Changes proposed by the Bill

1207.     The Bill confers new powers on the Secretary of State to bring to an end an investigation when it is no longer in the public interest to continue with it, to revoke the appointment of an inspector and to issue directions about the scope of an investigation, its duration and certain other matters.

1208.     The main purpose of these clauses is to give the Secretary of State power to take appropriate action where an investigation appears to be taking too long. The clauses also provide for situations not currently explicitly provided for, such as the resignation or death of inspectors, and the ability to appoint replacement inspectors.

1209.     The details of these changes and the circumstances in which the changes will apply are set out below.

Clause 676: Powers of Secretary of State to give directions to inspectors

1210.     Subsection (1) inserts new sections 446A and 446B into the 1985 Act, which provide new powers for the Secretary of State to give directions to inspectors with which they are obliged to comply (new section 446A(1)).

1211.     The power in new section 446A(2) is exercisable by the Secretary of State in relation to inspectors appointed under sections 431, 432(2) and 442(1). Directions under new section 446A(2) can either relate to the investigation itself or the inspectors' reports of the results of their investigations. Regarding the former, such directions can take two forms:

• a direction as to the subject matter of an investigation (whether by reference to a specified area of a company's operation, a specified transaction, a period of time or otherwise); or

• a direction which requires an inspector to take or not to take a specified step in his investigation.

1212.     As regards inspectors' reports the Secretary of State will have a power to secure that any report (new section 446A(3)):

• includes the inspector's views on a specified matter;

• does not include any reference to a specified matter;

• is made in a specified form or manner; or

• is made by a specified date.

1213.     New section 446A(4) enables directions by the Secretary of State to be capable of being given on an inspector's appointment. It also provides that directions may vary or revoke a direction previously given and may be given at the request of an inspector.

1214.     New section 446A(5) confirms that the scope of the term "investigation" will include any investigation undertaken under section 433(1) into the affairs of the company's holding company or subsidiary (or a subsidiary of its holding company or a holding company of its subsidiary).

1215.     New section 446B(1) will give the Secretary of State power to direct an inspector to take no further steps in an investigation, and the inspector shall comply with any direction given to him under this section (new section 446B(5)). However, if the appointment of inspectors is one that the Secretary of State is obliged to make (either because a court orders that a company's affairs ought to be so investigated or because the requisite number of its members has applied for an investigation into its ownership), such a direction can only be given if matters have come to light in the course of the investigation which suggest that a criminal offence has been committed and those matters have been referred to the appropriate prosecuting authority (new section 446B(2)).

1216.     Under new section 446B(3), any direction given to the inspector under section 437(1) to produce an interim report, and any direction under new section 446A(3) in relation such a report, shall cease to have effect.

1217.     If the Secretary of State directs an inspector to take no further steps in an investigation then the inspector shall not make a final report to him unless:

• the requisite number of a company's members has applied for an investigation into its ownership, matters have come to light in the course of the investigation which suggest that a criminal offence has been committed, those matters have been referred to the appropriate prosecuting authority and the Secretary of State directs the inspectors to make a final report; or

• the inspector was appointed following a court order that a company's affairs ought to be investigated (new section 446B(4)).

1218.     New section 446B(6) confirms that the scope of the term "investigation" will include any investigation undertaken under section 433(1) into the affairs of the company's holding company or subsidiary (or a subsidiary of its holding company or a holding company of its subsidiary).

1219.     Subsections (2) to (5) concern consequential changes to other sections within the 1985 Act.

Clause 677: Resignation, removal and replacement of inspectors

1220.     This clause inserts new sections 446C and 446D which provides for the resignation or revocation of an inspector's appointment and the provision to replace an inspector.

1221.     New section 446C(1) and (2) provides not only that an inspector may resign but also that the Secretary of State has the power to revoke his appointment.

1222.     New section 446D(1) provides that, if an inspector resigns, dies or has his appointment revoked, the Secretary of State has the power to appoint a replacement inspector to continue the investigation. Any appointment which takes place under new subsection (1) will be treated as though it were made under the provision under which the former inspector were appointed (new section 446D(2)).

1223.     The Secretary of State is obliged to ensure that at least one inspector continues the investigation (new section 446D(3)) unless such a step would be pointless because he could direct the termination of the investigation in circumstances which would result in a final report not being made (new section 446D(4)).

1224.     New section 446D(5) confirms that the scope of the term "investigation" will include any investigation undertaken under section 433(1) into the affairs of the company's holding company or subsidiary (or a subsidiary of its holding company or a holding company of its subsidiary).

Clause 678: Power to obtain information from former inspectors etc

1225.     Subsection (1) inserts new section 446E into the 1985 Act.

1226.     New section 446E(1) provides that, where an inspector resigns or has his appointment revoked or is given a direction under section 446B (termination of an investigation) (new section 446E(2)), the Secretary of State can direct him to hand over documents that he has obtained or generated during the course of his investigation, either to the Secretary of State or to another inspector appointed under this Part (new section 446E(3)).

1227.     A requirement under new subsection (3) includes the power to ensure that the production of a copy of the document is made in hard copy or in a form from which a hard copy can be obtained (new section 446E(4)). A document includes information recorded in any form (new section 446E(7)(b)). New section 446E(5) enables the Secretary of State to direct any person to whom this section applies to inform him of any matters that came to that person's attention as a result of the investigation. New section 446E(6) confirms that a person shall comply with any direction given to him under this section.

1228.     New section 446E(7)(a) confirms that the scope of the term "investigation" will include any investigation undertaken under section 433(1) into the affairs of the company's holding company or subsidiary (or a subsidiary of its holding company or a holding company of its subsidiary).

1229.     Subsections (2) and (3) concern consequential changes to other sections within the 1985 Act.

Clause 679: Power to require production of documents

1230.     The Bill introduces a new definition for documents in hard copy form, (see clause 807). This clause ensures that there is a consistent approach in existing investigation provisions where there is a requirement to produce documents.

Clause 680: Disqualification orders: consequential amendments

1231.     Subsections (a) and (b) extend the Company Directors Disqualification Act 1986 so that decisions on whether to take action to disqualify directors can be taken on the basis of information that was obtained or generated by an inspector (or came to his knowledge) as a result of his investigation, notwithstanding whether such information is or will be included in any formal report. In some cases this may speed up the ability to seek to disqualify directors.

PART 26: DISSOLUTION AND RESTORATION TO THE REGISTER

Voluntary striking off

Clause 681: Voluntary striking off: extension to public companies

1232.     Section 652A of the 1985 Act currently provides that, in certain circumstances, a private company may apply to the registrar to be struck off the register. This clause amends section 652A to provide that a public company, too, may so apply.

Crown disclaimer of property

Clause 682: Time for making Crown disclaimer of property vesting as bona vacantia

1233.     Where a company is dissolved while still holding property, that property passes to the Crown. Section 656 of the 1985 Act provides that the Crown's title to the property may be disclaimed by a notice signed by the Crown representative, which must generally be executed within 12 months of the date on which vesting of the property came to the notice of the Crown representative. This clause amends that period to three years, and newly provides that if the ownership of the property is not established when the Crown representative first has notice that the property may have vested, the three year period runs from the end of the period reasonably necessary for the Crown representative to establish ownership. Section 656 also provides that a

disclaimer may be made within three years of the Crown representative receiving an application from an interested party. This is changed to 12 months.

Administrative restoration to the register

1234.     Under the 1985 Act, where a company has been struck off the register, mechanisms are available (sections 651 and 653) whereby the company may be restored to the register following a court order. The CLR (Final Report, pages 227- 229) recommended that an alternative, administrative restoration procedure should be available in certain circumstances, and these clauses implement that recommendation.

Clause 683: Application for administrative restoration to the register

1235.     This clause provides that an application may be made to restore a company that has been struck off under section 652 of the 1985 Act; that it can be made whether or not the company has also been dissolved; that the application must be made by a former director or former member of the company, and that it must be made within six years of the date of dissolution.

Clause 684: Requirements for administrative restoration

1236.     This clause sets out the requirements for restoration, including the conditions that the company was carrying on business or in operation at the time of its striking off; that the Crown representative has given any consent that may be necessary; and that the applicant has delivered any documents necessary to bring the registrar's records up to date and has paid any penalties due at the date of dissolution or striking off.

Clause 685: Application to be accompanied by statement of compliance

1237.     This clause provides that an application for restoration must be accompanied by a statement that the applicant has the necessary standing to make the application and that the requirements for administrative restoration have been met. The registrar may accept the statement of compliance as sufficient evidence of the matters stated in it.

Clause 686: Registrar's decision on application for administrative restoration

1238.     This clause provides that the registrar must give notice of her decision, and that (if the decision is that the company is restored) the restoration takes effect from the date that notice is sent. The clause also sets out the consequential actions the registrar must take.

Clause 687: Effect of administrative restoration

1239.     This clause provides that the effect of restoration is that the company is deemed to have continued in existence as if it had not been struck off, and that application may be made to the court within three years of restoration for the court to

make such directions as may be needed to place the company itself, and other persons, in the same position as they would have been had the company not been struck off.

Restoration to the register by the court

1240.     These clauses bring together what are currently two separate procedures for a company to be restored to the register by court order (under sections 651 and 653 of the 1985 Act). The CLR recommended (Final report pages 227 - 229) that the two separate procedures be replaced by a single new procedure, which should largely be based on the precedent of the procedure under section 653 of the 1985 Act.

Clause 688: Application to court for restoration to the register

1241.     The clause sets out that an application may be made for the restoration of companies which have been dissolved, are deemed to be dissolved, or have been struck off under the various provisions set out in subsection (1). Subsection (2) sets out the persons who may make such an application.

Clause 689: When application to the court may be made

1242.     At the moment, applications to the court under section 651 of the 1985 Act must be made within two years, and under section 653 within 20 years. This new clause provides that the time limit for the new single procedure will generally be six years, although special provision is made (subsection (5)) for situations where an application for adminstrative restoration has been made and refused.

1243.     Subsection (1) makes clear that there is no time limit where the application is for the purpose of bringing proceedings against the company for damages for personal injury.

Clause 690: Decision on application for restoration by the court

1244.     This clause sets out the circumstances in which the court may order restoration (including any case in which the court considers it just to do so) and provides that restoration takes effect when the court's order is delivered to the registrar. It also requires the registrar to give appropriate public notice of the restoration.

Clause 691: Effect of court order for restoration to the register

1245.     This clause provides that the effect of restoration is that the company is deemed to have continued in existence as if it had not been struck off, and that the court may make such directions as are needed to place the company itself, and other persons, in the same position as they would have been had the company not been struck off. The court may also make directions as to the issues set out in subsection (4) to do with the company's file at Companies House and costs.

Restoration to the register: supplementary provisions

Clause 692: Company's name on restoration

1246.     This clause establishes the fundamental position that a company is restored to the register with the name it had before it was struck off, but also makes new provision for circumstances where restoration of a company would have the effect that two companies with the same or very similar names would appear in the registrar's index. There is a procedure for the restored company to change its name.

Clause 693: Restoration to the register: other amendments

1247.     This clause replaces section 655 of the 1985 Act with little change of substance. However, it makes new provision (subsection (3)) that, where a company's property has passed to the Crown and been disposed of, the Crown, in reimbursing the newly-restored company, may deduct the reasonable costs of sale which were incurred.

PART 27: UK COMPANIES NOT FORMED UNDER THE COMPANIES ACTS

1248.     The CLR considered the position of unregistered companies in Chapter 9 of Completing the Structure and presented their recommendations in paragraphs 11.34 to 11.37 of the Final Report. The provisions in this part have been developed with these recommendations in mind.

CHAPTER 1: COMPANIES NOT FORMED UNDER THE COMPANIES ACTS BUT AUTHORISED TO REGISTER

Clause 694: Companies authorised to register under the Companies Acts

1249.     This clause replaces section 680 of the 1985 Act. Companies incorporated within the UK, but not formed under the Companies Acts (or certain earlier companies legislation), may apply to register under the Bill. The types of company that can take advantage of this provision are listed in subsection (1). They include companies formed before 2 November 1862; companies formed by private Act of Parliament and companies incorporated by royal charter.

1250.     The company may apply to register as a company limited by shares, a company limited by guarantee or as an unlimited company. Subsections (4) and (5) impose restrictions on this choice. So, a company with limited liability may not register as an unlimited company, and only a company with share capital may register as a company limited by shares.

1251.     A company may wish to apply to register under the Bill in order to take advantage of legislation applying to companies registered under the Companies Acts. Subsection (6) makes clear that a company may register even if it is in order to take advantage of certain provisions of the Insolvency Act 1986 not available to unregistered companies. For example, under section 221(4) of the Insolvency Act 1986, unregistered companies may not be wound up under that Act voluntarily (except in accordance with the EC regulation on insolvency proceedings).

Clause 695: Definition of "joint stock company"

1252.     This clause explains what is meant by "joint stock company". The definition is the same as that currently contained in section 683 of the 1985 Act. Clause 694 allows some joint stock companies to register under the Companies Acts as a company limited by shares.

Clause 696: Power to make provision by regulations

1253.     This clause confers a new power on the Secretary of State to make regulations in connection with the registration of a company following an application under clause 694 (application by UK company not formed under the Companies Acts to register under the Companies Acts). Regulations made under this clause will replace the provisions made by sections 681 to 682, 684 to 690 and Schedule 21 of the 1985 Act. The regulations will cover the procedural requirements for registration, the conditions to be satisfied before registration and the documents to be supplied on an application for registration. The regulations will also set out the consequences of registration, including the status of the company following registration and the application of the Companies Acts to such companies following registration. The regulations are subject to the negative resolution procedure.

Clause 697: Application of provisions to existing companies

1254.     Provision equivalent to clause 694 (enabling certain companies not formed under the Companies Acts to register under the Companies Acts) is currently made by section 680 of the 1985 Act and before that was made under earlier Companies Acts (such as Part 8 of the Companies Act 1948). This clause applies the provisions of the Companies Acts to companies registered but not formed under any of the former Companies Acts in the same way as they apply to companies registered under clause 694 (by virtue of regulations made under clause 696).

CHAPTER 2: UNREGISTERED COMPANIES

Clause 698: Unregistered companies

1255.     This clause replaces section 718 of the 1985 Act. The clause confers a power on the Secretary of State to apply provisions of the Companies Acts to certain unregistered companies. These are companies incorporated in the UK, and having their principal place of business in the UK, but not formed or registered under the Companies Acts or any other public general Act of Parliament. Examples include companies formed by letters patent or by private Act of Parliament. Subsection (1) exempts certain other companies from regulations under this clause, including those exempted by direction of the Secretary of State.

1256.     Regulations under this clause will replace the provision made by Schedule 22 to the 1985 Act. The regulations may apply specified provisions of the Companies Acts to specified descriptions of unregistered company, and may make limitations, adaptations and modifications to the application of the Companies Acts to unregistered companies. The regulations are subject to the negative resolution procedure.

PART 28: OVERSEAS COMPANIES

Introductory

1257.     This Part applies to companies incorporated outside the UK ("overseas companies"). It enables various registration, reporting and disclosure requirements to be imposed on overseas companies.

1258.     This Part, together with the regulations to be made under it, will replace the provisions made by Part 23 and Schedules 21A-D of the 1985 Act. Regulations made under this Part will continue to implement the requirements of the Eleventh Company Law Directive (89/666/EEC), which imposes disclosure requirements on overseas companies that set up branches in the UK.

1259.     As originally enacted, Part 23 of the 1985 Act applied to companies incorporated outside Great Britain that established a place of business in Great Britain. Subsequently, the Eleventh Company Law Directive imposed a different set of disclosure requirements on those overseas companies with branches in the UK. The branch disclosure requirements also differ depending on whether or not the overseas company is incorporated within another EEA State. The result is that there are at present effectively two parallel regimes that apply to overseas companies.

1260.     The CLR set out their initial analysis of the rules for regulating companies formed abroad in Chapter 5.6 of the Strategic Framework and then put forward their provisional detailed conclusions in their consultation document of October 1999 entitled "Reforming the law concerning overseas companies." The CLR presented their conclusions in paragraphs 11.21 to 11.33 of the Final Report.

Clause 699: Overseas companies

1261.     This clause explains that for the purposes of the Companies Acts an "overseas company" means a company incorporated outside the UK. This is wider than the definition of overseas company in section 744 of the 1985 Act which it replaces. Section 744 of the 1985 Act refers to companies incorporated outside Great Britain that establish a place of business in Great Britain. Under the Bill the regulations will be able to specify the connection with the UK that gives rise to the various disclosure obligations imposed under this Part.

Registration of particulars

Clause 700: Duty to register particulars

1262.     This clause confers on the Secretary of State a new power to make regulations to require overseas companies to register with the registrar of companies. The regulations may require particular information to be included in the registration. For example, an address for the company and details of its directors. The regulations may also require particular documents to be sent to the registrar, such as a copy of the company's constitution. Subsection (2) ensures that the regulations implement the requirements of the Eleventh Company Law Directive (89/666/EEC), under which an overseas company must register if the company opens a branch in the UK.

1263.     Regulations may require the overseas company to inform the registrar of companies of any changes in the details or documents it has registered (subsection (3)). The regulations may set deadlines for sending the information to the registrar of companies. They may also determine whether the overseas company should register with the registrar for England and Wales, the registrar for Scotland or the registrar for Northern Ireland. For example, an overseas company that opens a branch in Scotland may be required to register with the registrar of companies for Scotland.

1264.     The Eleventh Company Law Directive imposes different disclosure requirements depending on where the overseas company setting up the branch is incorporated. Different reporting requirements are imposed on credit and financial institutions. Therefore regulations under this clause may make different provision according to the place where the company is incorporated and the activities carried on by it.

1265.     Regulations made under this clause will be subject to the affirmative resolution procedure.