (CIO) was introduced in England and Wales this year. This body is a corporate body but is not required to register at Companies House. The CIO only registers with the Charity Commission. Will the new rules apply to CIOs too? 4. Extending Part 22 of the Companies Act 2006 to all companies as an aide to beneficial ownership identification by the company? We consider it sensible for private companies to have the power to investigate interests in their shares in the same way as public companies have under s793 of the Act. Will the intention be to mirror the existing statutory provisions so that private companies can investigate any interest or to enable them to investigate only interests in 25% or more of the share capital or voting rights? 5. Placing a requirement on the company to identify the beneficial ownership of blocks of shares representing more than 25% of the voting rights or shares in the company; or which would give the beneficial owner equivalent control over the company in any other way? We do not agree with this proposal. Listed/AIM companies are not subject to any such requirement and it seems inappropriate to impose more onerous requirements on private companies than companies which avail themselves of the benefit of having their shares traded on public stock exchanges. Furthermore, even if companies were required to seek to identify material beneficial owners, all they could do is send a letter to relevant parties requesting information from them. Practically speaking, how could companies identify this information? The answer for some companies if owner-managed might be straightforward but in many other cases it will not be. So it is difficult to see what benefit this would serve as compared with relying on a statutory duty on beneficial owners to make disclosure. 6. Placing a requirement on beneficial owners to disclose their beneficial ownership of the company to the company? We think that this would be appropriate, although there will be occasions where a beneficial owner may not be aware of the fact (in relation to a blind trust) or his shareholding may fluctuate from one day to another. He may not be aware of this and it may affect his ability to disclose. Inadvertent nondisclosure is of concern in this respect. 7. Whether there are additional or other requirements we could apply to ensure that information on all companies beneficial ownership is obtained? If so, what?

6 If the Government wishes to ensure compliance with the new disclosure requirements, it will need to ensure that the sanctions for non-compliance are sufficiently heavy to deter people who might otherwise be inclined to ignore the requirements. However, as we state above, we query whether the existence of these notification requirements will really give government authorities any greater powers or insight than they already have to investigate and identify crime. Who would enforce this? What about the problem of inadvertent non-disclosure? 8. Requiring the trustee(s) of express trusts to be disclosed as the beneficial owner of a company? It is a fundamental principle of the Companies Act 2006-s126, that trusts must not be reflected in the register of members. This principle exists for a purpose in that there was concern that otherwise companies might become involved in claims and litigation between people with interests in the trust. If the company had notice of a trust, it could become involved in an unwitting breach of the trust. This is a key reason why in the UK trusts are not referred to. To alter this would require a significant rethink of the Companies Act 2006 and the body of corporate law that lies behind it. What is the position where trustees and beneficiaries have successive rather than contemporaneous interests? Trustees would not be beneficial owners would they be required to identify themselves as holding as trustees? 9. Whether it would be appropriate for the beneficiary or beneficiaries of the trust to be disclosed as the beneficial owner as well? Under what circumstances? Where the shares in the relevant company have been appointed to a particular beneficiary, it would seem logical for the beneficiary concerned to be required to make a disclosure. However, where shares are held on discretionary trust and no appointment has been made, a disclosure requirement would seem inappropriate. A class of potential beneficiaries under a discretionary trust can be very wide and the beneficiaries may not even be aware of the existence of the trust or their potential interest in the trust. If beneficial owners are disclosed will the Companies Act 2006 require amendment to make it clear that the company and the directors do not owe a particular duty to them? 10. Extending the investigative powers in the Companies Act 1985 to specified law enforcement and tax authorities? The Discussion Paper refers to a possible lack of sufficient investigative powers. It may be that a review of these powers would be a more appropriate method of addressing the criminal activities in question. What assurances are there that HMRC will only use any information to assess tax evasion rather than tax avoidance? There was an extensive review of and consultation over the HMRC s powers following the merger of the Inland Revenue and Customs and Excise. A similar approach considering investigative powers may be appropriate here. What will be the position in relation to disclosure of information to tax authorities in other jurisdictions?

7 11. Using the requirements that apply in respect of a company s legal owners as the model for beneficial ownership information to be provided to the company and the registry? This would be a sensible approach. Of course, there is no requirement for shareholders to provide companies with details of their actual address they are at liberty to provide a c/o address. Furthermore, following the changes made in the Companies Act 2006 details of shareholders' addresses are no longer included in the annual return, save for traded companies which must provide the names and addresses of the holders of 5% or more of the share capital. The date when the interest arose will also be relevant. 12. If not, what additional or other information we might require? How? 13. Whether there is a need to introduce additional or other measures to ensure the accuracy of the beneficial ownership information that is filed with Companies House and retained on the register? 14. If so, what? To what extent would the benefits of these measures outweigh the costs and other impacts? We suspect that the costs imposed on legitimate businesses in terms of ensuring compliance, together with the potential detrimental impact as regards the future use of UK companies, will outweigh any benefits. 15. Whether companies should be required to update beneficial ownership information at fixed intervals or as the information changes? It would be sensible for this information to be updated by the beneficial owners as and when the information changes rather than at fixed intervals. 16. Whether beneficial owners should be required to disclose changes in beneficial ownership information proactively to the company? Yes, but subject to our concerns about the risk of inadvertent non-disclosure. 17. The appropriate timeframes for notification of changes to the company or Companies House? In a number of circumstances it will be necessary for professional legal advice to be obtained as to whether or not one falls within the definition. In these circumstances we think that a longer period than 15 days would be appropriate. 18. The broad possible costs and benefits of a policy change to the annual return. There is insufficient information available as to what the proposed change to the annual return is. However, we have heard that the removal of the annual return has been mooted. If so, how will the transfer of legal ownership of shares be recorded? This should be consistent with any update to changes on beneficial ownership. We question the removal of the annual return obligations. Is this considered a major cost for business? In our view, the

8 annual return provides useful and easily accessible information to those searching the register. 19. Whether information in the registry should be made available publicly. Why? Why not? Information in the registry is publicly available (save for some directors residential addresses). We assume this refers to beneficial ownership information. If so, we are strongly of the view that it should not be made publicly available. The argument for it being made publicly available appears to be that it will assist with verification, but we do not understand this viewpoint. In our view it is a fundamental principle of English law and natural justice that people should be entitled to privacy, unless there is an overriding public interest issue that requires otherwise. The consultation paper indicates that the catalyst for the current proposals is a desire to enable the authorities to stamp on companies being used for criminal purposes. On the basis that the information about beneficial owners will be available to relevant authorities, we cannot see how its publication will provide any assistance in achieving this objective. Would it be more appropriate to review the investigative powers of enforcement agencies? There are particular reasons why beneficial owners in companies may legitimately wish to keep their identities private. By way of example such privacy may be sought: a. by investors in companies that carry out activities which are legitimate but may be controversial. Beneficial owners could be open to harassment and/or physical harm if their identities were revealed; b. by wealthy individuals who may be targeted for possible kidnapping or extortion; c. by companies which are seeking to invest in competitors or potential acquisition targets; and d. by investors who may be concerned that their interest in a particular company may trigger market speculation. Furthermore, some families and other persons may have particular arrangements as to ownership. In the absence of evidence of illegality, individuals should be able to own assets directly or indirectly without having to make the information publicly available which may then lead to questioning of those arrangements by other interested parties. There is also a risk that if this information is made publicly available, it will be used to assist identity theft and other criminal activities. 20. If not, whether the information should be accessible to regulated entities? Why? Why not? We assume that the company in which the beneficial owners are interested would have access to the information about them, but we do not see why regulated entities (as opposed to regulatory authorities) should have access to information about beneficial owners of shares in other companies, unless there were a specific good reason for this.

9 21. Whether a framework of exemptions should be put in place? If yes, which categories of beneficial owners might be included? How might this framework operate? We think that it would make sense to develop an exemptions framework if the decision is made to proceed with these proposals despite the reservations expressed in this note. We would be happy to work on developing such a framework with you. 22. The broad possible costs and benefits of a policy change to the registers of members? This will of course depend on the specific changes which are implemented. 23. Whether beneficial ownership information held by the company should be made publicly available? How? No, for the reasons set out above. 24. Should any framework of exemptions in relation to information held by the registry also apply to information held by the company? We would have thought that the general rule would be that the same exemptions should apply to both, but we appreciate that this depends on the details of exactly which interests are covered by the exemptions. 25. The costs and benefits of this policy change for companies, beneficial owners, regulated entities and other organisations. See our comment about costs and benefits above. As we make clear, we are highly doubtful about the efficacy of the proposals in meeting the Government's objective of preventing or reducing the criminal use of companies, and we are concerned that the introduction of these proposals will have the effect of driving legitimate business from our shores. 26. In particular:[further questions] See comments above. Bearer shares 27. Prohibiting the issue of new bearer shares. These are often quite useful. We are not aware of any particular scandal in relation to their use in the UK. Whilst bearer shares can be useful and have historically been used in certain schemes of arrangement, we acknowledge that they are not used often nowadays in the UK. It is, however, important that, if they are to be abolished, the permitted transitional period is of sufficient length to allow those holding bearer shares to convert their holdings and the legislation is clear as to the consequence of failing to convert within the relevant timeframe. 28. Whether individuals should be given a set period of time to convert existing bearer shares to ordinary registered shares? How long?

10 We think that an 18 month to 2 year period would seem appropriate. 29. Whether there are additional or other measures that we might take? 30. The costs and benefits of this policy change. Nominee directors 31. Whether we should more widely communicate the application of directors statutory duties to all company directors and whether we should alternatively or in addition- require nominee directors to disclose their nominee status and the name of the beneficial owner on whose behalf they have been appointed? Why? Why not? If yes, should that disclosure be made available on the public record? We favour the idea of communicating more widely the application of statutory duties to all directors. Any guidance delivered should retain disclaimers as this is a complex area and does not easily lend itself to a summary. There is a danger that those providing guidance may be considered to be giving legal advice. However, we do not consider that it would be helpful to require nominee directors to disclose their nominee status. Nominee directors, as described in the consultation paper, do not exist under English law, in that a director cannot legally divest himself of responsibility for participating in board decisions and just agree to follow the instructions of a third party. A director can be appointed by a particular shareholder if the constitution, or a shareholders agreement, confers such power on a shareholder but the director will still have the duty set out in the Companies Act 2006 to act in the way he considers in good faith would promote the interests of the company for the benefit of shareholders. That director is appointed to an office and the law does not consider the director appointed on someone else s behalf. There is a significant body of case law on these points. For example, in Re Neath Rugby Ltd (No 2), Hawkes v Cuddy [2009] 2 BCLC 427, where the Court of Appeal, said at paras the fact that a director of a company has been nominated to that office by a shareholder does not, of itself, impose any duty on the director owed to his nominator. The director may owe duties to his nominator if he is an employee or officer of the nominator, or by reason of a formal or informal agreement with his nominator, but such duties do not arise out of his nomination, but out of a separate agreement or office. Such duties cannot however, detract from his duty to the company of which he is a director when he is acting as such... an appointed director, without being in breach of his duties to the company, may take the interests of his nominator into account, provided that his decisions as a director are in what he genuinely considers to be the best interests of the company; but that is a very different thing from his being under a duty to his nominator by reason of his appointment by it." We should add that the use of persons to act as a director on behalf of others is very common and a legitimate business practice. There could be problems with any definition how would a definition distinguish between this and a director appointed by a group of shareholders?

11 32. Whether we should make it an offence for a director to legally divest themselves of the power to run the company. Why? Why not? As we state above, a director cannot legally do this s173 requires a director to exercise independent judgement. 33. Whether there are additional or other measures that we might take? If there is concern that individual directors are following the instructions of a particular person or persons, then one method of attempting to reduce this practice might be to extend the shadow director provisions in the Act and the Insolvency Act A shadow director is defined as "a person in accordance with whose directions or instructions the directors of a company are accustomed to act". This could be extended by making a person a shadow director if any director (i.e. not necessarily a majority of them) is accustomed to act in accordance with his directions or instructions. However the implications of so doing would need to be fully examined. There is also the other view that a wider definition could easily capture legitimate practices (e.g. joint ventures and private equity portfolio companies where a shareholder has the right to nominate one or more directors, but not a majority of the board). This risk would be very difficult to manage, and even more problematic than an outright ban on nominee directors who completely abdicate their responsibilities. It may also be useful to revert to requiring directors to disclose those UK and other companies of which they are a director. This would enable an assessment of the number of directorships held. 34. The costs and benefits of this policy change. Corporate directors 35. Whether we should prohibit UK companies from appointing corporate directors. Why? Why not? No. Under s 155 of the Companies Act 2006 all companies are required to have at least one natural person on their board of directors. Corporate directors are very useful in many contexts. They are used regularly in the pension scheme context and in structured finance transactions. They are also useful in certain group structures for logistical reasons. Many pension scheme trustees are lay persons. They may be employees or former employees of the sponsoring employer. They will often then have one independent paid professional on the board of trustees to provide the professional view and expertise. That independent will often be a company which will then send representatives on its behalf to assist the trustees. 36. If yes, what transitional arrangements might be appropriate? This would need a considerable transitional period to enable companies to reorganise their arrangements. 37. Whether there are additional or other measures that we might take?

12 38. The costs and benefits of this policy change. Part B Clarifying the responsibilities of directors 39. The merits of strengthening responsibilities of banking directors by amending the directors duties in the CA06 to create a primary duty to promote financial stability over the interests of shareholders. If there are to be sector specific requirements we believe these should be imposed by the sector, i.e. by amendment to banking legislation rather than an amendment to the Companies Act Even if their duties were amended, then, as the Discussion Paper refers, these duties would still be owed to shareholders so what would the change achieve? In any event, we consider that a duty to maintain the future stability of their company is already implicit in the directors' duty to promote the company's success how could any company be regarded as successful if its future existence is threatened? So, in our view, there is a misconception in the view that this does not currently form part of a director s duties. Allowing sectoral regulators to disqualify 40. Whether in certain circumstances, directors barred or prohibited from senior positions in key sectors should be considered for disqualifications from acting as directors of any CA06 company? This may be appropriate. We would consider it sensible for BIS to be able to use evidence of this collected by the Regulator in question, but for it to be BIS rather than the Regulator that considers disqualification generally. How will this work in practice? 41. Which sectoral regulators should have the ability to make an application to the Court for a disqualification order, or to accept a disqualification undertaking from a director? See comments above. 42. The potential costs and benefits of this proposal. We are not able to advise. Factors to be taken into account 43. Whether Schedule 1 to the CDDA should be amended to provide that any breach of sectoral regulations is a matter of unfitness that may be taken into account by the court in disqualification proceedings? This is reasonable. We should mention that our understanding is that the courts will take this into account in practice in any event,

13 44. Whether Schedule 1 to the CDDA should be amended to provide that wider social impact is a matter to be taken into account by the courts in disqualification proceedings? No. Wider social impact is too vague. How would it be defined? It would require an amendment to the directors duties as it introduces a further duty to be considered in those circumstances. Also, we doubt this is required given s172(1)(b)-(e) Companies Act How wider social impact should be defined and whether a materiality test should be applied? The concept is vague and the appropriate approach is that in s172(1)(b)-(e) Companies Act Whether, where unfitness meriting disqualification has been found against a director of a company that dealt with high volume deposits or otherwise vulnerable creditors, two tariffs of disqualification should be handed down (or agreed by way of undertaking). No. How would this be decided? Why are directors working in particular sectors being singled out over others? 47. Whether Schedule 1 to the CDDA should be amended to provide that failure to pay particular regard to the protection of deposits, pre-payments or otherwise vulnerable creditors once a company has become insolvent is a matter to be taken into account by the court when deciding whether a director is unfit and should be disqualified (or by the Secretary of State in deciding whether to accept a disqualification undertaking)? Our understanding is that this occurs already when the courts are determining unfitness. 48. What account the court (and the Secretary of State when deciding whether to take action) should take of the track record of the director (including the number of failures a director has been involved in) when deciding whether or not to disqualify an individual and for how long? We believe that the court can adequately decide this (as currently). 49. Whether there should be a certain number of failures beyond which the presumption is that a director is unfit and should be disqualified. If so, what should that number be? We think that it is too difficult to decide on a specific number. Any attempt to do so would be bound to be arbitrary and therefore likely to lead to unjust results. Improving financial redress 50. How frequently the possibility of bringing wrongful and fraudulent trading claims arise, are pursued and what value the existing civil remedies for wrongful and fraudulent trading provide? There are problems with bringing actions against the directors in question as the liquidators will often not have the funds and neither will the directors.

14 Trading actions, more actions would be taken? If so, how many more? 52. To what extent creditors would benefit from this proposal? 53. What practical difficulties might prevent third parties pursuing claims and how these might be overcome? 54. Whether safeguards would need to be introduced to prevent certain parties acquiring such a claim? If so, who should they apply to and what form they should take? 55. Whether this proposal would improve confidence in the insolvency regime? 56. The benefits of giving courts the power to make compensatory awards against directors? We are concerned about this. If this is linked with disqualification this could lengthen proceedings. 57. The potential costs and drawbacks of this proposal? 58. Who should receive any monies recovered by action: should it be creditors generally or left to the court to determine? This should be left to the courts to determine. 59. Whether the IS (acting on the behalf of the Secretary of State) should be able to request and agree a compensation award from a director when it accepts an undertaking from the directors not to act in the management of a company for a certain number of years? 60. Whether this proposal would improve confidence in the insolvency regime? No. Time limit 61. Whether the period within which disqualification proceedings under section 6 of the CDDA must be instituted should be extended beyond two years? This may be reasonable. 62. If yes, should that period be five years, some other period, or no limit at all?

15 We think that if this is pursued it should be at the discretion of the court. 63. How many directors are likely to be affected? Educating directors 64. Whether, if some form of director education were to be introduced, it would increase trust in the enforcement regime? Yes. 65. What form the training should take and who should provide it? See comments above on providing guidance to directors. 66. What would be the likely cost of such training? 67. Whether successfully completing any such training should enable a reduced period of disqualification; or should there be a precondition for any disqualified director wishing to seek leave of the court to run a company whilst disqualified? Perhaps leave could be sought in any event. 68. Whether there would be value in offering such training to all directors of failed companies irrespective of whether they were disqualified- having regard to the fact that the director would need to cover the cost? Yes. Overseas restrictions 69.Whether regulations should be made using the powers in Part 40 of the CA06 to prevent persons who are subject to foreign restrictions (which fetter their freedoms to act in connection with the affairs of a company) being able to be directors or act in the management of companies in the UK? We agree the principle. However, how would this be introduced? On balance, our view is that this should not be automatic. The Secretary of State should bring the action and the disqualification provisions in the country in question should be considered carefully. 70. If yes, should the restrictions be made to apply automatically in the UK, or should they require the Secretary of State to make an application to a court? See comments above. 71. If not, should a person subject to foreign restrictions be obliged to notify the Registrar of Companies if they act in the promotion, formation and management of a company in the UK?

16 72. Whether the Secretary of State should have the power to bring disqualification proceedings against a person on the sole basis that the person has been convicted of a criminal offence overseas in connection with management of a company or business overseas? We think this is reasonable. 16 September 2013