sc1902007.521-527

House of Commons

Session 2005 - 06
Internet Publications
Other Bills before Parliament

S.C.D.  Standing Committee Proceedings: 20th July 2006
521

Company Law Reform Bill–[ [], continued

(b)
carried out in accordance with a requirement imposed under section 166

of that Act,]


by an actuary appointed as actuary to the company.

(7)
In this section “long term business” means business that consists of effecting or

carrying out contracts of long term insurance.


This definition must be read with section 22 of the Financial Services and

Markets Act 2000 (c. 8), any relevant order under that section and Schedule 2 to

that Act.’.]

Treatment of development costs

Margaret Hodge

Added  nc296

To move the following Clause:—

‘(1)
Where development costs are shown as an asset in a company’s accounts, any

amount shown in respect of those costs is treated—

(a)
for the purposes of section (Distributions to be made only out of profits

available for the purpose) (distributions to be made out of profits

available for the purpose) as a realised loss, and

(b)
for the purposes of section (Distributions by investment companies out of

accumulated revenue profits) (distributions by investment companies out

of accumulated revenue profits) as a realised revenue loss.


This is subject to the following exceptions.

(2)
Subsection (1) does not apply to any part of that amount representing an

unrealised profit made on revaluation of those costs.

(3)
Subsection (1) does not apply if—

(a)
there are special circumstances in the company’s case justifying the

directors in deciding that the amount there mentioned is not to be treated

as required by subsection (1),

(b)
it is stated—

(i)
in the case of Companies Act accounts, in the note required by

regulations under section 378 as to the reasons for showing

development costs as an asset, or

(ii)
in the case of IAS accounts, in any note to the accounts,


that the amount is not to be so treated, and

(c)
the note explains the circumstances relied upon to justify the decision of

the directors to that effect.’.

S.C.D.  Standing Committee Proceedings: 20th July 2006
522

Company Law Reform Bill–[ [], continued

Distributions in kind: determination of amount

Margaret Hodge

Added  nc297

To move the following Clause:—

‘(1)
This section applies for determining the amount of a distribution consisting of or

including, or treated as arising in consequence of, the sale, transfer or other

disposition by a company of a non-cash asset where—

(a)
at the time of the distribution the company has profits available for

distribution, and

(b)
if the amount of the distribution were to be determined in accordance

with this section, the company could make the distribution without

contravening this Part.

(2)
The amount of the distribution (or the relevant part of it) is taken to be—

(a)
in a case where the amount or value of the consideration for the disposal

is not less than the book value of the asset, zero;

(b)
in any other case, the amount by which the book value of the asset

exceeds the amount or value of any consideration for the disposal.

(3)
The company’s profits available for distribution are treated as increased by the

amount (if any) by which the amount or value of any consideration for the

disposition exceeds the book value of the asset.

(4)
In this section “book value”, in relation to an asset, means—

(a)
the amount at which the asset is stated in the relevant accounts, or

(b)
where the asset is not stated in those accounts at any amount, zero.

(5)
The provisions of Chapter (Justification of distribution by reference to accounts)

(justification of distribution by reference to accounts) have effect subject to this

section.’.

Distributions in kind: treatment of unrealised profits

Margaret Hodge

Added  nc298

To move the following Clause:—

‘(1)
This section applies where—

(a)
a company makes a distribution consisting of or including, or treated as

arising in consequence of, the sale, transfer or other disposition by the

company of a non-cash asset, and

(b)
any part of the amount at which that asset is stated in the relevant

accounts represents an unrealised profit.

(2)
That profit is treated as a realised profit—

(a)
for the purpose of determining the lawfulness of the distribution in

accordance with this Part (whether before or after the distribution takes

place), and

(b)
for the purpose of the application, in relation to anything done with a

view to or in connection with the making of the distribution, of any

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued

provision of regulations under section 378 under which only realised

profits are to be included in or transferred to the profit and loss account.’.

Consequences of unlawful distribution

Margaret Hodge

Added  nc299

To move the following Clause:—

‘(1)
This section applies where a distribution, or part of one, made by a company to

one of its members is made in contravention of this Part.

(2)
If at the time of the distribution the member knows or has reasonable grounds for

believing that it is so made, he is liable—

(a)
to repay it (or that part of it, as the case may be) to the company, or

(b)
in the case of a distribution made otherwise than in cash, to pay the

company a sum equal to the value of the distribution (or part) at that time.

(3)
This is without prejudice to any obligation imposed apart from this section on a

member of a company to repay a distribution unlawfully made to him.

(4)
This section does not apply in relation to—

(a)
financial assistance given by a company in contravention of section

(Assistance for acquisition of shares in public company) or (Assistance

by public company for acquisition of shares in its private holding

company), or

(b)
any payment made by a company in respect of the redemption or

purchase by the company of shares in itself.

Saving for certain older provisions in articles

Margaret Hodge

Added  nc300

To move the following Clause:—

‘(1)
Where immediately before the relevant date a company was authorised by a

provision of its articles to apply its unrealised profits in paying up in full or in part

unissued shares to be allotted to members of the company as fully or partly paid

bonus shares, that provision continues (subject to any alteration of the articles) as

authority for those profits to be so applied after that date.

(2)
For this purpose the relevant date is—

(a)
for companies registered in Great Britain, 22nd December 1980;

(b)
for companies registered in Northern Ireland, 1st July 1983.’.

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued

Restriction on application of unrealised profits

Margaret Hodge

Added  nc301

To move the following Clause:—

‘A company must not apply an unrealised profit in paying up debentures or any

amounts unpaid on its issued shares.’.

Treatment of certain older profits or losses

Margaret Hodge

Added  nc302

To move the following Clause:—

‘(1)
Where the directors of a company are, after making all reasonable enquiries,

unable to determine whether a particular profit made before the relevant date is

realised or unrealised, they may treat the profit as realised.

(2)
Where the directors of a company, after making all reasonable enquiries, are

unable to determine whether a particular loss made before the relevant date is

realised or unrealised, they may treat the loss as unrealised.

(3)
For the purposes of this section the relevant date is—

(a)
for companies registered in Great Britain, 22nd December 1980;

(b)
for companies registered in Northern Ireland, 1st July 1983.’.

Application of rules of law restricting distributions

Margaret Hodge

Added  nc303

To move the following Clause:—

‘(1)
Except as provided in this section, the provisions of this Part are without

prejudice to any rule of law restricting the sums out of which, or the cases in

which, a distribution may be made.

(2)
For the purposes of any rule of law requiring distributions to be paid out of profits

or restricting the return of capital to members—

(a)
section (Distributions in kind: determination of amount) (distributions in

kind: determination of amount) applies to determine the amount of any

distribution or return of capital consisting of or including, or treated as

arising in consequence of the sale, transfer or other disposition by a

company of a non-cash asset; and

(b)
section (Distributions in kind: treatment of unrealised profits)

(distributions in kind: treatment of unrealised profits) applies as it applies

for the purposes of this Part.

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued

(3)
In this section references to distributions are to amounts regarded as distributions

for the purposes of any such rule of law as is referred to in subsection (1).’.

Saving for other restrictions on distributions

Margaret Hodge

Added  nc304

To move the following Clause:—

‘The provisions of this Part are without prejudice to any enactment, or any

provision of a company’s articles, restricting the sums out of which, or the cases

in which, a distribution may be made.’.

Minor definitions

Margaret Hodge

Added  nc305

To move the following Clause:—

‘(1)
The following provisions apply for the purposes of this Part.

(2)
References to profit or losses of any description—

(a)
are to profits or losses of that description made at any time, and

(b)
except where the context otherwise requires, are to profits or losses of a

revenue or capital character.

(3)
“Capitalisation”, in relation to a company’s profits, means any of the following

operations (whenever carried out)—

(a)
applying the profits in wholly or partly paying up unissued shares in the

company to be allotted to members of the company as fully or partly paid

bonus shares, or

(b)
transferring the profits to capital redemption reserve.

(4)
References to “realised profits” and “realised losses”, in relation to a company’s

accounts, are to such profits or losses of the company as fall to be treated as

realised in accordance with principles generally accepted at the time when the

accounts are prepared, with respect to the determination for accounting purposes

of realised profits or losses.

(5)
Subsection (4) is without prejudice to—

(a)
the construction of any other expression (where appropriate) by reference

to accepted accounting principles or practice, or

(b)
any specific provision for the treatment of profits or losses of any

description as realised.’.

S.C.D.  Standing Committee Proceedings: 20th July 2006
526

Company Law Reform Bill–[ [], continued

General power to make further provision by regulations

Margaret Hodge

Added  nc306

To move the following Clause:—

‘(1)
The Secretary of State may by regulations modify the provisions of this Part.

(2)
The regulations may—

(a)
amend or repeal any of the provisions of this Part, or

(b)
make such other provision as appears to the Secretary of State

appropriate in place of any of the provisions of this Part.

(3)
Regulations under this section may make consequential amendments or repeals

in other provisions of this Act, or in other enactments.

(4)
Regulations under this section are subject to affirmative resolution procedure.’.

Charges created by a company

Margaret Hodge

Added  nc307

To move the following Clause:—

‘(1)
A company that creates a charge to which this section applies must deliver the

prescribed particulars of the charge, together with the instrument (if any) by

which the charge is created or evidenced, to the registrar for registration before

the end of the period allowed for registration.

(2)
Registration of a charge to which this section applies may instead be effected on

the application of a person interested in it.

(3)
Where registration is effected on the application of some person other than the

company, that person is entitled to recover from the company the amount of any

fees properly paid by him to the registrar on registration.

(4)
If a company fails to comply with subsection (1), an offence is committed by—

(a)
the company, and

(b)
every officer of it who is in default.

(5)
A person guilty of an offence under this section is liable—

(a)
on conviction on indictment, to a fine, and

(b)
on summary conviction, to a fine not exceeding the statutory maximum.

(6)
Subsection (4) does not apply if registration of the charge has been effected on

the application of some other person.

(7)
This section applies to the following charges—

(a)
a charge on land or any interest in land, other than a charge for any rent

or other periodical sum issuing out of land,

(b)
a charge created or evidenced by an instrument which, if executed by an

individual, would require registration as a bill of sale,

(c)
a charge for the purposes of securing any issue of debentures,

(d)
a charge on uncalled share capital of the company,

(e)
a charge on calls made but not paid,

(f)
a charge on book debts of the company,

(g)
a floating charge on the company’s property or undertaking,

S.C.D.  Standing Committee Proceedings: 20th July 2006
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Company Law Reform Bill–[ [], continued

(h)
a charge on a ship or aircraft, or any share in a ship,

(i)
a charge on goodwill or on any intellectual property.’.

Charges which have to be registered: supplementary

Margaret Hodge

Added  nc308

To move the following Clause:—

‘(1)
The holding of debentures entitling the holder to a charge on land is not, for the

purposes of section (Charges created by a company)(7)(a), an interest in the land.

(2)
It is immaterial for the purposes of this Chapter where land subject to a charge is

situated.

(3)
The deposit by way of security of a negotiable instrument given to secure the

payment of book debts is not, for the purposes of section (Charges created by a

company)(7)(f), a charge on those book debts.

(4)
For the purposes of section (Charges created by a company)(7)(i), “intellectual

property” means—

(a)
any patent, trade mark, registered design, copyright or design right;

(b)
any licence under or in respect of any such right.

(5)
In this Chapter—

“charge” includes mortgage, and

“company” means a company registered in England and Wales or in

Northern Ireland.’.

Charges existing on property acquired

Margaret Hodge

Added  nc309

To move the following Clause:—

‘(1)
This section applies where a company acquires property which is subject to a

charge of a kind which would, if it had been created by the company after the

acquisition of the property, have been required to be registered under this

Chapter.

(2)
The company must deliver the prescribed particulars of the charge, together with

a certified copy of the instrument (if any) by which the charge is created or

evidenced, to the registrar for registration.

(3)
Subsection (2) must be complied with before the end of the period allowed for

registration.

(4)
If default is made in complying with this section, an offence is committed by—

(a)
the company, and

(b)
every officer of it who is in default.

(5)
A person guilty of an offence under this section is liable—

(a)
on conviction on indictment, to a fine, and