Here endeth the wait: Register of overseas entities goes live – an M&A update

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The register of overseas entities (the Register) took effect last week with UK property-owning overseas entities now being able to apply to Companies House to be listed on the Register. To do so, various information must be supplied by the overseas entity about itself and its beneficial owners (or, if it doesn’t have any, its managing officers).

We have previously published various articles about the Register, including its effects on corporate transactions (see here) but essentially, overseas entities which own UK property are required to be listed on the Register and will not be able to purchase or dispose of such property unless they are so registered (this is due to the fact that HM Land Registry will not make the appropriate entries on the land register unless the overseas entity is listed on the Register). Overseas entities which owned UK property as at 1 August 2022 will have until 31 January 2023 to apply to the Register.

Register “Live” Date

The Register went live on 1 August 2022 and is now accepting applications, however the land restrictions will not take effect until 5 September 2022. This is to allow overseas entities which intend to complete the acquisition of a UK freehold interest or a lease exceeding seven years on or after this date to apply to the Register in advance so as to prevent registration delaying completion.

UK-Regulated Agent

To apply to the Register, the information about the overseas entity and its beneficial owners (or managing officers) must be verified by a “UK-regulated agent”. This requirement is pursuant to obligations brought in under regulations recently published. Businesses such as law firms and accountancy firms can apply to become a UK-regulated agent but with guidance on the verification requirements having only been made available last week, many will still be researching what the role involves and the potential risks of having agent status.

Effect on M&A Transactions

As discussed previously, the Register will not affect share acquisitions/sales in the same way as it will affect property transactions for the simple reason that share deals do not require amendments to be made at HM Land Registry. But this does not mean that the Register can be ignored completely.

Share purchase agreements will usually include a warranty pursuant to which the seller will confirm that the target company has complied with all applicable laws. Where a buyer intends to acquire the shares in an overseas target company which owns UK property, such a warranty will catch the target company’s registration obligations under the Register. Even without this warranty, a buyer is unlikely to want to purchase the shares in a target company which is in breach of its statutory obligations. Failure to comply with the registration requirements also has severe consequences so should be avoided at all costs.

Where a buyer intends to purchase the shares (or equivalent) in an overseas target company which owns UK property, there are now two options available:

  • Option 1: the target company applies for registration now with details of its current (i.e. pre-completion) beneficial owners. These details will need to be updated in 12 months’ time under the Register’s annual update requirements and it is at this point that details of the new beneficial owners will be provided. This option is likely to be requested by the buyer if, for example, they want to sell the property post-completion, especially if the property sale is to take place on or shortly after 5 September 2022. The buyer may ask for a specific warranty in the share purchase agreement that the target company is listed on the Register. If exchange and completion is not simultaneous, the buyer may also want to see registration as a completion condition and include an undertaking that the target company will not remove itself from the Register before completion. However, if completion of the transaction is imminent, the parties may not have the time to wait for registration to take effect and so this option may not be viable.
  • Option 2: no application to register is made until completion has occurred at which point the target company applies for registration with details of its new (i.e. post-completion) beneficial owners. Such application must be made by 31 January 2023 but bear in mind that the property cannot be disposed of on or after 5 September 2022 unless registration has occurred. If this option is followed, the seller should make a disclosure against the compliance with laws warranty to notify the buyer that registration has not yet taken place. Bear in mind that where the target company has disposed of UK property since 28 February 2022, details of the disposition will need to be disclosed as part of the application and so the buyer will need to ensure that it has sufficient detail of any such disposition to comply.

Disclaimer

This note reflects the law as at 10 August 2022. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.

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