New rules make it harder for Israeli cos to hide in UK

Hadie Cohen and Oliver Harris

Information about companies in the UK will be more available and easy to access for the public from 2016.

The Israeli business community is already sensitive to the negative perception of Israel abroad and the increasing activism, especially online, against companies and products associated with Israel. Many Israeli businesses have dealt with this by 'hiding' themselves abroad, for instance by operating through local companies incorporated in the UK. There are a couple of developments, though, which will soon mean that this strategy may no longer work.

The first change is that, from 30 June 2016, 'private limited companies' in the UK will no longer be so 'private'. Companies will have to keep a register of 'People with Significant Control', revealing all the persons who ultimately control the company.

To make matters much worse, information about UK companies will be more available and easy to access for the public. Until recently, information on the database of the register of UK companies, Companies House, was subject to access fees. Since mid-2015, Companies House has been trialing a new system which is instantaneous, accessible to all internet users and free. At the press of a button, internet users may discover a companys entire filing history.

The two developments above create an explosive combination: companies in the UK will now need to identify all persons that ultimately control them and this information will be filed on the public record at Companies House, which will now be instantly accessible to all online. Israeli businesses may now feel that they are left with 'nowhere to hide'.

As mentioned above, from 30 June 2016, UK companies will be required to keep a register of 'People with Significant Control', known as a 'PSC Register'. These companies will also be obliged, when filing their annual compliance statement at Companies House (itself a new requirement), to provide all the details shown in their PSC Register. As such, the details of all such persons with 'significant control' will become publically available on the Companies House website.

The definition of persons with 'significant control' is very broad and will generally have the effect of catching all persons who ultimately exercise a significant amount of control or influence over the company. There are five specific categories of persons who will be considered to have 'significant control'. Some of these will be straightforward to work out, for instance based on holding certain percentages of shares and voting rights. Others may be more difficult to quantify and could be more far-reaching. On the more defined side, a person with more than a 25% shareholding or more than 25% of the voting rights in a company (whether held directly or indirectly) is considered someone with 'significant control'. On the less defined side, a person with the right to exercise or who does exercise significant influence or control over a company will also be considered to have 'significant control'.

Guidance on the meaning of significant influence or control was supposed to be published last month but remains due.

Importantly, details required to be included in the PSC Register for persons with 'significant control', which will again eventually be shown on the Companies House website, include the persons country or state of usual residence and nationality. The public will therefore quickly be able to identify companies which are ultimately controlled by Israeli persons.

There are options to explore if a company is concerned at revealing sensitive details of its ultimate owners. At one end of the spectrum some may decide to take the nuclear option and wind-up the company before the obligations to file the details publically come into force and, instead, operate using companies in other jurisdictions.

There may, though, be some less drastic technical ways to avoid or lessen the impact of the disclosure requirements. One option is to make structural changes to avoid particular individuals meeting the tests for having 'significant control'. However, these will require careful thought and planning, especially in relation to the less easily defined test of persons with a right to exercise 'significant influence or control'.

Another option is to make it a bit more difficult for viewers to immediately identify particular individuals, for instance by using other intermediary UK companies.

The UK Government hopes that introduction of increased disclosure requirements will enhance trust in UK companies and considers it a tool in its armoury against money-laundering, tax evasion and terrorist financing.

However, the new requirements, combined with increased public access to company records, may be a real concern for Israeli-owned and controlled businesses. As well as preparing for compliance with the requirements, Israeli businesses may need to consider if there are ways to lessen the impact and threat of such disclosure.

Oliver Harris is head of the Corporate and Commercial department at Asserson Law Offices and Hadie Cohen is an associate in the department. Asserson Law Offices is an English law firm, with offices in Tel Aviv, London and New York.

Published by Globes [online], Israel business news - www.globes-online.com - on November 11, 2015

Copyright of Globes Publisher Itonut (1983) Ltd. 2015

 
Hadie Cohen and Oliver Harris
Hadie Cohen and Oliver Harris
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