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Practice direction on beneficial ownership – a missed direction

By Arvin Halkhoree

In 2017, the Companies Act was amended to provide that the share register of companies should disclose the names and last known addresses of the beneficial owners/ultimate beneficial owners where shares are held by a nominee. The term beneficial owner/ultimate beneficial owner was then defined as “a person who holds by himself or his nominee, a share or an interest in a share which entitles him to exercise not less than 25 per cent of the aggregate voting power exercisable at a meeting of shareholders”.  This information relating to beneficial owners or ultimate beneficial owners had to be lodged with the Registrar of Companies within 14 days from the date on which an entry or an alteration was made in the share register.

The Finance (Miscellaneous Provisions) Act 2019 brings further amendments to this requirement by adding that the company shall also keep an updated record of (a) beneficial ownership information, and (b) actions taken to identify a beneficial owner or an ultimate beneficial owner. Such information should be kept for a period of at least 7 years. For companies which have ceased to carry on business, their directors are under a legal duty to keep this information for a period of at least 7 years, failing which the director commits an offence and on conviction is liable to a fine not exceeding Rs 300,000. The 2019 amendment repeals the earlier definition of beneficial owner/ultimate beneficial owner as aforementioned and provides a new definition as follows:

“beneficial owner” or “ultimate beneficial owner” –

(a) means any natural person who ultimately owns or controls a company or the natural person on whose behalf a transaction or activity is being conducted in relation to a company;

(b) includes –

(i) the natural person who ultimately owns or controls a company through –

(A) direct or indirect ownership of such shares in such percentage as may be prescribed;

(B) voting rights;

(C) ownership interest; or

(D) control by other means;

(ii) where no natural person under paragraph (i) is identified, or if there is any doubt that the person identified is the beneficial owner, the natural person who controls the company in the manner one company controls another company under section 5;

(iii) where no person under paragraphs (i) and (ii) is identified, the natural person who acts as executive director or has equivalent executive powers;

The 2019 definition is far reaching and brings thereunder persons who would otherwise not have been considered as beneficial owners under the 2017 definition.

The Registrar of Companies has issued a Practice Direction (No. 1 of 2020) on 8 January 2020 which has been published as General Notice No. 16 of 2020 in the Government Gazette of 11 January 2020. This Practice Direction entitled “Disclosure of Beneficial Ownership information to the Registrar” is issued pursuant to “section 12(8) of Companies Act 2001, section 41A(4) of Limited Liability Partnership Act 2016, section 2 of Limited Partnerships Act and section 36(6) of the Foundation Act 2015”.

Before delving into the contents of this Practice Direction, suffice to say that there is no law in Mauritius under the name “Foundation Act”, but rather “Foundations Act” and we would assume that the Registrar was in fact referring to the Foundations Act 2012. There is no section 36(6) in the Foundations Act. In fact, it is section 24(4) thereof which provides that “the Registrar may, from time to time, issue Practice Directions setting out the procedure to be followed for the registration of documents or production of records under this Act.” Similarly, we assume that the Registrar meant “Limited Liability Partnerships Act 2016”  instead of “Limited Liability Partnership Act 2016” and section 41A(4) thereof simply defines the term beneficial owner or ultimate beneficial owner without providing for any powers to the Registrar to issue practice directions. It is section 8 which gives such a power to the Registrar. Section 2 of the Limited Partnerships Act of 2011 does not empower the Registrar to makes practice directions; instead it is section 8(3), which is couched in similar words as section 12(8) of the Companies Act, which provides that “The Registrar may, from time to time, issue Practice Directions setting out- (a) the form of notices required to be given to the Registrar under this Act; or (b) the procedure to be followed in registering documents or performing any act or thing required to be done under this Act.”

The Practice Direction contains 9 paragraphs and paragraph 1 provides that “every company or any other entity must enter in alphabetical order, the names of the Beneficial Owner or Ultimate Beneficial Owner in its register”. We note that in relation to companies, the Companies Act goes further to provide that not only the names must be entered but the last known address. Such a requirement is however not found in the Foundations Act, Limited Partnerships Act and the Limited Liability Partnerships Act. It is therefore unclear whether the Registrar is doing away with an express provision of the Companies Act which provides that the last known address should also be entered in the share register.

Paragraph 2 of the Practice Direction provides that “The CBRD should be informed of any new issue or transfer entailing a change in the Beneficial Ownership Information”. This paragraph introduces a new capitalized term- “Beneficial Ownership Information” which is not defined in any of the laws under which the Practice Direction is made. It is therefore unclear as to what information the Registrar is referring to when it refers to “Beneficial Ownership Information”. Whilst all the legislations to which the Practice Direction refer, make provision for such information to be “lodged with the Registrar”, we here note that it is the “CBRD” which should be informed. Paragraph 3 goes further to provide that such information is required “to be filed at the counter of the CBRD” and paragraph 6 provides that such information “must be communicated to the CBRD”. Neither the Companies Act, nor the Foundations Act, nor the Limited Partnerships Act, nor the Limited Liability Partnerships Act make any reference to “CBRD”. This term appears in the Business Registration Act which defines “CBRD” as the “Central Business Registration Database” which is established under section 5 of the said law. The Registrar could not have been referring to the CBRD as defined in the Business Registration Act inasmuch as it is defined as a database. The Registrar may possibly be referring to the Corporate and Business Registration Department which is a department of the Ministry of Finance, Economic Planning and Development and which is abbreviated as CBRD but the law should have to be laid down with a sufficient degree of clarity and should avoid any kind of guesswork.

Paragraph 4 of the Practice Direction provides for the circumstances in which the Registrar will disclose the beneficial ownership information to any third party, namely if required by the beneficial owner or the ultimate beneficial owner, for the purpose of an investigation or enquiry or if ordered by the judge in chambers. This would appear to be a surplusage as it adds nothing to the existing provisions under the Companies Act, Foundations Act, Limited Partnerships Act and the Limited Liability Partnerships Act, which allow for disclosure to third parties in these three circumstances.

Paragraph 5 provides that the beneficial ownership information should be kept for 7 years. Same is in line with the provisions of the Companies Act, Limited Liability Partnerships Act and the Limited Partnerships Act which provide for a similar retention period. However the Foundations Act provides that information and records have to be kept for a period of only 5 years. The question which therefore arises is whether the Registrar can in a Practice Direction, provide for a more onerous information retention period than what the legislator has provided in the Foundations Act.

Paragraph 7 defines beneficial or ultimate beneficial owner as “a natural person who holds by himself or his nominee a share or interest in a share which entitles him to exercise not less than 20% of the aggregate voting power in a meeting of shareholders/partners or council members”. This definition resembles the 2017 definition of beneficial owner save for the threshold which was 25%. It is apposite to note that the term beneficial owner is defined in the Foundations Act, the Limited Liability Partnerships Act and the Limited Partnerships Act by reference to the definition of beneficial owner in the Companies Act. Same has been reproduced verbatim hereinbefore. Can the Registrar, through a Practice Direction, curtail a far reaching definition which the legislator has provided in the parent legislation when the Registrar has not been provided with the necessary powers by the legislator to proceed with such curtailing?

Paragraph 8 provides that failure to comply with this Practice Direction “amounts to an offence which is liable to a fine not exceeding 300,000 rupees”. It is questionable whether the Registrar can by way of Practice Directions create an offence which otherwise is within the realm of the legislator to so provide either by way of primary legislation or delegate such power to the Minister to be exercised by way of regulations. Even then, the fine is applicable when the person is convicted for the offence by a court of law. This does not seem to be the case in this Practice Direction. The Companies Act, Limited Partnerships Act, Limited Liability Partnerships Act and the Foundations Act already provide that any failure to comply with their provisions may entail criminal prosecution and on conviction, the person will be liable to a fine. Whilst the Limited Liability Partnerships Act and the Limited Partnerships Act limits the fine to a maximum of Rs 200,000, the Companies Act limits it to a maximum of Rs 300,000 for breach of beneficial ownership information recording and disclosure and the Foundations Act limits the fine to a maximum of Rs 500,000. The other question which arises is how a court of law will administer a fine exceeding the penalty provided in the parent legislation, by relying on a Practice Direction of the Registrar.

Lastly paragraph 9 reads “This Practice Direction applies to a limited Partnership, a Foundation and a limited liability Partnership.” We humbly believe that it should instead have read “This Practice Direction also applies to a limited Partnership, a Foundation and a limited liability Partnership” if at all such a paragraph was to be included because the way it is drafted leads to the confusion as to whether it applies to companies, when the opening words of paragraph 1 are “Every Company or any other entity…” and the Practice Direction is issued inter alia under section 12(8) of the Companies Act but paragraph 9 omits to provide that it applies to companies.

To conclude, it is doubtful whether the Practice Direction in liteis setting out the procedure to be followed in … performing any act or thing required to be done under” the laws under which it has been issued. Further clarifications and (good) directions from the Registrar would be most welcomed.

Published in L’express newspaper on 20 February 2020.

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