|Company Law Reform Bill [HL] - continued||House of Commons|
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Clause 910: Extension of GB enactments relating to SEs
Clause 911: Extension of GB enactments relating to certain other forms of business organisation
Clause 912: Extension of enactments relating to business names
1619. These clauses similarly extend to Northern Ireland GB legislation in various areas related to company law, and repeal the separate Northern Ireland legislation in these areas. This is the case in relation to:
Regulations and orders
Clauses 913 to 917: Regulations and orders
1620. These clauses provide how regulations and orders made under the Bill are to be made.
1621. Clause 913 provides that, unless the provision in the Bill creating the power states otherwise, all regulations and orders are to be made by statutory instrument.
1622. Most of the powers to make regulations or orders are exercisable by the Secretary of State and are to be made by statutory instrument. The Bill also confers powers on the registrar of companies to make rules, which are not required to be made by statutory instrument (clause 770 requires appropriate publicity). Other non-statutory instrument powers are conferred on the Takeover Panel and the FSA.
1623. Virtually all the provisions of the Bill conferring power to make regulations or orders by statutory instrument specify one or other of the following three types of Parliamentary procedure:
1624. Clause 917(1) provides that regulations or orders may make different provision for different cases or circumstances, may include supplementary, incidental and consequential provision, and may make transitional provision and savings.
1625. Subsections (2) to (4) of clause 917 enable orders or regulations to be made combining provisions in relation to which different procedural requirements apply. A power to make regulations can be exercised by making an order, and a power to make an order can be exercised by making regulations. Provisions subject to the affirmative resolution procedure, provisions subject to the negative resolution procedure and provisions subject to no Parliamentary procedure at all may be included in a single instrument.
Meaning of "enactment"
Clause 918: Meaning of "enactment"
1626. This clause explains what the term "enactment" used in the Bill includes, unless the context in which it is used dictates otherwise:
Consequential and transitional provisions
Clause 919: Power to make consequential amendments etc
1627. This clause confers on the Secretary of State, and on the Treasury, order-making powers in consequence of any provision in the Bill. Such amendments and repeals are additional to those made by any other provision of the Bill.
1628. Orders may be made to amend, repeal or revoke any enactment that is:
1629. In particular, orders may extend to other forms of organisation any provision made in the Bill in relation to companies, and they may make provision corresponding to that made in the Bill in relation to companies. The provisions of this Bill may be applied with any adaptations or other modifications that appear to be necessary or expedient.
1630. Orders under this section are subject to affirmative resolution procedure.
Clause 920: Repeals
1631. This clause introduces Schedule 15, the repeal Schedule. The repeals include, in addition to purely consequential repeals, repeals of enactments that are no longer of practical utility.
1632. Schedule 15 repeals a number of parts and/or sections of a number of pieces of legislation, including the 1985 Act and the Companies Act 1989.
Clause 921: Power to make transitional provision and savings
1633. This clause give the Secretary of State and the Treasury order-making powers to make transitional provision and savings in connection with the commencement of any provision made in the Bill.
1634. Orders under this section are subject to negative resolution procedure.
Clause 922: Continuity of the law
1635. This clause provides that things done in reliance on provisions in the 1985 Act repealed and replaced by the Bill will continue to be legally effective.
1636. Articles of association, company resolutions and contracts are all likely to refer to provisions of the Companies Acts or to rely for their effect on the way in which those provisions work. Except where a change is intended, those articles, resolutions and contracts should continue to have effect, not only with old references converted in to new but also with their legal effect capable of continuing despite verbal differences between the old and the new.
1637. The clause applies automatically in all cases in which it is capable of applying. It is in addition to any more specific transitional provisions, which may be included in commencement orders by use of the power in the preceding clause. While not wholly comprehensive where it does apply it will avoid the need for equivalent provision to be made by possibly more than one order.
Clause 923: Short title
1638. This clause sets out the short title of the Bill.
Clause 924: Extent
1639. This clause provides that, except where otherwise provided for or the context requires otherwise, the Bill extends to the whole of the UK (in other words, including Northern Ireland, as provided for in Part 38 and discussed in the notes to that Part).
Clause 925: Commencement
1640. Subsection (1) provides for commencement on Royal Assent (i.e. early commencement) of the main provisions in Part 36 and of clauses 903 and 905, so that the provisions on transparency obligations and related matters and those conferring a statutory immunity from liability in damages in relation to the oversight of the actuarial profession come into force on that date. It also provides that the provisions of Part 39 (general supplementary provisions) and of this Part itself will come into force on that date.
1641. Subsection (2) provides for the Secretary of State or the Treasury to appoint by order the exact timing of commencement of the other provisions of the Bill.
1642. There will be costs to Companies House in two respects:
1643. On the first point, it is clear that some form of public outreach campaign will be necessary on and before the point at which the Bill changes take effect. There are a range of options currently being discussed, with a range of potential costings.
1644. There will also be costs for systems changes required by measures in the Bill, particularly in respect of the incorporation process, and information on directors. These system changes within Companies House itself should be seen against the background of its ongoing (non-legislative) modernisation and efficiency programme, including changes already underway to facilitate e-communications, and to comply with recent European law. Nonetheless the Bill itself will impose additional costs which the Regulatory Impact Assessment provisionally estimates at perhaps £3m.
1645. The changes are generally expected to produce operational efficiencies and savings for businesses themselves, and they should be recouped from companies in the form of higher transaction charges. (Companies House operates as a trading fund, sponsored by DTI).
1646. The draft Regulatory Impact Assessment (RIA) published alongside the White Paper in March 2005 suggested that savings to business would be of the order of £250m per year, and direct costs would be around £6m. The Department has continued to refine the analysis, in the light of responses to the White Paper and further work by DTI and Cabinet Office economists. The RIA now published alongside the Bill now estimates benefits in the range £165m - £340m and costs of £3m - £11m. The RIA can be accessed on the DTI website at http://www.dti.gov.uk/cld/pdfs/clrbria.pdf
1647. Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement before Second Reading about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act). The Right Honourable Alistair Darling MP (Secretary of State for Trade and Industry) has made the following statement:
"In my view the provisions of the Company Law Reform Bill [HL] are compatible with the Convention rights."
1648. The Department has considered all aspects of the Bill from the perspective of compatibility with the European Convention of Human Rights (ECHR). All criminal offences created by provisions of the Bill are compatible with the requirements of Article 6 ECHR (right to a fair trial). In relation to powers contained in the Bill, it is not provided expressly that they must be exercised in a way compatible with ECHR rights, because this obligation is already imposed by section 6 of the Human Rights Act 1998. Other aspects of the Bill which have raised issues of substance are described below.
Company names adjudicators
1649. Clauses 70 to 74 provide for the appointment of adjudicators in cases where there is dispute over the registering of a company name. Clause 71 safeguards the independence of the adjudicators and clause 74 provides a right of appeal to the court. Accordingly, it is considered that these provisions are compatible with Article 6 ECHR (right to a fair trial).
1650. Clause 154 provides that a director may be removed from office, notwithstanding anything in any agreement between the director and the company. It is considered that this provision is compatible with Article 1, First Protocol ECHR (right to peaceful enjoyment of possessions), as it safeguards the director's right to compensation or damages.
1651. Several provisions in Part 10 require directors to avoid conflicts of interest and to declare their interests in proposed transactions with the company. Although this may require the disclosure of personal information, it is required in order to safeguard the company's interests. Further provisions in this Part apply to persons connected to directors (such as their spouses and family members), to prevent conflicts of interest. This may require the disclosure of a director's personal relationships, in order to prevent a director abusing his position. It is considered that these provisions are compatible with Article 8 ECHR (right to private and family life).
1652. Provisions in Part 10 require directors' home addresses to be entered in registers held by companies and in the records at Companies House but there is special provision so that these addresses are not available for public inspection. It is considered that these provisions are compatible with Article 8 ECHR (right to private and family life).
Derivative claims and actions by members
1653. Clauses 248 to 252 apply to court proceedings brought by a member of a company on behalf of the company (a "derivative" claim). A derivative action may only be brought in respect of a cause of action arising from the negligence, default, breach of duty or breach of trust by a director, and the court's permission is required. It is considered that these provisions are compatible with Article 6 ECHR (right to a fair trial).
Register of company secretaries
1654. Clause 254 requires that a public company's register of secretaries must contain the name and address (which does not have to be a home address) of any secretary, and clause 252 requires that this must be open to inspection by any person. It is considered that this provision is compatible with Article 8 ECHR (right to private and family life).
Duty to keep accounting records
1655. Clause 369 creates a criminal offence for every officer of a company who is in default, where the company has failed to keep adequate accounting records under clause 368. The offence is subject to the officer showing that he acted honestly and that in the circumstances in which the company's business was carried on, the default was excusable. In this way, clause 369 partially reverses the burden of proof for prosecuting the offence. Case law relating to Article 6 ECHR (right to a fair trial) provides that a law reversing a burden of proof may do so if confined within reasonable limits, taking into account the importance of what is at stake and the rights of the defence. Clause 369 is subject to the limits that a prosecution must first prove that the company has failed to keep adequate accounting records and that the officer is in default. It also reflects the importance for effective company regulation of ensuring that companies keep accurate records. Accordingly, it is considered that this provision is compatible with Article 6 ECHR.
Disclosure of information by tax authorities
1656. Clause 442 provides for the disclosure of information by the Commissioners for Her Majesty's Revenue and Customs to a person authorised under clause 441 (currently the Financial Reporting Review Panel) to apply to the court in respect of defective accounts and reports. The provision contains important limitations, including criminal offences for use or disclosure of the information other than for permitted purposes. Accordingly, it is considered that this provision is compatible with Article 6 ECHR (right to a fair trial) and Article 8 ECHR (right to private and family life).
Liability for false or misleading statements in reports
1657. Clause 447 specifies the extent of directors' liability for untrue or misleading statements contained in, or dishonest omissions from, the directors' report, directors' remuneration report or summary financial statements derived from them. This provision makes clear what directors' liability is in an area in which it is unclear. It does not remove directors' liability, and so it is considered that it is compatible with Article 1, First Protocol ECHR (right to peaceful enjoyment of possessions).
Disclosure of services provided by auditor
1658. Clauses 483 and 484 enable the Secretary of State to make regulations concerning the disclosure of certain aspects of the arrangements between auditors and the companies they audit. This pursues the public interest of the prevention of crime and the rights of shareholders, since whether an auditor can be trusted to act independently and identify any corporate fraud will depend partly on the terms of his contract. It is considered that these provisions are compatible with Article 8 ECHR (right to private and family life).
Removing auditor from office
1659. Clause 500 provides that an auditor may be removed from office by resolution of the company. It is considered that this provision is compatible with Article 1, First Protocol ECHR (right to peaceful enjoyment of possessions), as it safeguards the auditor's right to compensation or damages.
Prohibition of public offers by private companies
1660. Provisions in Part 17 prevent private companies from offering their shares to the public. If they do so, an application may be made to the court for the re-registration of the company as a public company. If the company does not meet the requirements for re-registration and the court considers that it is impractical or undesirable to require it to take steps to do so, the court may instead make a remedial order or an order for the compulsory winding up of the company. Although this interferes with the property rights of members of the company, it does so in the public interest, because only public companies, which are subject to greater regulation, should offer their shares to the public. The court has discretion whether or not to make a remedial order or a winding up order. In the case of a remedial order, no share or debenture holder will be required to transfer their shares. In the case of winding up, the procedure is governed by insolvency legislation. Accordingly, it is considered that this provision is compatible with Article 1, First Protocol ECHR (right to peaceful enjoyment of possessions).
Disclosure of share interests
1661. Under the provisions of Part 22, a public company may require individuals to disclose their interests in its shares. Where the disclosure requirements are not complied with, there may be restrictions on members' voting rights and their ability to transfer the shares. These provisions pursue the public interest of ensuring that public companies know who the persons standing behind members and holding beneficial interests in their shares are. The Department is satisfied that these provisions are compatible with Article 8 ECHR (right to private and family life) and Article 1, First Protocol ECHR (right to peaceful enjoyment of possessions).
1662. Clause 640 provides that it is an offence to fail to deliver an annual return to the registrar in time. The contravention of the offence continues until such time as the return is made. The offence includes a reverse burden in respect of certain commissions of the offence, which is of a similar nature to that relating to the failure to keep accounting records (mentioned above). The reverse burden is relevant where the offence is committed by a director or public company secretary who is in office at the time when the offence is first committed. It provides that it is a defence to prove that director or secretary in question took all reasonable steps to avoid the commission or continuation of the offence. For the same reasons mentioned in paragraph 1655, this offence is considered compatible with Article 6 ECHR.
1663. Clause 668 provides that, where a company is the subject of a takeover bid, agreements between shareholders, or between the company and its shareholders, are invalid to the extent that they place restrictions on the transfer of shares or on the exercise of voting rights in circumstances connected with the takeover bid. Subsection (6) gives the court the power to award compensation for losses which result from this. Although this provision interferes with the property rights of shareholders, it does so in the public interest of facilitating cross-border takeovers within the EU pursuant to the Takeovers Directive. It is considered that this provision is compatible with Article 1, First Protocol ECHR (right to peaceful enjoyment of possessions).
1664. Clause 675 introduces Schedule 3, containing amendments to Part 13A of the 1985 Act, which provides for a successful takeover bidder who holds 90% of the shares bid for to be able to compel the remaining shares to be sold to him at the bid offer price. The court may order a higher price to be paid if the bid offer price would be unfair. These provisions interfere with the property rights of shareholders, but they do so in the public interest of facilitating takeovers by preventing a small proportion of minority shareholders increasing the cost to the majority shareholder of exercising control of a company, in circumstances where they cannot limit the extent of that control. Accordingly, it is considered that these provisions are compatible with Article 1, First Protocol ECHR (right to peaceful enjoyment of possessions).
1665. Part 30 contains general provisions related to offences which are compatible with the procedural requirements of Article 6 ECHR (right to a fair hearing). In particular, clause 782 guarantees that, in proceedings against a person for an offence, nothing in the Companies Acts is to be taken as requiring a person to disclose any information covered by legal professional privilege.
Supervision of statutory auditors
1666. Clause 847 exempts auditors' supervisory bodies and their officers from liability in damages for matters connected to the discharge of their functions. However, subsection (5) prevents the exemption from applying in cases where it would prevent an award of damages against the supervisory body made in respect of an act or omission which was unlawful under section 6 of the Human Rights Act. Accordingly, it is considered that the provision is compatible with Article 6 ECHR (right to a fair hearing).
Supervision of actuaries
1667. Clause 903 amends section 16 of the C(AICE) Act 2004 so that actuaries' supervisory bodies and their officers are exempt from liability in damages for matters connected to the discharge of their functions, by virtue of section 18 of that Act. However, section 18(4) of that Act prevents the exemption from applying in cases where it would prevent an award of damages against the supervisory body made on the grounds that it had acted unlawfully under section 6 of the Human Rights Act 1998. Accordingly, the Department is satisfied that the provision is compatible with Article 6 ECHR (right to a fair hearing).
Expenses of winding up
1668. Clause 868 amends the Insolvency Act 1986 to provide that the expenses of winding up a company should be paid out of a company's assets, with priority over debts secured by floating charges. This effectively reverses the judgment on Buchler and another v Talbot and others, re Leyland Daf  UKHL 9. The provision will apply to a winding up which takes place after commencement of the provision. The extent to which clause 868 will apply to a floating charge created before commencement will depend upon the transitional provisions to be included in the necessary order under clause 885 commencing clause 868. Any such order must be compatible with ECHR rights, in accordance with section 6 of the Human Rights Act 1998. In particular, such an order would need to take account of the property rights of creditors who have secured sums loaned to a company by way of a floating charge, in accordance with Article 1, First Protocol ECHR (right to peaceful enjoyment of possessions).
Part 24: Takeovers, etc. - Directive on Takeovers Bids (2004/25/EC)
1669. Part 24 of the Bill implements Directive 2004/25 EC of the European Parliament and of the Council of 21 April 2004 on Takeover Bids (OJ L142, 30 April 2004).
1670. The Takeovers Directive lays down, for the first time, minimum EU rules concerning the regulation of takeovers of companies whose shares are traded on a regulated market. The Directive was one of the measures adopted under the EU Financial Services Action Plan and aims to strengthen the Single Market in financial services by facilitating cross-border restructuring and enhancing minority shareholder protection.
1671. The Takeovers Directive contains general principles that Member States must adhere to in regulating takeover activity and a framework relating to the functions and jurisdiction of takeover regulatory authorities. It also lays down provisions relating to the mandatory bid (a requirement whereby a party gaining control of a company must make an offer to all shareholders at an equitable price), takeover bid documentation, time allowed for acceptance of the bid, the obligations of the board of the offeree company and other matters related to the bid.
1672. Additionally, the Takeovers Directive has provisions addressing barriers to takeovers (such as action that might be taken by a company or its board before or during a bid to prevent a takeover), requiring disclosure of certain information by companies traded on a regulated market and dealing with the problems of, and for, residual minority shareholders following a successful takeover bid (so-called 'squeeze-out' and 'sell-out' provisions).
1673. Since 1968, takeover regulation in the UK has been overseen by the Takeover Panel administering rules and principles contained in the "City Code on Takeovers and Mergers". In order to bring UK takeover regulation within the requirements laid down in the Directive, Part 24 of the Bill is designed, for the first time, to place it within a complete and coherent statutory framework.
1674. Provisions related to disclosures by companies are contained in Part 7 of the 1985 Act and amendments to that Part will be made to give effect to the additional disclosure requirements imposed by the Takeovers Directive on companies traded on a regulated market.
1675. 'Squeeze-out' and 'sell-out' provisions are prescribed by Part 13A of the 1985 Act. These will be amended to ensure they are wholly consistent with the Takeovers Directive requirements.
1676. It is intended that the detailed rules relating to takeover regulation in compliance with the Directive will be prescribed by the Takeover Panel under a statutory rule-making obligation to be imposed upon the Panel by the Bill (clause 643(1)). The Panel have consulted separately on the necessary changes to the Takeover Code, which has been amended with effect from 20 May 2006, to make the Code wholly consistent with the requirements of the Takeovers Directive.
1677. Responsibility for the measures, described in this transposition note, taken to implement the Takeovers Directive lies with the Secretary of State for Trade and Industry.
1678. The table below describes the substantive provisions implementing the Takeovers Directive.
NOTE: In view of the fact that the Takeovers Directive was required to be implemented by 20 May 2006, by which date the Bill had not completed Parliamentary passage and received Royal Assent, interim implementation provisions have been introduced. These provisions are contained in The Takeovers Directive (Interim Implementation) Regulations 2006 (S.I. 2006 No.1183). A copy of those Regulations together with the accompanying Explanatory Memorandum, Regulatory Impact Assessment and Transposition Notes is available on the website of the Office of Public Sector Information (http://www.opsi.gov.uk/stat.htm). It is intended that the Regulations will be repealed and replaced by the provisions currently to be found in Part 24 of the Bill once it has received Royal Assent.
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