Change of Corporate Control Reminder
The Gambling Commission has issued a reminder in its fortnightly E-bulletin (4 April 2022) about the requirements on a Change of Corporate Control (“CoCC”), indicating a tougher approach where applications are late.
Under section 102 of the Gambling Act 2005, a CoCC takes place when a new person or other legal entity becomes a new “controller” of the licensee. The definition of a controller stems from complex financial services legislation and, broadly speaking, it means a person or entity that holds:
- 10% of more of the shares in the licensee or in a parent company of the licensee (i.e. directly or indirectly);
- 10% of more of the voting power in the licensee or in a parent company of the licensee; or
- less than 10%, but able to exercise significant influence over the management of the licensee.
The Gambling Commission is reminding licensees that a CoCC must be notified to them, via eServices, by means of a key event within five working days of the event happening. They must also submit a CoCC application within five weeks of the event occurring.
At present, where an application for a CoCC is late, licensees are able to explain the delay and obtain an extension of time for the application, in the words of the Gambling Commission, where an “adequate and reasonable” explanation is provided.
From July 2022, the Gambling Commission have warned that their approach to late submissions will become stricter, due, they claim, to an increase in the complexity and number of applications. Where the explanation is not considered to be “adequate or reasonable”, there will be a refusal to grant an extension and revocation of the licence where the new controller is unknown to the Gambling Commission (i.e not already a licensee) and is not:
- Regulated by the Financial Conduct Authority; or
- An immediate family member entering a small family business.
This is important because of the binary choice facing the Gambling Commission in determining a CoCC application; they may, in law, only grant the application, or refuse it. If the latter, the licence is revoked. The consequences for licensees are therefore potentially catastrophic. It is therefore to be regretted that the apparent reasoning for this change on the part of the Gambling Commission is the burden of their own workload. The consideration of a CoCC application is a statutory duty for them, and the subject of often huge application fees. Ironically, the complex applications which concern the Gambling Commission are generally those pertaining to larger, often international, licensees regulated in numerous well-respected jurisdictions. These licensees are very often owned by publicly traded companies, who submit numerous CoCC applications, in relation to their blue-chip institutional investors or acquisitions they have made in the sector. A stricter approach that could put the licences of such licensees at risk merits greater justification than the workload of the Gambling Commission.
The Gambling Commission have never provided an explanation of their view as to what constitutes an “adequate or reasonable” explanation, nor do they offer any guidance now as to its meaning, or as to what the change will mean in practice or who will make such a determination. The Gambling Commission’s Corporate Governance Framework (last revised in January 2022) states that an out of time extension request may be granted by a “Regulatory Manager or above”. However, it does not state who has the delegated authority to refuse such a request and issue a “minded to revoke” letter. The framework goes on to say “[w]here, in response to such a letter, the licence holder requests a hearing, this will be before an Executive Director who will determine the case, otherwise a Senior Manager or above may take the decision.”
In our experience, the Gambling Commission have generally been understanding as to missed applications, particularly in complex, often international corporate groups, where restructuring somewhere in the chain of ownership may not necessarily be notified to those responsible for compliance in Britain, or where shares are publicly traded on a stock exchange with quarterly reporting periods.
In her blog last year, Changes of Corporate Control: The Basics, Bahar Alaeddini recorded our then experience that the Gambling Commission had become stricter in their approach to application deadlines, recommending that licensees take steps to ensure awareness of changes of control and ensure their ability to comply with application deadlines. Bahar recorded then that “the Gambling Commission is no longer generous in giving extensions, sometimes with extension requests being refused, so their goodwill cannot be relied upon.” This statement by the Gambling Commission confirms the reality of what we had experienced.
It may be that the Gambling Commission will continue to be sympathetic to inadvertent failures to meet the statutory deadline on a CoCC application, particularly where the delay is short, or due to share fluctuations, and in circumstances where, as frequently happens, the same institutional investors from time to time trigger a new CoCC. Where we suspect they will look less favourably on late applications, is when licensees discover several CoCCs missed over a considerable period of time or repeated failures; this the Gambling Commission might regard as evidence of more serious governance and compliance failure. In any event we strongly advise all licensees to check that they have appropriate means of identifying and addressing CoCCs. In the unfortunate event that any are or have been missed, immediate legal advice should be sought.
Please get in touch with us if you believe you have failed to comply with the statutory deadline or require assistance preparing a CoCC application.