The Registrar of Companies is creating a new Register of Overseas Entities (the “Register”) as part of the Government’s strategy to combat overseas finance in the UK property market originating from criminal or otherwise illicit sources.
We have previously examined what we already know about the forthcoming Register and while many of the new obligations will fall on overseas entities themselves, there are still potential new risks for lenders which can be minimised.
ACTIONS TO TAKE NOW
Identify relevant transactions
- Consider any transactions you entered into which involve overseas entities granting security over UK property in connection with a loan.
- (a) Did they acquire the property on or after 1 January 1999?
(b) Have they disposed of any property after 27 February this year?
If either (a) or (b), or both, apply then that overseas entity needs to apply to register within six months of the creation of the overseas entity register.
- Identifying which transactions are likely to be affected now will put you in a better position to respond effectively when the registration details are announced.
- Ensure that finance documents include a broad enough general statutory compliance wording to encompass the Act. Consider amending existing finance documents if the drafting is not broad enough to cover what the Act requires.
ACTIONS TO TAKE WHEN THE REGISTER STARTS
Request overseas entity ID numbers as CPs
- Overseas entities will upon registration be issued with an overseas entity ID number. Lenders should make the provision of this number a condition precedent to any transaction. This will prevent you from inadvertently making a loan to a restricted overseas entity.
Require compliance with update obligations
- Lenders should ensure that the overseas entity in question is complying with the annual updating requirements and provides you with evidence as needed on an individual basis or at regular intervals.
Restrict registerable leases granted out of the secured property
- Ensure that if a borrower you have lent to grants or consents to an assignment such a lease to an overseas entity it requires the lessee, before the making or assigning of the lease, to: (i) provide its overseas ID and (ii) agree to comply with the continual updating requirements of the registration regime.
- Be vigilant if you come across complex SPV hierarchy structures adopted by potential borrowers. Ensure evidence is provided about ultimate ownership and overseas entity ID numbers when applicable. This is one of the ways to avoid dealing with overseas entities that are not complying with the Act.
- Try to ensure the overseas entity takes on as much of the administrative compliance burden as possible, for example by providing evidence of their registration and agreeing to the continual updating requirements wherever needed. Ensure ongoing communications with you are maintained.
- Rather than waiting for further details on the Register to be released, start taking action now. The Hamlins Real Estate Finance team can assist you with reviewing your existing transactions to determine which, if any, are affected and what steps you can take to mitigate your risk.
If you have any questions about Overseas Entities, please get in touch with our Real Estate Finance team.