• The Government announces its next steps for modernising UK company and securities law
• Recommendations are published for a new corporate redomiciliation regime for the UK
• The Government will not be proceeding with proposed changes to medium-sized company reporting for the time being
• The court analyses when an interim dividend becomes a debt due to shareholders

Government signals upcoming changes to UK company law

The Secretary of State for Business and Trade has issued a written statement setting out the Government’s plans for the next changes to company and securities law in the UK.

Alongside announcing a new green paper on a modern industrial strategy, the Secretary’s statement confirms the following commitments.

• Corporate redomiciliation. The Government will take steps to allow companies to move their place of incorporation to the UK. To that end, it has published a report by the Independent Expert Panel on corporate re-domiciliation (see the next item in this update) and intends to consult in due course on a proposed regime design.
• Corporate reporting. It will lay legislation by the end of 2025 to remove redundant reporting requirements, to uplift the monetary size thresholds for micro-entities, small and medium-sized companies, and to make “technical fixes” to the UK’s audit framework. The statement estimates that the changes will benefit up to 132,000 companies by moving them to a smaller size category. The commitment follows the Government’s previous statement on this topic. (Read our previous Corporate Law Update on the Government’s call for evidence on modernising company reporting.) (Separately, the Government has confirmed it will not be moving forwards in the immediate term with its proposed changes to reporting by medium-sized companies. See two items below.)
• Non-financial reporting. It will also launch an ambitious consultation in 2025 aimed at simplifying and modernising the UK’s non-financial reporting framework. This follows the Government’s previous call for evidence on this topic. (Read our previous Corporate Law Update on the Government’s call for evidence on simplifying the UK’s non-financial reporting regime.)
• Virtual AGMs. It will examine the potential for updating shareholder communication in line with technology and clarifying the law in relation to virtual AGMs.
• Capital markets. Finally, it also intends to implement the outstanding recommendations from the Secondary Capital Raising Review published in 2022. This includes reducing the minimum time in which a company must offer new shares to existing shareholders before offering them to the wider market from ten working days to seven.

Read the Secretary of State’s statement on upcoming changes to UK company and securities law

Recommendations published for new UK corporate redomiciliation regime

An Independent Expert Panel has published its recommendations for introducing a new regime to allow companies incorporated outside the UK to change their place of incorporation to the UK.

The Government first consulted on a new so-called “redomiciliation regime” in November 2021. (Read our article on the Government’s consultation on a UK corporate redomiciliation regime.) Feedback was favourable and so the Government established the Panel to explore options.

The Panel’s report sets out its recommendations for specific aspects of any new corporate redomiciliation regime, as well as further areas it believes the Government will need to consider.

The key points arising from the Panel’s recommendations are as follows.

• Any regime should permit redomiciliation either into or out of the UK. (The Government originally proposed a one-way, inward-only regime.)
• Any kind of incorporated entity could redomicile into the UK from anywhere. However, the entity would need to become a UK company with a share capital (public or private, limited or unlimited).
• UK companies could redomicile from the UK into any other jurisdiction. To begin with, the Panel does not propose to allow other types of entity, such as LLPs, to redomicile out of the UK.
• There should be no requirement for a redomiciliation to be made “in good faith” (as originally proposed), as this would require a difficult evaluative judgment by Companies House.
• The UK’s national security and investment screening regime should apply to redomiciliations out of the UK but not to redomiciliations into the UK (as these are unlikely to cause security risks).
• The Government may wish to explore whether a redomiciliation should be prohibited where the entity, its owners or controllers, or the other jurisdiction, is/are subject to sanctions.
• To redomicile into or out of the UK, an entity’s officers should swear a solvency statement, and the entity should not be undergoing any insolvency or restructuring proceedings.
• To redomicile, an entity would need to provide information to Companies House. For an inward redomiciliation, this should include the information required to incorporate a new UK company, as well as details of outstanding security interests that would have been registrable in the UK.
• An entity redomiciling into the UK would need to start preparing accounts under IFRS or UK GAAP, subject to potential transitional provisions for entities in certain jurisdictions (such as Canada, China, the EU, Japan and the United States). If its redomiciliation falls part-way through a financial year, its first UK accounts should also cover the pre-domiciliation period in that year.
• The entity would also need to comply with UK law immediately on redomiciliation. This may mean assigning a nominal (par) value to its shares (if they have none), revoking any bearer shares, and establishing its level of distributable profits in order to pay future dividends.
• A redomiciliation out of the UK should require a special resolution of the company’s shareholders. Members who suffer unfair prejudice, as well as creditors, should have a period in which to object to the redomiciliation.
• Once a company has redomiciled out of the UK, it should be required to keep an authorised representative in the UK, who can be served with documents, for 10 years.

The report also sets out specific recommendations and points to consider in relation to the tax and accounting matters arising on a redomiciliation.

Read the Independent Expert Panel’s recommendations for a UK corporate redomiciliation regime (opens PDF)

Government to pause changes to medium-sized company reporting

The Government has confirmed that it will not be pushing ahead in the short term with changes it had previously proposed to the reporting framework for medium-sized companies.

In May 2024, it consulted on two proposed changes to the UK’s corporate reporting regime that would ease the burden on medium-sized companies. These were:

• to increase the employee headcount above which a company is classified as “large”, bringing more companies into the less onerous medium-sized category; and
• to remove the requirement for medium-sized companies to produce a strategic report.

Read more about the Government’s consultation on easing the reporting burden on medium-sized companies in our previous Corporate Law Update.

The two proposals garnered broad support, with 66% of respondents approving of the headcount increase and 65% favouring removing the requirement for a strategic report.

However, a key undertone of the responses was that it may make more sense to implement the proposed changes as part of the Government’s broader review of non-financial reporting, rather than introducing changes piecemeal. As a result, the Government will not be taking its proposals forward at this time.

Access the landing page for the Government’s consultation on simpler corporate reporting for medium-sized companies

Court clarifies when an interim dividend becomes a debt

The Upper Tribunal has held that, unless a company and its shareholders agree otherwise, where a company decides to pay an interim dividend to its shareholders but in fact pays only some of them, a debt automatically arises in favour of the shareholders it has not yet paid.

HMRC v Gould [2024] UKUT 00285 (TCC) concerned a company with (for all practical intents and purposes) two shareholders.

The directors decided to pay an interim dividend to the shareholders.

In the circumstances, it was more tax-efficient for one shareholder (S1) to be paid their dividend in the 2015/16 tax year and the other (S2) to be paid his in the 2016/17 tax year. The company therefore paid S1’s dividend entitlement in the 2015/16 tax year and S2’s entitlement in the 2016/17 tax year.

For UK tax purposes, income tax is charged on the amount or value of dividends paid in the tax year. Dividends are treated as “paid” when the dividend becomes due and payable (i.e. the point at which the obligation to pay the dividend becomes a present debt owed to the shareholder).

Traditionally, the courts have held that an interim dividend is not a debt due to a shareholder until it is actually paid. This curious concept gives a company’s directors flexibility to revoke a decision to pay an interim dividend if the company’s financial situation worsens.

HMRC argued that, as a matter of both company law and the company’s constitution, the interim dividend had become a debt due to both shareholders when S1’s payment was made (meaning S2 would be taxed in the 2015/16 tax year), even though it had not been paid to S2.

The Tribunal had to analyse the law on interim dividends. It agreed with HMRC that the interim dividend had become a debt to S2 at the time S1’s entitlement was paid. This followed both from the principle in company law that shareholders of the same class must be treated equally, as well as from the wording of the company’s constitution.

However, in the circumstances, the shareholders had agreed by their conduct to vary that arrangement to allow interim dividends to be paid (and, so, to become debts) on different dates. As a result, S2 was treated as having been paid his dividend for tax purposes in the 2016/17 tax year.

The case is a useful instruction in how to structure dividend payments optimally from a corporate and a tax perspective.

Read more about the Upper Tribunal’s   on when an interim dividend becomes a debt in our separate in-depth piece

Access the Upper Tribunal’s decision on when an interim dividend will become an enforceable debt (judgment in PDF format)