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01 Aug 2023

Economic Crime – Register of Overseas Entities – Don't forget to update!

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The scenario

You're a fund manager. Your fund vehicle is an overseas entity and you're looking to buy a property from another overseas entity in the coming weeks.

The background

You remember rushing to get your fund registered on the "Register of Overseas Entities" this time last year, to satisfy the requirements of the Economic Crime (Transparency and Enforcement) Act 2022 ("ECA") (for a nostalgic review, click here).

The good news is that you, together with more than 28,000 other entities, have now successfully registered. 

You've checked at Companies House and you can see that the seller is also registered.

So, you breathe a sigh of relief and can get on with your core business of buying and selling, right?

The next step…

Wrong. The obligation to register as an overseas entity was just the first step. 

Overseas entities are obliged to update their information every 12 months, starting from the date that they were first registered.

Nil returns…

OK, so you've checked the information for your own fund and asked the seller to do the same. As you expected, the registerable beneficial owners are still the same and nothing else has changed. So now can you just get on with it?

No. Even if there haven't been any changes you both still need to file a confirmatory statement at Companies House. The statement must reflect the state of affairs as at the end of the 12 month update period and must be filed within 14 days of the end of that period. Typically (but with some exceptions) you can file the statement online, and Companies House has recently produced a guidance note.

Of course, if there have been changes, details of those would need to be provided. 

When?

The register only opened on 1 August 2022, so the updating duty can't arise before 1 August 2023. 

But, from now on, the details of the relevant overseas entity need to be checked at companies house to see when its annual update is due by. The update will be due 14 days after the anniversary of first registration.

Why?

Even if you don't anticipate a sale or other transaction, not complying with the updating obligations is a criminal offence committed by every officer of the registered overseas entity. The potential penalties include a fine and an additional fine for every day of default.

In addition, until the required updating information has been provided, the relevant entity won't be deemed to be a "registered overseas entity" anymore. That effectively means that the relevant entity won't be able to comply with the land registry restrictions on title which will effectively prevent selling/leasing (etc), and any attempt to carry out transactions in breach of a restriction will constitute a further criminal offence.

The key message…

Be proactive. Take control in order to avoid a late stage stumbling block on transactions.  Make sure you know when your update is due and that you're ready to complete it.  Remember that you may need to serve notices on third parties and to give them time to respond (typically one month) so give yourself plenty of time.

If you're dealing with an overseas entity on the other side of a deal, check when their update is due. Make sure that the overseas entity is aware of its obligations and is ready and able to comply with them … and, of course, ask your lawyers to include appropriate contractual protections in your sale and purchase contracts and agreements for lease.

This is a broad overview and a lot depends on individual facts and circumstances. For detailed advice about how the ECA affects you or for further information please get in touch - our expert team would be delighted to help.

For further information please contact James Styles, Catriona Berman or your usual real estate contact at Stephenson Harwood.

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