Section 121, Building Safety Act 2022 Associated persons

(1) For the purposes of sections 122 to 125 and Schedule 8, a partnership or body corporate is associated with another person in the circumstances mentioned in subsections (2) to (5).

(2) Where a person’s interest in a relevant building was held on trust at the qualifying time, any partnership or body corporate which was a beneficiary of the trust at that time is to be regarded, for the purposes of the provisions mentioned in subsection (1) as they apply in relation to the relevant building, as associated with the person.

(3) A partnership is associated with any person who was a partner in the partnership, other than a limited partner, at any time in the period of 5 years ending at the qualifying time (“the relevant period”).

(4) A body corporate is associated with any person who was a director of the body corporate at any time in the relevant period.

(5) A body corporate is associated with another body corporate if—

(a) at any time in the relevant period a person was a director of both of them, or

(b) at the qualifying time, one of them controlled the other or a third body corporate controlled both of them.

Subsections (6) to (8) set out the cases in which a body corporate is regarded as controlling another body corporate.

(6) A body corporate (X) controls a company (Y) if X possesses or is entitled to acquire—

(a) at least half of the issued share capital of Y,

(b) such rights as would entitle X to exercise at least half of the votes exercisable in general meetings of Y,

(c) such part of the issued share capital of Y as would entitle X to at least half of the amount distributed, if the whole of the income of Y were in fact distributed among the shareholders, or

(d) such rights as would, in the event of the winding up of Y or in any other circumstances, entitle it to receive at least half of the assets of Y which would then be available for distribution among the shareholders.

(7) A body corporate (X) controls a limited liability partnership (Y) if X—

(a) holds a majority of the voting rights in Y,

(b) is a member of Y and has a right to appoint or remove a majority of other members, or

(c) is a member of Y and controls alone, or pursuant to an agreement with other members, a majority of the voting rights in Y.

(8) A body corporate (X) controls another body corporate (Y) if X has the power, directly or indirectly, to secure that the affairs of Y are conducted in accordance with X’s wishes.

(9) In subsection (7) a reference to “voting rights” is to the rights conferred on members in respect of their interest in a limited liability partnership to vote on those matters which are to be decided on by a vote of the members of the limited liability partnership.

(10) In determining whether one body corporate (X) controls another, X is treated as possessing—

(a) any rights and powers possessed by a person as nominee for it, and

(b) any rights and powers possessed by a body corporate which it controls (including rights and powers which such a body corporate would be taken to possess by virtue of this paragraph).

(11) In this section “partnership” means—

(a) a partnership within the meaning of the Partnership Act 1890, or

(a) a limited partnership registered under the Limited Partnerships Act 1907,

or a firm or entity of a similar character formed under the law of a country or territory outside the United Kingdom (and the reference to “limited partner” is to be read accordingly).

(12) The Secretary of State may by regulations provide that, in relation to a prescribed reference in a provision mentioned in subsection (1) to anyone associated with another person, subsections (2) to (5) have effect with prescribed modifications.

Comes into force on 28 June 2022.

Applies to England and Wales. 

This is quite a potentially controversial section, because it has the potential to pierce the corporate veil.

The “veil” is totally unrelated to brides and marriage, nor to dances involving seven of them.

Seven is however a number that figures in the seminal case on the corporate veil. 

In Salomon v Salomon & Co Ltd [1897] AC 22, Mr Salomon, a sole trader, sold his leather business to Salomon & Co Ltd, a company of which the seven shareholders were himself and six members of his family. At the time, the law required a limited company to have at least seven shareholders.

When Salomon & Co Ltd fell on bad times, the liquidator attempted to unravel the company by alleging that Mr Salomon’s sale of his business to the limited company was a fraud upon the creditors.

The liquidator alleged that the six familial shareholders were mere “dummies”, and that Mr Salomon had incorporated Salomon & Co Ltd simply in order to be able to trade with limited liability.

The House of Lords declined to unravel the company: there had been no fraud on the creditors, who knew that they were dealing with a limited company.

Lord Halsbury, Lord Chancellor, said:

“Once the company is legally incorporated it must be treated like any other independent person with its rights and liabilities appropriate to itself, and that the motives of those who took part in the promotion of the company are absolutely irrelevant in discussing what those rights and liabilities are.”

Having set out above the principle established 125 years ago by the House of Lords, in section 121 we have a statutory reversing of it.

Let’s start with the limitations again: this section only applies for the purposes of sections 122-125 and Schedule 8.

It also introduces a new timeframe: the “qualifying period”, defined as “any time in the period of 5 years ending at the qualifying time”.

The qualifying time is “the beginning of 14 February 2022”.

We therefore have a definition that uses another defined term to create a further defined term, which is not necessarily what we were looking for here. 

The first association is between trustee and beneficiary.

The first person to identify is the owner of the legal title to a relevant building, which is generally the name in the ownership register at HM Land Registry.

If that person holds on trust a property interest in the building – for example the freehold, or a lease of the whole or part, the second person to identify is the beneficiary of that trust. That is not always a straightforward exercise, particularly if the trust is offshore.

If the beneficiary of the trust is a partnership or body corporate, it is considered to be “associated” with the trustee.

It is helpful to start with the definition of “partnership”, which, in section 121 means—

• “a partnership within the meaning of the Partnership Act 1890, or
• “a limited partnership registered under the Limited Partnerships Act 1907,
• “or a firm or entity of a similar character formed under the law of a country or territory outside the United Kingdom (and the reference to “limited partner” is to be read accordingly).”

Note to self: this definition does not include limited liability partnerships.

Plain ol’ partnerships

By section 1 of the Partnership Act 1890:

(1)  Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.

(2)  But the relation between members of any company or association which is—

(a)  registered under the Companies Act 2006, or

(b)   Formed or incorporated by or in pursuance of any other Act of Parliament or letters patent, or Royal Charter; 

is not a partnership within the meaning of this Act.

Limited Partnerships

Section 4 of the Limited Partnerships Act 1907 defines a limited partnership.

The following are useful extracts from that definition:

(2) A limited partnership must consist of one or more persons called general partners, who shall be liable for all debts and obligations of the firm, and one or more persons to be called limited partners

(2A) Each limited partner in a limited partnership that is not a private fund limited partnership shall, at the time of entering into the partnership, contribute to the partnership a sum or sums as capital or property valued at a stated amount, and shall not be liable for the debts or obligations of the firm beyond the amount so contributed.

(3) Subject to subsection (3A), a limited partner shall not during the continuance of the partnership, either directly or indirectly, draw out or receive back any part of his contribution, and if he does so draw out or receive back any such part shall be liable for the debts and obligations of the firm up to the amount so drawn out or received back.

(3A) In the case of a limited partner in a private fund limited partnership—

(a) where the limited partnership was registered on or after 6th April 2017, subsection (3) does not apply;

(b) where the limited partnership was registered before 6th April 2017, subsection (3) applies only in relation to the amount of any contribution made by the limited partner when the limited partnership was not a private fund limited partnership.

(4) A body corporate may be a limited partner.

The 1907 Act details private fund limited partnerships. I do not propose to do that here. This is a post about the Building Safety Act 2022, not the Limited Partnerships Act 1907.

Before I move on however, I’d like to flat an important distinction: the Limited Partnerships Act 1907 is a different creature to the Limited Liability Partnership Act 2000. Limited liability partnerships are not partnerships under section 121. They’re bodies corporate, as we will see. 

Now that the terms are defined, the associations can be tracked. They are simple.

First, take your person.

Next, establish whether they were a partner in a partnership at any time in the 5 year period up to the beginning of 14 February 2022.

If they were, the partnership is associated with that person.

Limited partners under the Limited Partnership Act 1907 are excluded.

I cannot find a definition for “body corporate” in the Act, but in the Companies Acts 2006, section 1173 (Minor definitions, general), the definition that applies in the Companies Acts is this:

““body corporate” and “corporation” include a body incorporated outside the United Kingdom, but do not include–

“(a) a corporation sole, or

“(b) a partnership that, whether or not a legal person, is not regarded as a body corporate under the law by which it is governed.”

Limited companies – whether limited by shares or guarantee – will therefore be “bodies corporate”.

It is under this heading that we find limited liability partnerships.

By section 1(2) of the Limited Liability Partnerships Act 2000:

“A limited liability partnership is a body corporate (with legal personality separate from that of its members)…”

Section 121 associates two groups of person with bodies corporate.

Directors

First up are directors.

By subsection (4), a person who was a director of a body corporate at any time during the “relevant period” will cause that body corporate to be associated with them.

By subsection 5(a), a person who was a director of two bodies corporate at any time during the “relevant period” will cause both bodies corporate to be associated with each other.

Bodies corporate

The second group comprises only bodies corporate.

Subsection 5(b) reads deceptively simply:

“A body corporate is associated with another body corporate if—

“(b) at the qualifying time, one of them controlled the other or a third body corporate controlled both of them.”

The complexities of company law mean however that the subsections 6 to 10 are needed to explain the “control” that is required for bodies corporate to be associated with other bodies corporate.

Subsection 6 sets out the circumstances in which a body corporate controls a company.

Subsection 7 sets out the circumstances in which a body corporate controls a limited liability partnership.

Subsection 8 sets out the circumstances in which a body corporate controls another body corporate, which will therefore encompass both a limited company and a limited liability partnership.

Subsection 9 explains “voting rights” in the context of a limited liability partnership.

Subsection 10 looks up and down the body corporate chain of control. Let’s not go there just yet.

There are four cases where a body corporate can be said to control a company – and therefore to be associated with it.

Share capital

Body corporate X controls company Y if X possesses or is entitled to acquire:

• At least half of the issued share capital of Y.
• So much of Y’s issued share capital that it, X, would be entitled to at least half of Y’s income, if that all of that income were to be distributed amongst Y’s shareholders.

Rights

Body corporate X also controls company Y if X possesses or is entitled to acquire:

• Rights that would entitle it to exercise at least half of the votes that may be exercised in Y’s general meetings.
• Rights that would entitle it to at least half of Y’s assets, were Y to be wound up and its assets made available for distribution among its shareholders.

For reasons best known to Parliament, we move away from the “relevant period” for limited liability partnerships – we’re back to the qualifying time, which is “the beginning of 14 February 2022”.

There are just three situations where it can be said that a body corporate controls a limited liability partnership, which is a partnership formed under the Limited Liability Partnership Act 2000 – not the Limited Partnerships Act 1907.

Powers of appointment

The first situation relates to powers of appointment.

If, at the qualifying time X was a member of Y and had the right to appoint or remove a majority of the other members of Y, X controlled Y.

Voting rights

The remaining two situations relate to voting rights:

• Where the body corporate X holds a majority of the voting rights in the limited liability partnership Y.
• Where X is a member of Y and controls a majority of those voting rights. That control may be either sole control, or control under an agreement with other members of Y.

Subsection 9 tries to define “voting rights”. I think that I can summarise them relatively succinctly by saying that they are the rights enjoyed by members of the LLP to vote on issues for which the terms of the LLP require a vote.

In addition to all of the above, which is quite a lot, we have a catch-all provisions about control that apply across the board to all bodies corporate.

It rather feels in subsection 8 as if the draftsman has thrown up his hands. It reads:

“A body corporate (X) controls another body corporate (Y) if X has the power, directly or indirectly, to secure that the affairs of Y are conducted in accordance with X’s wishes.”

The subtext reads: one body corporate controls another if there is “any other way in which that body corporate might have been able to control another”.

Subsection 10 directly addresses bodies corporate who exercise control through nominees.

The purpose is presumably to prevent bodies corporate from exercising power – and avoiding liability – through nominees, as opposed to using their corporate name, for whatever reason that might be.

It also catches body corporate X if it controls body corporate Y.

Finally, as if section 121 were not detailed enough, subsection 12 confers on the Secretary of State the power to make regulations on associated persons.

If they do so, you’ll find me in a darkened room with a cold towel applied to my forehead.