Corporate Re-domiciliation – Guess who’s back, back again?
You’d be forgiven for having forgotten all about the corporate re-domiciliation consultation that was undertaken three years ago. But, following that consultation’s Response in April 2022, an independent expert panel was established to consider in more detail how a UK corporate re-domiciliation regime could work and recently, a report was published setting out that panel’s findings.
The report details how the panel envisages such a regime working, with recommendations as to application requirements, process, timing and legislation changes, among other matters. The report is exhaustive and thorough (in its full 114-page glory), and so we’ve summarised the key points below.
(Please note: the tax position of entities under both the incoming and outgoing regimes warrants its own section in the report and is outside the scope of this summary.)
What is corporate re-domiciliation?
Corporate re-domiciliation allows a legal entity incorporated in one jurisdiction to, essentially, give up that jurisdiction and become incorporated in another jurisdiction while retaining its legal personality throughout. Although several jurisdictions currently have such a regime (for example, Singapore and Canada), the UK doesn’t and it’s the imposition of such a regime in the UK which the report considers.
Key findings
The question of whether a one-way or two-way regime would be preferable was raised in the consultation and it was clear from the response that the latter was favoured. The report agrees, recommending that any UK corporate re-domiciliation regime should work both ways, i.e. non-UK entities should be able to leave their country of incorporation and become incorporated in the UK (incoming re-domiciliation), while UK-incorporated entities should be able to leave the UK and become incorporated elsewhere (outgoing re-domiciliation) (in each case, subject to the non-UK jurisdiction permitting the change).
Initially, the regime is likely to only be available in respect of UK companies, although overseas entities will have the choice as to whether to incorporate as a limited or unlimited, and as a public or private, company. The report suggests that expanding the regime to LLPs could be considered at some point in the future.
Although Companies House will be the relevant UK authority dealing with corporate re-domiciliation, the report suggests that it will be the entities themselves which will project manage the switch, liaising with Companies House and the relevant authorities in the overseas jurisdiction. In addition, the panel recognises the need for certainty and advocates minimising any discretionary powers which are to be given to Companies House. The report does however suggest that the Secretary of State could be given certain reserve powers, for example, being able to determine which jurisdictions are excluded from the regime from time to time.
Although ideally, de-registration in one jurisdiction and registration in the new jurisdiction would occur simultaneously, the panel recognises that this may not always be feasible but recommends that the period between the two should be kept as short as possible. To ensure continuity of the entity’s legal personality, de-registration should only occur once registration in the new jurisdiction has taken place.
Incoming re-domiciliation
The report proposes that only solvent bodies corporate that intend to carry on business as a going concern in the UK will be able to re-domicile into the UK, with such entities being required to provide a solvency statement as part of their application process. No other economic substance or size criteria is put forward by the panel.
Any incoming entity will be treated, as far as possible, as a UK-incorporated company, although the panel recommends that re-domiciled entities should, by their registration number, be able to be differentiated from UK-incorporated entities.
Protection of stakeholders will be a matter for the law of the departing jurisdiction.
Outgoing re-domiciliation
The report suggests that insolvent companies shouldn’t be able to re-domicile out of the UK. In addition, UK law should make clear that re-domiciliation will not affect any obligations or liabilities of the company which were incurred while it was incorporated in the UK.
Certain information should continue to be available in the UK after re-domiciliation and the company should be required to maintain an authorised representative in the UK to accept service of proceedings for 10 years following re-domiciliation out of the UK.
In order to protect key stakeholders, the report suggests that the passing of a special resolution agreeing to re-domiciliation should be required and also that any non-consenting shareholder(s) should be granted a period of time in which to file an unfair prejudice claim. In addition, consideration needs to be given to the protection of creditors who should be able to apply to court to object to the re-domiciliation in certain circumstances.
The report also proposes that re-domiciliation out of the UK could be deemed a “trigger event” for the purposes of the National Security & Investment Act 2021 (NSIA 2021). As such, certain companies may need to obtain clearance under the NSIA 2021 before re-domiciling. See here for more information about the NSIA 2021.
What next?
The government will need to consider these recommendations in depth and there’s likely to be a further consultation once more detailed proposals about the regime have been ironed out. This will need to take into account the views of regulatory bodies, such as the Financial Conduct Authority and the Panel on Takeovers and Mergers.
Many legislative changes will be required and the report sets out numerous amends that will be required to the Companies Act 2006. Taxation legislation will also need amending and other, more specific pieces of legislation may also be affected.
Although the imposition of such a regime is, in our view, to be welcomed, it’s clear that the changes required will not be effected swiftly and the devil will most certainly be in the detail for the lawmakers tasked with putting it in place.
Disclaimer
This note reflects the law as at 29 November 2024. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
