06Apr

Change of Corporate Control Reminder

6th April 2022 Julian Harris 236

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.

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 “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.

09Mar

Changes of Corporate Control: The Basics

9th March 2021 Bahar Alaeddini 298

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.

5-week deadline

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.