House of Commons - Explanatory Note
Company Law Reform Bill [HL] - continued          House of Commons

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Clause 796: Construction of provisions about documents or information sent or supplied

1401.     Subsection (1) makes clear that a requirement to sent a document in hard copy form is not satisfied by, for example, a fax. Subsections (2) and (3) operate where provisions of the Companies Acts say that documents may or must be sent in, for example, "hard copy form or electronic form". They make it clear that the company communications provisions still apply. So, in the example, documents could not be sent in electronic form without the consent of the recipient.

Clause 797: Right to hard copy version

1402.     This clause provides individual members or debenture holders the right to require information to be sent in paper copy form. A company is required to send a paper copy of the document or information within 21 days of receiving a member's request. Subsections (4) and (5) impose a penalty on every officer in default if the company fails to comply. Subsection (6) provides that other statutory provisions take precedence over the requirements of this clause.

Clause 798: Requirement of authentication

1403.     This clause operates where provisions of the Companies Acts require information sent or supplied to a company to be authenticated. This is chiefly the case in the context of written resolutions and requests (formerly requisitions) for meetings, etc. The rule is that a signature on a document in hard copy form is always sufficient authentication. The company can make its own rules in respect of documents in electronic form (but there is a default where no such rules exist). Subsection (4) makes it clear that, where someone purports to authenticate a document on another's behalf, the company can require proof of the former's authority to do so.

Clause 799: Deemed delivery of documents and information sent by post or electronic means

1404.     This clause sets out when communications from the company are deemed to have been delivered, but it can be excluded by contrary provision elsewhere (for example, in other legislation, in contracts or in the articles). Subsection (5) provides that the 48-hour period for deemed delivery is counted during normal working days only.

Clause 800: Interpretation of company communications provisions

1405.     This clause sets out defined terms used in the company communications provisions and, in particular, makes clear that references to "sending" and "supplying" are supposed to include all such expressions.

Notice of appointment of certain officers

Clause 801: Duty to notify registrar of certain appointments etc

Clause 802: Offence of failure to give notice

1406.     These clauses are new provisions. The requirement to give notice of the appointment of a judicial factor (in Scotland) gives effect to a recommendation by the CLR (Final Report, paragraph 11.39). This is because a judicial factor displaces directors. Clause 802 makes it an offence for the judicial factor not to notify the registrar of his/her appointment.

1407.     Clause 801 also requires the Charity Commissioners to notify their appointment of a receiver and manager and the regulator of community interest companies to give notice of the appointment of a manager. These officers also displace directors.

Clause 803: Meaning of "the court"

1408.     This clause defines the term "the court" for the purposes of the Companies Acts. The effect of this definition is that except where an enactment or rule of law provides otherwise, cases under the Companies Acts relating to companies registered in England and Wales can be heard either in the High Court or the county court; cases relating to companies registered in Scotland can be heard either in the Court of Session or the sheriff court; and cases relating to companies registered in Northern Ireland are to be heard in the High Court of Northern Ireland.

1409.     The allocation of cases between the county court (or sheriff court) and the High Court (or Court of Session) will be determined partly by the courts' general powers and partly by subordinate legislation. The allocation of cases between county courts will, as now, be determined by orders made by the Lord Chancellor (see subsection (3)).

Clause 804: Power of court to grant relief in certain cases

1410.     Under this clause, an officer of a company (such as a director) or a person employed by a company as auditor may apply to the court for relief from liability for negligence, default, breach of duty or breach of trust. A court may grant relief if it appears to the court that:

  • the director (or other officer or auditor) has acted honestly; and

  • he has acted reasonably; and

  • having regard to all the circumstances, he ought fairly to be excused.

1411.     Subsections (1), (2) and (4) restate section 727 of the 1985 Act without substantive amendment. Subsection (3) extends the scope of the court's power to grant relief so that it can be applied to independent examiners appointed by companies that are charities. As charity law in Scotland is a matter for the Scottish Parliament, this change applies only in England, Wales and Northern Ireland.

PART 32: COMPANIES: INTERPRETATION

Meaning of "undertaking" and related expressions

Clause 805: Meaning of "undertaking" and related expressions;

Clause 806: Parent and subsidiary undertakings

1412.     These two clauses restate the provisions of, respectively, sections 259 and 258 of the 1985 Act, with two modifications.

1413.     Clause 805(1) defines the meaning of "undertaking" for the purposes of the Companies Acts as encompassing both incorporated and unincorporated entities. Subsection (2) defines references to shares for all undertakings - undertakings with share capital, undertakings with capital but no share capital and undertakings without capital. The general interpretation provision in section 259(2)(a) of the 1985 Act, of references to shares, in relation to an undertaking with share capital, being references to allotted shares, has been removed. Specific references to allotted shares have been inserted where appropriate into the provisions of Part 15 of the Bill. Otherwise, the references to shares in that Part are to issued shares.

1414.     Clause 806 and Schedule 8 restate the provisions of section 258 of, and Schedule 10A to, the 1985 Act, with one modification. They define the expressions "parent undertaking" and "subsidiary undertaking" which are used for the purposes of the accounting provisions of the Companies Acts and which derive from the Seventh Company Law Directive 83/349/EEC. Paragraph 4(3) of Schedule 8 (which restates paragraph 4(3) of Schedule 10A to the 1985 Act) has been amended to reflect changes to the definition of subsidiary undertaking for accounting purposes which were made in 2004 when the Accounts Modernisation Directive (2003/51/EEC) was implemented.

Other definitions

Clause 807: Hard copy and electronic form and related expressions

1415.     This clause is a new provision to cover the meaning of the terms "hard copy", "electronic form" and related expressions for all purposes of the Companies Acts. Subsection (5) requires that "electronic form" documents or information be sent in a form that is capable of being read and retained for future reference. In view of this requirement (and a similar requirement in relation to "hard copy form" documents in subsection (2)), subsection (6) makes clear that a document can be "read" for the purposes of this clause even if it consists of images.

Clause 808: Classes of shares

1416.     "Classes of shares" (or "class rights") is not defined in the 1985 Act but at common law this term is normally used where the rights that attach to a particular share relate to matters such as voting rights, a right to dividends and a right to a return of capital when a company is wound-up. Rights attach to a particular class of shares if the holders of shares in that class enjoy rights that are not enjoyed by the holders of shares in another class.

1417.     This clause provides that for the purposes of the Bill, shares are of one class if the rights attached to them are in all respects uniform. It reproduces the provision in section 128(2) of the 1985 Act. It is particularly relevant to the provisions of clause 541 (power of directors to allot shares etc: private company with only one class of shares) and clause 549 (disapplication of pre-emption rights: private company with only one class of shares). This definition of "classes of shares" also applies in determining the extent to which shares constitute different classes for the purposes of the statement of capital required to be filed under various provisions of the Bill.

Clause 809: Dormant companies

1418.     This clause restates the definition in section 249AA(4) to (7) of the 1985 Act of what is meant by a company being dormant. Subsection (1) of this clause provides that "a company is "dormant" during any period in which it has no significant accounting transaction". The term "significant accounting transaction" is defined in subsections (2) and (3). Subject to certain exceptions a dormant company is exempt from having its accounts audited (see clauses 464 and 465).

Clause 810: Meaning of "EEA state" and related expressions

1419.     This clause provides a definition of "EEA State" - reproducing the definition in section 744 of the 1985 Act without change of substance - and of "EEA Company" and "EEA undertaking".

Clause 811: The former Companies Acts

1420.     This clause defines "former Companies Acts" by listing those pieces of companies legislation (which will no longer be in force) which are included within the term. The list expands upon that in section 735 of the 1985 Act to take account of equivalent provisions for Northern Ireland.

Clause 812: References to requirements of this Act

1421.     This clause is an interpretive provision. It provides that requirements to be imposed under the Bill (by regulations or orders to be made under a power contained in the Bill) are also caught by references in the company law provisions of Bill to "the requirements of this Act".

General

Clause 813: Minor definitions: general

1422.     This clause provides definitions of a number of other terms used in the Bill.

Clause 814: Index of defined expressions

1423.     This clause introduces Schedule 9 to the Bill, which provides an index setting out where the definitions of terms used in the Companies Acts are to be found.

PART 33: COMPANIES: MINOR AMENDMENTS

Clause 815: Power of Secretary of State to bring civil proceedings on company's behalf

1424.     This clause repeals the power of the Secretary of State, under section 438 of the 1985 Act, to bring civil proceedings on behalf of a company. Subsections (2) and (3) are consequential amendments to sections 439 and 435 of the 1985 Act respectively. This repeal does not affect any proceedings begun before this clause comes into force.

Clause 816: Repeal of certain provisions about company directors

1425.     This clause repeals various provisions of Part 10 of the 1985 Act.

1426.     Section 311 of the 1985 Act prohibits a company from paying a director remuneration free of income tax. The Law Commissions recommended its repeal as the tax which the company agreed to pay is itself taxed as part of the emoluments of a director and as the company is required to disclose in its annual accounts an estimate of the tax which it has undertaken to pay.

1427.     Section 323 of the 1985 Act prohibits directors (including shadow directors) from buying "put" and "call" options in listed shares or debentures in the company or another in the same group. This prohibition is extended to spouses and minor children of directors by section 327 of the 1985 Act. The Law Commissions recommended its repeal.

1428.     Sections 324 to 326, 328 to 329 and Schedule 13 deal with the duty of a director to notify interests in shareholdings to his company and impose an obligation on the company to record those interests in a register and to disclose them to the relevant exchanges.

1429.     Sections 343 and 344 of the 1985 Act makes special provision for banking companies and the holding companies of credit institutions, allowing them to disclose in their annual accounts abbreviated particulars of loans, quasi-loans and credit transactions with directors or their connected persons. Clause 395, which replaces the annual accounts disclosure requirements of the 1985 Act in respect of loans, quasi-loans and credit transactions, makes its own special provision for banking companies and the holding companies of credit institutions.

Clause 817: Repeal of requirement that certain companies publish periodical statement

1430.     This clause repeals section 720 and the related Schedule 23 to the 1985 Act. Section 720 required certain insurers and deposit, provident or benefit societies to publish a periodical statement in the form set out in the Schedule. The statement contains basic information about certain liabilities and assets and, in the case of a company with shares, basic information about its share capital and issued shares. This general disclosure requirement has been superseded by specialised regulatory developments in particular fields of financial services. The application of the section is now very limited as it does not apply to any UK insurance company which is regulated by the FSA under FSMA 2000 and which complies with its rules as to the publication of annual accounts and balance sheet. Nor does it apply to any insurer authorised in any other EEA State carrying on business in the UK if it complies with equivalent rules of its home State.

Clause 818: Repeal of requirement that Secretary of State prepare annual report

1431.     This clause repeals the requirement, under Section 729 of the 1985 Act, for the Secretary of State to cause a "general annual report on matters within the Companies Acts" to be prepared and laid before both Houses of Parliament.

Clause 819: Repeal of certain provisions about company charges

1432.     This clause repeals the provisions in Part 4 of the 1989 Act relating to company charges. These provisions have not been brought into force.

Clause 820: Access to constitutional documents of RTE and RTM companies

1433.     This clause enables the Secretary of State to make an order amending certain provisions of the Commonhold and Leasehold Reform Act 2002 and the Leasehold Reform, Housing and Urban Development Act 1993 so as to make it easier to ascertain the contents of the articles and other constitutional documents of Right To Manage ("RTM") and Right to Enfranchise ("RTE") companies (two new types of company provided for in the 2002 Act - in the case of RTE companies, by amendment to the 1993 Act).

1434.     Under the Commonhold and Leasehold Reform Act 2002 and the Leasehold Reform, Housing and Urban Development Act 1993 as amended by it, the Secretary of State may make regulations prescribing model memoranda and articles of association for RTM and RTE companies, and the provisions of the model memoranda and articles so prescribed may have effect notwithstanding contrary provision in the memoranda and articles of such companies as registered at Companies House. As the legislation stands currently, a person consulting the Companies House record of an RTM or RTE company's memorandum or articles may not be aware of the company's RTM or RTE status, and therefore may also be unaware that its registered memorandum and articles have to be read in the light of any relevant regulations prescribing model memoranda and articles for RTM or RTE companies. Since the prescribed memoranda and articles may invalidate provisions of the registered documents and apply in place of them, this may cause problems.

1435.     The RTM and RTE legislation is likely to be adjusted to reflect the status of the memorandum in company law generally. Reference is made to "other constitutional documents" because it is possible that under the new constitutional arrangements, the RTM and RTE legislation should make provision about the contents of constitutional documents other than articles .

PART 34: BUSINESS NAMES

1436.     The provisions of this Part replace the Business Names Act 1985.

CHAPTER 1: RESTRICTED OR PROHIBITED NAMES

Introductory

Clause 821: Application of this Chapter

1437.     This clause partly replaces section 1 of the Business Names Act 1985. It ensures that the restrictions on the use of names in the course of business:

  • apply to all companies (and not as in the Business Names Act, just to any company capable of being wound up under the Insolvency Act 1986 which trades under a name other than that under which it is registered); and

  • apply to any partnership whose members include a company (and not, as in the Business Names Act, only if the name under which such a partnership does business includes names for the corporate partners other than those under which they are registered).

1438.     As now, the restrictions do not apply to individuals if they trade either alone or in partnership under their surnames augmented only by their forenames and/or initials. Sole traders and individuals carrying on business in partnership are also excluded from the scope of the Chapter if the only addition to their name shows the business's previous ownership

1439.     Clause 837 extends the exception to names that are surnames augmented by recognised abbreviations of a name. Thus the restrictions on names in this Chapter would not apply to James Alexander Scotland if he were to trade as James Alexander Scotland or J. A. Scotland or Jim A. Scotland; they would apply if he were to trade as Scotland Bakers or John Scotland.

1440.     The main effect of the wider coverage is that controls apply to all oversea companies carrying on business in the UK. It also removes any uncertainty as to whether the controls apply to business entities other than companies incorporated under the Companies Acts.

Sensitive words or expressions

Clause 822: Name suggesting connection with government or public authority

Clause 823: Other sensitive words or expressions

Clause 824: Requirement to seek comments of government department or other relevant body

1441.     These clauses replace sections 2, 3, 6 and 7 of the Business Names Act 1985. Clause 828 (see below) contains savings equivalent to those currently in section 2(2) of the Business Names Act.

1442.     These clauses require prior approval for the use of any name for carrying on business for which a company would require approval before it could be registered under it. (Clauses 55 to 57, replacing sections 26(2) and 29 of the 1985 Act, apply corresponding restrictions to company names.) The differences between the requirements under these clauses and the existing requirements are:

  • ???Clause 822(1)(a) requires prior approval for names likely to give the impression that the business is connected with any part of the Scottish administration or Her Majesty's Government in Northern Ireland;

  • ???Clause 822(1)(c) requires prior approval for names likely to give the impression that the business is connected with any public authority specified in regulations;

  • The definition of local authority in clause 790(2) is brought up to date for Scotland and includes a district council in Northern Ireland;

  • ???Clause 824(4) makes explicit that the Secretary of State may refuse to consider an application for approval that is not compliant with the statutory requirements.

Clause 825: Withdrawal of Secretary of State's approval

1443.     This clause makes explicit that approval for the use of a name may be withdrawn in appropriate circumstances.

Misleading names

Clause 826: Name containing inappropriate indication of company type or legal form

1444.     This clause replaces sections 33, 34 and 34A of the 1985 Act. These sections make it an offence for those entitled to carry on business under names using the statutory indicators of legal status for, respectively, public companies, private companies and community interest companies. Section 34 extends the protection to any contraction or imitation of the indicators for private companies; section 33 and 34A do not do the same for public companies and community interest companies. It provides power for regulations to specify which indicators are protected and which similar words. It complements clause 53, which controls the use of statutory indicators of legal status in companies' registered names. It enables the protection to apply, for example, to "open-ended investment company".These clauses provide power for regulations to specify which indicators are protected and which similar words. It complements clause 53, which controls the use of statutory indicators of legal status in companies' registered names. It enables the protection to apply, for example, to "open-ended investment company".

Clause     827: Name giving misleading indication of activities

1445.     This clause makes it an offence to use a business name that gives so misleading an indication of the nature of the activities of the business as to be likely to cause harm to the public. This clause complements clause 76 which gives the Secretary of State power to direct a company to change its registered name in these circumstances. This offence will apply throughout the UK.

Supplementary

Clause 828: Savings for existing lawful business names

1446.     This clause provides exemptions for those continuing to use a name that was lawful before the Bill comes into force. The exemption is both from the requirement for prior approval and from using names that include a protected indicator of company status. It also retains the existing provision for when a business is transferred: providing the name was previously lawful, the business may continue under that name for 12 months even if otherwise it would not be lawful for whoever is now carrying on the business.

CHAPTER 2: DISCLOSURE REQUIRED IN CASE OF INDIVIDUAL OR PARTNERSHIP

1447.     This Chapter re-enacts for individuals and partnerships the Business Names Act provisions relating to information which must be displayed at places of business and in correspondence. These clauses ensure that a business's suppliers and customers can discover the legal identity of the person with whom they are doing business and can serve documents upon it. Clause 832 makes special provision for large partnerships so that not all the partners' names are required in all business documents.

Introductory

Clause 829: Application of this Chapter

1448.     This clause partly replaces section 1 of the Business Names Act 1985. It provides that this Chapter applies to:

  • sole traders if they trade under any name other than their true surnames augmented only by their forenames and/or initials. (Clause 805 defines initial to include any recognised abbreviation of a name);

  • partnerships unless the name is the surnames of all its human partners (augmented only by their forenames and/or initials) and the registered names of its other partners.

1449.     It also excludes sole traders and partnerships if the only addition to their name shows the business's previous ownership.

1450.     This clause ensures that the coverage of this Chapter is the same as the Business Names Act except that, unlike that Act, it does not apply to any companies. The comparable requirements for companies are in Part 5, Chapter 5.

Clause 830: Information required to be disclosed

1451.     This clause replaces section 4(1)(a)(i),(ii) and (iv) of the Business Names Act 1985. It specifies the information that is to be the subject of disclosure under this Chapter (ie names and addresses for service).

Disclosure requirements

Clause 831: Disclosure required: business documents etc

Clause 832: Exemption for large partnerships if certain conditions met

1452.     These clauses replace section 4(1)(a) and (2)-(7) of the Business Names Act 1985. They are designed to ensure that customers and suppliers:

  • of sole traders know the true identity of the person with whom they are dealing and have an address for him/her which is effective for the service of documents relating to the business;

  • of partnerships with 20 or fewer partners know the identity of every partner and the address which is effective for the service of documents relating to the business;

  • of larger partnerships know the address which is effective for the service of documents relating to the business and either the identity of every partner of the address at which they can discover the identity of every partner.

1453.     Large partnerships are not permitted to choose which partners' names are included in documents: they must either include the names of all the partners or none (except in the text or as a signatory).

1454.     Clause 831 also provides power for regulations relating to the form of a notice giving the trader's or partners' name(s) and address in response to any person who asks for the information in the course of business.

 
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Prepared: 26 May 2006