Lifting the lid on beneficial ownership – consultation paper released by Federal Govenment

On 13 February 2017, the Federal Government released a consultation paper seeking views on increasing the transparency of beneficial ownership of companies in Australia. 

IN BRIEF

• The Federal Government has released a consultation paper seeking views about the transparency of beneficial ownership of companies in Australia.
• This is part of a global push on transparency led by the G20 in order to combat illicit activities, assist anti-corruption efforts and reduce tax evasion.
• The deadline for submissions is 13 March 2017.

CONSULTATION PAPER ON INCREASING TRANSPARENCY OF THE BENEFICIAL OWNERSHIP OF COMPANIES

On 13 February 2017, the Federal Government released a consultation paper seeking views on increasing the transparency of the beneficial ownership of companies. This is part of a global push on transparency led by the G20. It is part of the Government’s efforts regarding anti-corruption, combatting tax evasion and improving tax transparency.

The Government is seeking feedback on what information needs to be collected to achieve the objective and how it should be collected, stored and kept up to date. Feedback is also sought on the expected compliance costs for affected parties.

The paper distinguishes between listed and unlisted companies.

Unlisted companies

Most of the paper deals with the beneficial ownership of unlisted companies. At present, the law in Australia requires the share register of an unlisted company to indicate if the shares are held beneficially or not, but disclosure of the identity of the beneficial owner is not required.

The consultation paper seeks views about expanding the disclosure requirements, including whether a person with a ‘controlling interest’ (however that is defined) should be disclosed. Views are sought on whether the company should be obliged to make enquiries and to seek the required information.

If the information is collected, the question then arises whether it should be maintained on a central register and the extent to which it should be available to members of the public and to government authorities.

The paper provides the UK’s ‘register of people with significant control’ as an example of a possible approach to increasing the transparency of beneficial ownership. Introduced last year, UK companies (other than listed companies trading on certain ‘regulated markets’) are required maintain their own register of people with controlling interests, in addition to a separate register maintained by the UK Companies House.

Listed companies

Listed companies can use the existing tracing notices provisions in the Corporations Act to trace ownership. These provisions have recently been in the spotlight in relation to the current Board challenge by certain shareholders of Bellamy’s.

A listed company may give a notice to a registered shareholder requiring them to disclose details about the relevant interest they have in the relevant shares, the relevant interests of any other persons, as well as details of persons who have given them instructions in relation to the holding. A notice can then be issued to anyone who is named in the response made to an earlier tracing notice. The information must be held in a register maintained by the company which is available to the public.

The consultation paper proceeds largely on the basis that the existing provisions are generally adequate for the relevant purposes. However, views are sought on whether listed companies should be exempt from any new requirements to report on beneficial ownership should they be introduced.

The consultation paper identifies a number of possible shortcomings with the tracing notices provisions. For example, the recipient of a notice only has to disclose information that is known to them. There is no obligation that requires them to make any inquiries to check the information. In theory, this means that it may be open for a person to avoid or delay disclosure of their ultimate ownership or control through establishing a chain of nominee or other entities. Furthermore, the paper notes that there is currently no requirement for the person responding to the notice to update the response if there is a subsequent change, nor is there any requirement to disclose historical information relating to the holding.

A common experience in using the tracing provisions is that often recipients give an inadequate or incomplete response, either deliberately or simply because the requirements are very technical and often misunderstood. It is then difficult for the company to follow up those persons, particularly if they are overseas.

Whilst, in theory, it is possible for the company to seek a court order, make an application to the Takeovers Panel or enlist the support of ASIC in forcing proper disclosure, in practice, this is a difficult matter, is expensive and is not often pursued.

Recognising these potential difficulties, the consultation paper asks whether ASIC should have the ability to make an order imposing restrictions on the shares the subject of a notice until the notice has been complied with. This may improve and incentivise compliance with the tracing notice regime.

Conclusion

The Government seems intent on amending the rules relating to the transparency of beneficial ownership of companies. If you have views in relation to this, you are encouraged to file a submission.