The new disclosure rule no one is talking about

Tucked away in the UK Small Business, Enterprise and Employment Act, passed by Parliament just before it dissolved ahead of the May election, is the creation of a new public register of people with significant control over UK private companies – which will be freely available online for curious journalists, private litigators and others.

The law could mean that private equity board directors are named on that list. It could mean certain limited partners – such as high net worth individuals owning a large slice of the fund – are on it too. It could mean none of these things, or indeed a great deal more. The thing is, no one knows for sure until Parliament finishes fleshing out the bill’s bones later this fall. The law is passed, so there’s no going back, but the exact details are yet to be made known. The private equity community could be a major influence in how things shake out, but the private equity community isn’t talking about it much.

“Many in the industry mistakenly think it won't affect overseas funds, but they're wrong,“ warns Osborne Clarke private equity lawyer Dipika Keen. “It's one of those areas where the precise impact on private equity depends on the structures and arrangements in place, which makes the awareness campaign here all the more important,” adds Gurpreet Manku, who is speaking with the UK government about the law's impact on private equity and venture capital as part of a BVCA working group.

Already it seems that most LPs will be exempt from the register’s scope as passive investors, but questions still remain about non-English partnership vehicles and private equity board directors with a powerful presence on the board, Neither is it clear how  those partners in the private equity firm who collectively exert “significant control” will be treated. The new register will contain information on individuals who own or control more than 25 percent of a private company’s shares and/or voting rights, or who otherwise exercise significant power over the company’s management team (which financial sponsors tend to do).

Does any of this matter? It’s a difficult question to answer, which is all the more reason for industry professionals to analyze the issue further. The new law may represent nothing more than yet another administrative burden policymakers have bestowed upon the industry. On the other hand, individual deal professionals may not like the idea of having their names linked to a private company in this manner. In a worst case scenario, one in which certain LPs are named, it’s easy to imagine pension plans and other politically sensitive entities backing away from controversial deals that could result in fallout. 

A better idea of what’s to come is likely to take shape after the UK election on May 7th. While both major UK parties are backers of the bill (as part of a commitment to greater corporate transparency), the Labour party seems more keen to extend the bill’s reach to offshore jurisdictions, where the new spotlight may burn brighter. What’s more, the European Union is working on a similar initiative for all member states, which may prompt the US to keep level given all the government rhetoric around transparency.

We here at pfm will continue to track the bill’s development and update readers as details become available. Affected companies will need a list of “persons with significant control” by January 2016 and then release that list for public consumption later in April. Who’s on that list (and who isn’t) may well be determined by how much energy the industry decides to dedicate to the issue now.