The UK Government consultation on the proposed prohibition of corporate directors closed 8th January 2015. The prohibition is one of the key foundations of the Small Business and Enterprise Bill, currently making its way through Parliament. The proposals are part of the Government’s declared, and highly political, transparency and trust initiative which is being fêted to improve the culture of corporate Britain. The Department for Business, Innovation & Skills (BIS) has accepted the need for certain, pragmatic exceptions to the blanket prohibition on corporate directors, but these will be set within narrow parameters.

The proposed exceptions are expected to be:

  1. UK companies with shares admitted to trading on regulated markets – the consultation paper suggests this exception is likely to be granted and may extend to wholly-owned subsidiaries and possibly other group members but with some restrictions on the identity of any corporate director (i.e. another group member);
  2. UK companies with shares admitted to trading on UK prescribed markets (with similar considerations as for 1. above) (most significantly, AIM companies);
  3. Public companies without shares admitted to trading;
  4. Some private companies but only those of a certain size and in groups; and
  5. Certain companies in regulated sectors, including charitable companies, trustees of large pension funds and where other regulations specifically require corporate directors (such as the ACD structures which the UK already imposes on UCITS funds structured as OEICs).

Purporting to appoint a corporate director outside of these exceptions will be an offence. Current proposals include a transition period of one year to allow those companies with existing corporate directors to restructure their board governance arrangements (for many, this will simply mean removing corporate entities as directors and, if necessary or desirable, replacing them with natural persons). Given the BIS statistic that only 1.2% of UK companies currently use corporate directors the impact of the new provisions should be limited, but more complex group structures may require detailed consideration and action, including a review of constitutional documents. In addition, companies which require a minimum of two directors in their articles will need to ensure that a replacement is found for the resigning corporate director.

By Rachael Taylor