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Welcome to EQUITY ISSUES, a short note on a relevant issue in the private equity and venture capital industry.
If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.
Claire Cummings
020 7585 1406
claire.cummings@cummingslaw.com
www.cummingslaw.com
EQUITY ISSUES
Proposed changes to payment practices and performance reporting
Revised drafts of the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 (the “Regulations”) have been published this week, in conjunction with BEIS guidance for companies and LLPs that will have to comply with the Regulations in relation to financial years beginning on or after 6 April 2017. The previous drafts of the regulations were published in December 2016 as part of the government response to the consultation on the duty to report on payment practices and performance.
Background
In May 2014, the government committed itself to developing a new framework on payment practices and policies and imposed a requirement on companies and LLPs to publish information about their payment practices and policies in section 3 of the Small Business, Enterprise and Employment Act 2015.
In November 2014, BIS (BEIS’ predecessor) sought views on draft regulations implementing this new reporting requirement and the government then published its plans for such implementation, taking into account responses received to the BIS consultation, in March 2015. The Small Business, Enterprise and Employment Act 2015 came into force on 26 May 2015 and BEIS published the government response to its draft regulations on payment practices and policies in December 2016. The revised draft regulations have been published, along with guidance issued by BEIS, in response to the government’s response.
The new reporting requirements
According to BEIS guidance, the reporting requirements apply to large companies (private, public or quoted) and LLPs. ‘Large’ means that the company or LLP has exceeded two or all of the thresholds relation to turnover, balance sheet and average number of employees for a medium-sized company as per s.465(3) of the Companies Act 2006 on both of its last two balance sheet dates.
Companies and LLPs in scope then have a duty to report and publish information about their payment practices and performance in relation to qualifying contracts. A ‘qualifying contract’ is one that:
1. is between 2 or more businesses;
2. has a significant connection within the UK;
3. is for goods, services or intangible property (including IP); and
4. is not for financial services.
The information which must be provided is as prescribed in the draft Regulations and the guidance sets out examples of how the required statistics should be calculated and presented. Qualifying firms must provide information in respect of each reporting period and there will generally be two reporting periods in each financial year.
Changes to the revised draft Regulations
In addition to some minor drafting amendments, the revised draft Regulations contain the following changes to the draft regulations published in December 2016:
1. The definition of “payment period” has been moved from the interpretation clause in the main body of the regulations to the interpretation clause in the schedule.
2. Regulation 4 (Approval of the information) has been amended to clarify that a director of a qualifying company must approve the information for a reporting period before that information is published.
3. Regulation 8 (Failure to publish a report) has been amended by the removal of the provision that it is not a defence to prove that the information in question was not in fact prepared as required by regulation 3.
4. Regulation 11 (Review) continues to provide that the Secretary of State must review the regulations before 6 April 2022 but removes the requirement that subsequent reviews should take place at intervals not exceeding five years.
5. A new paragraph 12 inserted in the schedule requires that the name of the director who approves the information for a reporting period should be published as part of the information.
Next Steps
The draft Regulations, which have been laid before Parliament, are intended to enter into force on 6 April 2017. The government intends to make a web service available from that time for businesses to publish the information.
This document is for general guidance only. It does not contain definitive advice.
________________________________________
Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
6 February 2017
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