As part of the global transparency push, the G20 has committed to implement rules requiring the disclosure of beneficial ownership of legal entities (in addition to automatic exchange of financial account information and the BEPS related transparency measures). On 13 February 2017, Treasury released a consultation paper dealing with part of this agenda – to consult on means to establish a register of beneficial ownership of companies.
The English High Court has recently refused to grant letters of administration to a deceased's daughter (the "Claimant") despite her having the highest entitlement to the deceased's estate. The dispute involved a challenge by the alleged widower of the deceased (the "Defendant"), who was found not to have been validly married to the deceased. Therefore the Court declined to grant the Defendant letters of administration. Nonetheless, the Court found that the Claimant had deliberately lied to Court and thus also declined to grant her letters of administration. Instead, the Court exercised its jurisdiction to appoint "some other person" as administrator. This case is a reminder that all parties need to act lawfully and properly when presenting evidence or face the consequences.
The Hong Kong Court of Appeal ("CA") in Ip Fung Kuen v Sam Kee Frozen Meat Co Ltd and others (CACV 107/2016) recently affirmed the well-established principles of express, constructive and resulting trust under Hong Kong law. As well as confirming those principles, the judgment is also noteworthy because of the CA's confirmation of the Court of First Instance ("CFI")'s finding that the plaintiff's lack of education and sophistication in comparison with the appellant (a company established and controlled by the plaintiff's eldest brother) was relevant to whether a trust was established. The CA upheld the CFI's ruling that the appellant held the disputed property in trust for the plaintiff.
A former solicitor and disability claims tribunal judge, and her husband, forged a will and letter to obtain two adjacent cottages in order to create one, large retirement home for themselves. On conviction, they were sentenced to six month's jail, the maximum sentence. This case should remind readers of the serious penalties for forgery.
The fraud was committed by Margaret Hampshire, and her husband, Alan Hampshire.
The first cottage was owned by Martin Blanche, who died in 2007. Mrs Hampshire administered Mr Blanche's estate and claimed to have found a will while clearing out the contents of Mr Blanche's home following his death. Under the "will" Mr Blanche purportedly left the first cottage and his share in the second cottage to his cousin, Josephine Burroughs. Mrs Hampshire and Ms Burroughs were also related.
There was doubt cast at the time as to the validity of the will. It was widely believed Mr Blanche was illiterate, therefore unlikely to have written a will. Nonetheless the will was admitted to probate and both properties were transferred into Ms Burroughs' name.
The second cottage was part owned by Mr Blanche and Ms Burroughs. Mrs Hampshire had been granted power of attorney over the affairs of Ms Burroughs.
Following the transfer of both cottages into Ms Burroughs' name, Mrs Hampshire produced a letter, purportedly typed by Ms Burroughs, to the effect of "I have thought about Martin and the cottages at Rolleston and as we discussed I definitely do not want anything to do with it…I think it's fair for you to have it, and I am happy for Sarah [the Hampshires’ daughter], to have them if that is what you want." The letter was dated 24 February 2007 and apparently signed by Ms Burroughs. Mrs Hampshire later admitted that she had written it in 2009 and that Ms Burroughs' signature had been forged.
Abuse of power of attorney
Mrs Hampshire subsequently used her power of attorney over Ms Burroughs' affairs to transfer ownership of both cottages to her daughter, Sarah Hampshire, to avoid inheritance tax.
In 2012 Mr Hampshire stole £23,176 from Ms Burroughs' bank account to fund the conversion of the two cottages into one, large cottage.
Ms Burroughs died in January 2014, prior to the discovery of the forgery and fraud.
In 2016 the Hampshires sold their home and moved into the renovated cottage, following which their offences were discovered due to a dispute with a neighbour.
Although Mr and Mrs Hampshire initially denied the claims, they eventually pleaded guilty at trial in November 2016. Mrs Hampshire pleaded guilty to two counts of forgery and one count of fraud. Mr Hampshire admitted forgery and two counts of theft.
Timothy Greene QC, for Mrs Hampshire, argued that there had been no intention to cause financial harm and that Ms Burroughs had been telling third parties that she wanted to leave the property to Mrs Hampshire. Mr Greene QC argued that "This was the first example of her smoothing the passage, improperly proved, to enable her to achieve the end that would have been achieved in any event." However there was the issue of whether Ms Burroughs had wanted the cottages transferred before or after her death.
Similarly, Peter Lownds, for Mrs Hampshire, alleged he had forged the will for "reasons of expediency" and that "There was no will. Having a will meant the administration of the estate could be conducted in a speedier and more straightforward manner." Mr Lownds stated, in relation to the will, that his understanding was "…It was her words, and his handwriting."
On 20 December 2016 Senior Circuit Judge Gregory Dickinson QC sentenced the Hampshires to three concurrent jail terms of six months each.
Judge Dickinson QC admonished Mrs Hampshire in particular for committing the offences while still employed by the Ministry of Justice as a disability claims tribunal Judge and for abusing her position of attorney to Ms Burroughs. Judge Dickinson QC told Mrs Hampshire that "You actually played fast and loose with the Land Registry, probate service and your own cousin's affairs", "You abused your knowledge and experience gained as a solicitor, forgetting or ignoring the need to act with integrity" and "Your terrible fall from grace and your age cannot save you from an immediate custodial sentence."
Judge Dickinson QC also made findings against Mr Hampshire, concluding that he had written the will at the direction of Mrs Hampshire and that Mr Hampshire had stolen £23,000 from Ms Burroughs' account, which was "an appalling abuse of a position of trust".
A further hearing is to be held in 2017 as to whether the Hampshires will be required to pay compensation and forfeit the cottages.
As Judge Dickinson QC sentenced both defendants to the maximum jail term of six months under section 6 of the Forgery and Counterfeiting Act 1981, it appears that the Court did not accept the defendants' pleaded mitigating factors of expediency and inevitability. It goes without saying that a potential beneficiary should not seek to expedite the transfer of any property or benefits by forgery and the consequences of doing so can be severe.
For more information, please contact Richard Norridge, Joanna Caen or your usual Herbert Smith Freehills contact.
Government launches consultation on enhancing transparency of beneficial ownership of Hong Kong companies
The Government has launched a two month consultation exercise on proposals to enhance the transparency of beneficial ownership of Hong Kong incorporated companies. This is part of a number of reform proposals aimed at bringing Hong Kong in line with international standards to combat money laundering and terrorist financing. With a mutual evaluation of Hong Kong’s regime with other members of the Financial Action Task Force (FATF) looming in 2018, the Government is keen to enhance Hong Kong’s regime to require transparency of beneficial ownership in line with FATF’s standards.
The consultation paper proposes amending the Companies Ordinance (Cap 622). Under the proposals, all Hong Kong incorporated companies (other than listed companies who will be exempt) will be required to obtain and hold beneficial ownership information which will be available for public inspection. The regime will be backed by criminal sanctions for non-compliance.
Summary of the key features of the proposals to enhance transparency of beneficial ownership
Applies to Hong Kong incorporated companies – The proposals apply to all companies incorporated in Hong Kong including companies limited by shares, companies limited by guarantee and unlimited companies. Listed companies, however, will be exempt given the existing regime imposed on them under the Securities and Futures Ordinance (Cap 571) for the disclosure of interests and related registers and record keeping.
Company to identify and keep a register of people with significant control – Under the proposals, companies would be required to identify and keep a register (PSC register) of persons with significant control over the company. Persons with significant control means any individual who falls within the definition of beneficial owner detailed below (registrable individual). To capture indirect holdings through corporate structures, the PSC register should also include details of any entity meeting the beneficial ownership definition (registrable legal entity). To ease the administrative burden, only an entity which is immediately above the company in the company’s ownership chain needs to be included.
Definition of beneficial owner – The beneficial owner definition proposed is similar to FATF’s definition. It catches any individual who meets one or more of the following conditions:
directly or indirectly holds more than 25% of the shares in the company;
directly or indirectly holds more than 25% of the voting rights in the company;
directly or indirectly holds the right to appoint or remove a majority of directors;
otherwise has the right to exercise or actually exercises significant influence or control; or
has the right to exercise or actually exercises significant influence or control over the activities of a trust or firm that is not a legal person but whose trustees or members satisfy any of the above conditions in relation to the company, or would do if they were individuals.
Details required in the PSC register – The company will need to establish and record in the PSC register information about the registrable individuals and registrable legal entities including name; identity card or passport details or company registration number; correspondence or registered address; date of becoming registrable and the nature of the control. Where there is no registrable individual or legal entity, that fact must be stated in the PSC register. The PSC register must be kept in English or Chinese.
Company to verify beneficial ownership information – Information must only be included in the PSC register once provided by the registered individual or ascertained by the company. The company will be required to take reasonable steps to identify and ascertain its registrable individuals and registrable legal entities. The consultation paper cites examples of possible steps a company could take including reviewing a company’s register of members, articles of association, statement of capital and relevant agreements or by sending a notice to persons seeking confirmations of ownership.
Notice to persons to confirm beneficial ownership – A company will be able to serve a notice on any person or entity that the company knows or has reasonable grounds to believe either is registrable or knows of a person or entity that is registrable. The consultation proposes that non-compliance by a recipient or the provision of misleading, false or deceptive information in response will attract criminal penalties as a means of ensuring the regime is effective.
PSC register to be open for public inspection – The consultation paper proposes that the PSC register is available for public inspection on payment of a fee (or for free for members of the company or any person on the PSC register). As with the existing register of members, the location of the PSC register would need to be notified to the Registrar of Companies. However, the information in the PSC register does not need to be filed with the Registrar of Companies.
Criminal sanctions for non-compliance – The Government is proposing criminal sanctions for breaches of the regime similar to those that currently apply to maintenance of the existing statutory registers. Sanctions would include penalties for non-compliance which will apply to the company, its responsible officers and any person who knowingly or recklessly makes a misleading, false or deceptive material particular in the PSC register.
Timeframe for the reforms
The consultation is open for comments until 5 March 2017 and the Government seems set to move quickly towards introducing a bill into the Legislative Council in the second quarter of 2017. With the mutual evaluation of Hong Kong’s regime with other FATF members fast approaching in 2018, the Government is under time pressure to push through these changes.
Other reform proposals
To ensure consistency in the regulatory regimes, the current definition of beneficial owner in the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap 615) (AMLO) may be increased from 10% to 25% consistent with the proposed level for beneficial ownership under the Company Ordinance.
Further, the Government has also simultaneously launched a consultation setting out proposals to enhance the anti-money laundering regulatory regime under the AMLO. The AMLO currently only applies to financial institutions and the Government proposes to extend aspects of this to certain non-financial businesses and professions. This would provide a statutory obligation on solicitors, accountants, real estate agents and trust or company service providers to carry out due diligence on their clients before they engage in certain types of transactions. The Government is also proposing that trust or company service providers become subject to a licencing regime. We will discuss these proposals in more detail in an upcoming e-bulletin.
In efforts to increase the “public awareness of corporate tax issues,” tax transparency has been a popular policy option to “maintain public pressure on aggressive tax practices”. Whilst the focus has typically been on large multinationals, broader tax transparency measures that could apply to Private Groups are far from being ruled out.
The BVI Court of Appeal has recently allowed an appeal concerning a trustee's failure to account and breach of trust. The breach of trust arose as a result of the trustee making an appointment of the trust assets without considering all relevant circumstances. In overturning the decision, the Court noted that if a settlor transfers further property to the trustee, a presumption arises that such property is to be held on trust under the same terms as the original trust. Such presumption can be rebutted, but the burden of proof rests with the trustee to do so.
The case has interest for private wealth matters regardless of jurisdiction, given the popularity of the BVI when structuring assets.
The ATO has once again shown Private Groups that it is committed to greater transparency – however only this time, it is the ATO that is being transparent. Late last week, the ATO released a list of behaviours, characteristics and tax issues that will attract its attention in relation to Private Groups. The release can be found here.
The Court of Appeal of Hong Kong has recently upheld a decision appointing a son to be the Committee to take care of his incapacitated mother's affairs. This was despite protest from the son's sibling, who claimed the son was an inappropriate person to be the Committee. The sibling also contested that their mother did not lack capacity and thus a subsequent Will in the sibling's favour was valid.
The County Court at Cardiff has recently ordered a solicitor to comply with the Legal Ombudsman's direction to complete the administration of an estate. Failure to do so would result in imprisonment for 14 days. The case re-enforces the importance of complying with the Legal Ombudsman's directions in relation to estate administration and illustrates how the Court is willing to enforce such directions.