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Ban on corporate directors postponed for 12 months

Introduction

The Small Business, Enterprise and Employment Act 2015 (the "Act") will introduce a ban on the appointment of corporate directors in UK companies. However, implementation of the ban (originally intended for October 2015) has been postponed until October 2016.

Why have a ban?

Despite the administrative flexibility that corporate directors can offer, its potential for abuse has been recognised. Such abuse stems from the fact that companies are not required to disclose information on the beneficial owners of corporate directors. The concern is that corporate directors can be appointed so as to hide the identity of those individuals who control a company, perhaps as a vehicle for illegal activities.

The abolition of corporate directors falls directly into the first aim of the Act, namely to increase corporate transparency. Section 87 of the Act will implement the ban by inserting a new section 156A into the Companies Act 2006 (the "CA"), the consequence of which will be to require all directors to be "natural persons."

Are there any exceptions?

Needless to say, a set of limited exceptions are to be expected. Following consultation by the Department for Business Innovation and Skills, it has been proposed that companies may continue to appoint a corporate director, but only if all the directors of said corporate director are "natural persons." In addition, an exception may be made for corporate groups whose parent company is listed on a regulated market.

However no final decision has been made as to the scope of such exceptions, which are to be set out in regulations yet to be published. It is therefore unsurprising news that implementation of the ban will be deferred for 12 months, not becoming effective until October 2016.

What about existing corporate directors?

A transition period will exist for those companies who already have corporate directors. Section 156C of the CA provides a one year grace period, after which time section 156A of the CA will bite so as to cease such directorships. Therefore, coupled with the 12 month deferral mentioned above, it is not until October 2017 that existing corporate directors will need to be replaced.