0370 270 6000

Prohibition on corporate directors – what’s the latest?

16 January 2019

As we have previously reported, the provisions of the Small Business, Enterprise and Employment Act 2015 (SBEEA) will require all company directors to be natural persons and prohibit the appointment of corporate directors (subject to certain exceptions). The SBEEA also provides that the appointments of existing corporate directors will automatically cease after a 12 months grace period.

The implementation date for these provisions has now been delayed several times – and currently we still do not have a confirmed date for when these provisions will go live or final details of what the exceptions to the prohibition will be. However, it is still widely expected that this ban will come into force in the not too distant future - and Companies House confirmed in its published Business Plan for 2018-2019 that it intends to work with BEIS to implement the prohibition.

Currently the Companies Act 2006 states that a company must have at least one director who is a ‘natural person’ – so provided a natural person is appointed one or more corporate directors (i.e. a company or an LLP appointed as a director) are also allowed. Once the ban is implemented, all directors would need to be natural persons, unless one of the (not yet finalised) exceptions applies – and acting in breach would constitute a criminal offence. This explains why many companies making use of corporate directors at the moment are monitoring developments here closely to ensure they are geared up to comply with the new law once in force.

Whilst we await a further announcement on the implementation date for the ban – and the likely exceptions – corporate groups would be advised to double-check which UK group companies have any corporate directors and keep a list of these to hand. This will facilitate a quick assessment of whether any of the exceptions apply once these details are published and an action plan can then be quickly drawn up to ensure compliance.

At this stage it would also be worth considering any knock-on consequences of the potential removal of any corporate directors (for example on a company’s constitution or the balance of power on board decision making) to see whether any further changes are necessary or desirable. Some companies are also choosing not to appoint new corporate directors at this stage, as it is likely that such appointments would need to be revisited in the near future.

Focus on...

Press releases

Bishopsgate and Browne Jacobson advise on US firm’s acquisition of Notts based tech services business Custard

Bishopsgate Corporate Finance and law firm Browne Jacobson have jointly advised on the acquisition of award-winning tech solutions business, Custard Technical Services by US managers services and cyber security provider, Thrive.

View

Press releases

Browne Jacobson’s retail lawyers advise wilko on its strategic £48m sale and leaseback of Nottinghamshire distribution centre to DHL

National law firm Browne Jacobson has advised long standing retail client, wilko on the sale and leaseback of its Nottinghamshire distribution centre in Worksop to logistics specialist DHL for £48m.

View

Legal updates

Trigger happy when directors’ duties are the target?

In a judgment handed down yesterday the Supreme Court has affirmed that a so called “creditor duty” exists for directors such that in some circumstances company directors are required to act in accordance with, or to consider the interests of creditors. Those circumstances potentially arise when a company is insolvent or where there is a “probability” of an insolvency. We explore below the “trigger” for such a test to apply and its implications.

View

Legal updates

IR35 rules here to stay after government U-turn

A few weeks ago we brought you news that following the Government’s mini-budget it was confirmed that the off-payroll working rules (known as “IR35”) put in place for public and private sector businesses from 2017 and 2021 would be scrapped from April 2023.

View

The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

Mailing list sign up

Select which mailings you would like to receive from us.

Sign up