Changes of Corporate Control: The Basics
In our experience, there is often confusion regarding change of corporate control (“CoCC”) requirements and, in particular, what events trigger a CoCC. CoCCs are easy to miss in complex corporate structures. Further, often “the left hand does not talk to the right hand” and the relevant individuals within the business, such as the PMLs or Compliance Department, who are fully aware of the licensing implications, are not notified of an event that triggers a CoCC until after the event or, worse, after the deadline has passed.
In this blog we summarise the basics of CoCCs. This will be supplemented by further blogs on the Gambling Commission’s areas of focus and common pitfalls we have identified in our work on numerous CoCC applications.
We strongly recommend you always seek legal advice, if in any doubt, given the risk to your licence(s), as highlighted below.
What is a CoCC?
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 section 422 of the Financial Services and Markets Act 2000 (“FSMA”), which is financial services legislation. This is a complex provision, which even the Gambling Commission summarises incorrectly on its website and in its application forms.
Broadly speaking, section 422 of FSMA covers 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.
When considering whether a person or entity holds 10%, it is critical to consider:
- whether the threshold has been reached as filtered by the corporate layers (i.e. directly or indirectly in the licensee);
- cumulative interests; and
- equity interests and voting rights separately if they are not aligned at any point in the corporate structure.
Section 102(5) of the Gambling Act 2005 requires a licensee to submit a CoCC application to the Gambling Commission when there is a new controller within 5 weeks of the change occurring, for the licence(s) to continue to have effect. This is a statutory deadline.
Why is it important?
Pursuant to section 102(5), the Gambling Commission has the power to revoke the licence(s) – without a licence review – if a CoCC application, along with the application fee, has not been submitted within 5 weeks.
In our experience, the Gambling Commission has become increasingly stricter with CoCC application deadlines and we would strongly recommend you comply with the statutory deadline. The Gambling Commission is no longer generous in giving extensions, sometimes with extension requests being refused, so their goodwill cannot be relied upon. Further, in our recent experience, the Gambling Commission no longer overlooks failures to apply in time, often issuing “advice as to conduct” for the failure to comply with section 102.
Given the potential ramifications, it is essential that someone, with detailed knowledge of the Gambling Commission’s licensing requirements, is monitoring changes in corporate structure promptly and liaising with your stakeholders, as required. You need to develop effective internal procedures, relative to the size and complexity of your business, to ensure that equity and voting interests are regularly monitored.
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.