BBC Sport recently reported a decidedly business oriented story: Rangers withdraw rights of four shareholders.
The ongoing shenanigans at Ibrox have attracted plenty commentary (including some on this blog), whilst showcasing aspects of Scots (and UK) law to an interested audience. In fact, I have periodically suggested – only half in jest – that enough content has been generated by L’Affaire Rangers to form the syllabus of a viable course at Law School. New-fangled advance notices over land, an important court case about security over a future income stream (i.e. season ticket money in years to come), tax law, and the operation of the Companies Act 2006 as regards directors’ duties or disqualification could all feature. So too could a story about the rights of shareholders under that legislation, which is central to company law in the UK.
Extracting from the BBC report:
Rangers have withdrawn the rights of four shareholders to vote, collect a dividend or trade their stake.
Formal requests for information about who ultimately owns the stakes in the company were sent to shareholders and four have so far not responded.
Until ownership information is provided, the shares held by the four companies are essentially worthless…
The shares held by the four groups represent 10.4% of the company.
Directors are trying to identify who owns the [8,500,000 shares].
Fan groups have regularly sought more information about the owners of [certain shareholding companies], who were among the original shareholders when Charles Green’s consortium bought the business and assets of Rangers Football Club plc as it entered liquidation.
[The shareholding companies] failed to respond when the directors sent the request for ownership information under section 793 of the Companies Act 2006.
It is a criminal offence to provide false information under the terms of the Act.
The articles of association of Rangers International Football Club allow the directors, in the event of a default of section 793 notices, to withdraw voting rights, dividend payments and the ability to register share trades. All four shareholders have been informed for their default and the restrictions will remain in place until the necessary ownership information is provided.
Here, we have an example of a system that is designed to flush out information about who controls an asset. The system has teeth: the relevant provisions nestled around section 793 can indeed withdraw the entitlements a shareholder would ordinarily expect.
Now, time for a land reform analogy.
The new Scottish Land Reform Bill contains provisions that are designed to flush out information about who controls land. Note that in the normal situation, who owns the land will be clear, as publication of ownership in a public register is a condition precedent for the acquisition of land rights in Scotland.
Hypothetically, that ownership entity might be a company that is registered overseas, does not enter into much correspondence, and does not publish accounts in the way a UK company is required to.
If that entity acts in that way, what sanction should they face (if any)?
Rangers provides a prime example of an owner being deprived of entitlements for not playing ball. Could such a system work for Scotland ‘s land?
The analogy between incorporeal company shares and tangible land is not exact, so some adaptation would clearly be needed. Further, the suspension of a statutory scheme (for shares) is simpler to demarcate than a sanction which would involve interfering with common law rights and obligations that have developed since before Lord Stair brought together his collected wisdom on matters Scots law in the 17th century. Be that as it may, it does provide something to think about, and a sanction along such lines could be more effective against a (hypothetical) rich, secretive landowner than a fixed financial penalty would be.
A final comment: this is of tangential relevance to the proposal of the Land Reform Review Group to restrict ownership of land in Scotland to natural persons and EU registered entities. That proposal seems to have been shelved, although some are arguing strongly for its inclusion in the final legislation.
What is that proposal’s relevance to this blog? Over-simplified, a robust system for encouraging the disclosure of controlling information seems less necessary if UK or EU disclosure requirements are already met by incorporating a landowning entity in a transparent jurisdiction in the first place.