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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
United Kingdom | Publication | July 2023
The register of overseas entities (ROE) is one year old on August 1, 2023. Most overseas entities (OEs) that own, or want to own, a freehold estate in land or a leasehold estate for a term of more than seven years must be registered in the ROE and be issued with an overseas entity ID.
The ROE registration process can be complicated and includes:
The ROE burden is about to get more onerous. August 1, 2023 also marks the start of an additional duty to update the information lodged with the initial application for registration, or to confirm that such information remains unchanged. This updating duty is not a one-off but arises every 12 months, beginning with the date of the initial registration.
Filing an update statement is also not straightforward, for example verification checks must be carried out no more than three months before the date of the update statement on any information that has changed and on any new beneficial owners and managing officers being added. Numerous company service providers have registered with Companies House as “relevant persons” who can provide registration and verification services for OEs and they will also no doubt be able to assist with the updating duty and associated verification.
The consequences of failing to update on time are as severe as those for failing to comply with the initial registration requirement. In addition to committing a criminal offence, the ID of the overseas entity will become invalid and the overseas entity cannot be registered at the Land Registry as the legal owner of land or property or enter into a lease exceeding seven years, nor can it sell land, charge it or grant a lease of over seven years, as such a disposition cannot be registered at the Land Registry. Clearly, compliance with the updating duty will therefore be extremely important not only for the overseas entities themselves but also for those proposing to enter into certain transactions with an overseas entity.
Companies House has also just announced that it will “soon” start to issue financial penalties to those who have not yet registered in the ROE and has published guidance explaining its approach to financial penalties and other enforcement measures and sanctions.
It is stating the obvious to say that business rates are an onerous financial liability and may be the cause of some businesses sinking rather than swimming. It is therefore not surprising that schemes to mitigate business rates have evolved – see, for example, the August 2018 and December 2020 editions of our Real Estate Focus.
The government is concerned that some of these schemes go too far and that there is “a small minority who seek to exploit the business rates system, either through false reporting, or through contrived means which circumvent the spirit and intention of the law”. It has therefore just published a consultation on Business Rates Avoidance and Evasion.
The consultation has a particular focus on reforms to Empty Property Relief, as evidence suggests that abuse of this Relief is the most common form of rates avoidance. It also seeks evidence on wider avoidance practices within the business rates system and views on whether billing authorities have sufficient powers and information to combat them. Evidence of “rogue” rating agent behaviour is also sought.
The proposals relating to Empty Property Relief have drawn particular criticism. According to a leading rating surveyor: “The Government does not seem to understand that the significant amount of long-term empty commercial property…is due to a lack of market demand and longer-term socio-economic factors, not because the landlord wants to keep it empty”.
The consultation closes at 11am on September 28, 2023.
In the June 2021 edition of Real Estate Focus we reported on Re Virgin Active Holdings Ltd and other companies [2021] EWHC 1246 (Ch). In that case the court sanctioned a restructuring plan under the Companies Act 2006 Pt 26A (introduced by the Corporate Insolvency & Governance Act 2020) that “crammed down” the rights of certain landlords. It has happened again in In the Matter of Fitness First Clubs Limited [2023] EWHC 1699(Ch).
A restructuring plan voted on by creditor classes is not effective unless sanctioned by the court. Generally, under a restructuring plan (and unlike a CVA) whole classes of creditors can be “dragged along” despite not having voted as a class in favour of the plan, if at least one other creditor class approves the plan. Before sanctioning a plan, the court must be satisfied that the dissenting class of creditors will not be worse off than they would be under the most likely alternative, which would often be administration.
In Fitness First, the company applied for the court’s sanction of a restructuring plan between it and its creditors and sought to avail itself of the “cram down” provisions in the 2006 Act. Five of the nine classes of creditors - all five being landlords - voted against the plan. Under it, the landlords would be “out of the money”, with all but one class forced to accept a reduced rent for a three year period or, in some cases, no rent at all.
The judge noted that in recent months “some plans have not been sanctioned by my colleagues…. because the court has an important role to play in ensuring that the broad cram down powers are being exercised properly and fairly”. Nevertheless, having reviewed the evidence, the judge concluded that the likely alternative in this instance was administration and that the landlords would be no worse off under the plan than they would be under the company’s administration. The landlords’ opposition was therefore overridden and the court’s discretion was exercised in favour of sanctioning the scheme.
Unfortunately for commercial landlords this appears to be a recurring theme. A few days later, in In the Matter of Prezzo Investco Limited [2023] EWHC 1679 (Ch) the court sanctioned a restructuring plan under which the amounts owed to landlords of lossmaking sites, amounting to over £32million, were completely written off.
The Social Housing (Regulation) Bill received Royal Assent on July 20, 2023.
At the time of writing we await publication of the full text of the Act but in summary it is intended to establish a new approach to regulating social housing landlords. The overarching aim is to “reform the regulatory regime to drive significant change in landlord behaviour to focus on the needs of their tenants and ensure landlords are held to account for their performance”.
The Act seeks to achieve that aim through three core objectives:
We will report further once the text of the Act is available.
Publication
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Publication
On February 2, 2024, the Belgian Presidency of the Council of the European Union confirmed that the Committee of Permanent Representatives had signed the Artificial Intelligence (AI) Regulation, referred to as the AI Act. Approval by the EU Parliament followed on 13 March 2024, and the AI Act is likely to appear in the EU’s Official Journal around May 2024. The AI Act aims to establish a stringent legal framework governing the development, marketing, and utilisation of artificial intelligence within the region, thereby marking a significant advancement in the regulation of this burgeoning domain.
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