Vince Cable’s transparency proposals: a nightmare for firms

The government’s recent paper on “Transparency and Trust” is a good example of the road to Hell being paved with good intentions. 

It is predicated on the basis that full (and public) disclosure and directorial responsibility will encourage investment and protect the public. Instead, it creates problems, both for the government and the companies themselves.

We already have a structure under which public companies can require disclosure in place for decades. This is to ensure that those investing in and those responsible for managing public companies know who controls it.

To apply this to all companies raises much wider issues. This could well be a problem for many businesses which have come to this country, because the loss of confidentiality of their activities.

It may be noted that a similar suggestion is being made in relation to the prospective Fourth Money Laundering Directive, although it is to be agreed whether to make the information public as part of compliance. 

For companies, the problems are:

  • To what further extent will directors owe fiduciary duties, and will the Companies Act 2006 need to be changed? How is the conflict between the various layers of ownership be dealt with?
  • What if the directors cannot find out who is behind, for example, a Liechtenstein Trust?
  • How can directors compel overseas investors to comply, and how do they verify what they are told?
  • With the buck stopping with them, how would you advise an individual offered a directorship? 
For the government, the issues include:

  • How will they change the Companies Act 2006?
  • If the law allows the exclusion of certain areas, how can there be a level playing field?
  • What if the reason for non-disclosure is that the parties involved genuinely do not know who is at the bottom of it all? Who will be held responsible?
  • What about organisations operating in sensitive areas (e.g. defence, medical experiments)?
  • Bearer Shares: these have never been a feature of English companies – hence the use of ADRs. Just as Money Laundering laws ended up with a vast raft of disclosures about gardeners being paid in cash, this will catch small fry  – but will hardly bother a Mexican Drugs Baron.
  • Will it really deter the genuinely fraudulent or secretive – especially if they are abroad?
  • Will it really deter the genuinely fraudulent or secretive – especially if they are abroad?
  • Will it actually encourage investment through English Companies, or will it put this country at a disadvantage compared with those who not require public disclosure?
At the end of the day, it may be justifiable for a director to have the right to know who is the ultimate owner of a company, and the same may apply to tax authorities and other regulators. 

It is not so obvious that this information should be publically available.

Max Hudson is a partner in the company and commercial department at Payne Hicks Beach Solicitors.

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