Later this year the ban on the use of corporate directors is due to come into force as part of the Government’s drive to increase corporate transparency. However, a recent consultation suggests that the Government may be having a change of heart in this area.
The original proposal
Provisions in The Small Business, Enterprise and Employment Act 2015 provide that, from October 2015, all company directors must be ‘natural persons’. Any existing corporate directors in office at the date the ban comes into force will be given a 12 month transitional period at the end of which they will cease to hold office.
A consultation last year suggested that the only exceptions to the ban would be for:
- corporate groups headed by a listed company where the existing disclosure and transparency requirements to which such companies were already subject meant that an exception to the ban could be justified; and
- corporate trustees of pension funds where the scrutiny of the Pensions Regulator again meant that an exception could be justified.
The latest suggestion
The Government has now admitted that the responses to its 2014 consultation “opened our eyes to practical uses of corporate directors that we hadn’t fully appreciated before”. This highlighted a number of areas where it was felt that an exception to the ban on corporate directors would be useful, including corporate service providers, non-executive directors, property management companies and special purpose vehicles.
The Government is therefore considering introducing a ‘principles’ based exception to the ban which would allow any company to appoint a corporate director provided that:
- all of the directors of that corporate director are natural persons; and
- the law under which the corporate director entity is established requires certain details of its directors to be included in a publicly maintained accessible register (this condition would not be necessary if only UK companies were allowed to be corporate directors as such information already has to be filed at Companies House in respect of UK company directors).
Benefits of corporate directors
The Government now acknowledges that using corporate directors can have significant benefits, particularly in relation to reducing administration costs and providing flexibility for signing documents, ensuring that the availability of signatories for key documentation is not adversely affected by absences or travel commitments. Other responses to the original consultation also suggested that corporate directors were useful for providing tailored expert advice, allowing a corporate director to send different experts to a board meeting according to the requirements of the particular agenda.
Have your say
If you are a business which makes use of corporate directors for one of the above (or any other) reasons, or if you think these reasons should not override the primary requirement for transparency, make sure you have your say by answering the Government’s survey on the proposed exception to the ban on corporate directors.