The
Committee consisted of the following
Members:
Austin,
John
(Erith and Thamesmead)
(Lab)
Baron,
Mr. John
(Billericay)
(Con)
Burt,
Lorely
(Solihull)
(LD)
Djanogly,
Mr. Jonathan
(Huntingdon)
(Con)
Ellman,
Mrs. Louise
(Liverpool, Riverside)
(Lab/Co-op)
Field,
Mr. Mark
(Cities of London and Westminster)
(Con)
Fraser,
Mr. Christopher
(South-West Norfolk)
(Con)
Greenway,
Mr. John
(Ryedale)
(Con)
Hall,
Mr. Mike
(Weaver Vale)
(Lab)
Jenkins,
Mr. Brian
(Tamworth)
(Lab)
Mactaggart,
Fiona
(Slough)
(Lab)
Mudie,
Mr. George
(Leeds, East)
(Lab)
Öpik,
Lembit
(Montgomeryshire)
(LD)
Pound,
Stephen
(Ealing, North)
(Lab)
Prosser,
Gwyn
(Dover)
(Lab)
Seabeck,
Alison
(Plymouth, Devonport)
(Lab)
Timms,
Mr. Stephen
(Minister for
Competitiveness)
James
Davies, Committee
Clerk
attended the Committee
Fourteenth
Delegated Legislation
Committee
Monday 23 July
2007
[Hugh
Bayley
in the
Chair]
Draft Companies Act 2006 (Commencement No. 3, Consequential Amendments, Transitional Provisions and Savings) Order 2007
4.30
pm
The
Minister for Competitiveness (Mr. Stephen
Timms):
I beg to
move,
That the
Committee has considered the draft Companies Act 2006
(Commencement No. 3, Consequential Amendments, Transitional Provisions
and Savings) Order
2007.
I bid you a very
warm welcome to the Chair, Mr. Bayley; I am delighted to see
you. As you know, the Companies Act 2006 will bring substantial
benefits to businesses by modernising and simplifying company law. The
order is quite an important milestone in implementing the Act, because
it will bring into force some of the key provisions, including
provisions relating to the statutory statement of directors
general duties, derivative claims and proceedings, the business review
and resolutions and meetings.
I shall set out briefly how the
provisions brought into force by the order will make major
contributions to two of the Acts objectives. The first is
better regulation and a think small first approach; the
second is enhancing shareholder engagement and the long-term investment
culture. The provisions in part 13 on resolutions and meetings will
deliver some of the most important deregulatory benefits of the Act.
From the perspective of think small first, the whole
decision-making process for private companies has been simplified,
making it easier for decisions to be taken by written resolution and
making annual general meetings opt-in rather than opt-out.
Other parts of the Act being
commenced on 1 October this year will also deliver deregulatory
benefits. Companies will be permitted to make loans to directors,
subject to member authorisation. Holding companies will be able to seek
authorisation for political donations and expenditure in respect of the
holding company itself and one or more subsidiaries through a single
approval
resolution.
To
enhance shareholder engagement and the long-term investment culture,
there needs to be a good understanding and effective engagement between
those who own companies and those who run them. The Act will provide
better guidance for directors on their duties and responsibilities,
making it easier for shareholders, including those who hold shares
indirectly through nominees, to exercise their ownership rights. It is
very important for long-term prosperity that company decisions are
based on the longer-term
view.
The Government
decided to implement the Act in stages so that companies could take
advantage of some of the key deregulatory benefits as soon as possible.
The approach we would take was discussed with interested parties, who
made it clear that although they would need time to prepare properly
for full implementation, they would like provisions in areas such as
electronic communications and the register of members to be commenced
as soon as possible. The approach of staged implementation has
therefore been taken, with commencement orders drafted to bring
different provisions into force at different
stages.
The Act was
drafted, of course, as a coherent whole. Many of its provisions refer
to expressions or concepts that are explained in other parts of the
Act. Where those other parts have not yet been commenced, it has been
necessary to adapt the drafting of the provisions being commenced to
make them work in the interim. Those transitional adaptations add to
the orders complexity in the short term, but will be revoked
once the whole Act has been brought into force, when they will no
longer be necessary.
I
apologise to hon. Members, particularly members of the Joint Committee
on Statutory Instruments, that it was necessary to withdraw and re-lay
the order. That was a consequence of the complexity to which I have
referred. In particular, I am sorry that it was necessary to correct
drafting errors at such a late
stage.
Let me outline
the orders structure. Articles 2 to 5 list the provisions of
the Act that come into force on different days. Schedule 1 contains the
transitional adaptations of the 2006 Act provisions, to which I have
referred. Schedule 2 brings some of the repeals in the Act into force.
Schedule 3 makes transitional provisions and savings, and schedules 4
and 5 make consequential amendments and
repeals.
It was
important through the transitional arrangements to ensure that,
wherever possible, existing bargains would be preserved and companies
would need to do nothing, or as little as possible, to transfer to the
new regime. A key area of interest in transitional arrangements has
been the provisions on derivative claims and proceedings in part 11 of
the 2006 Act. Those are claims and proceedings brought by shareholders
of a company on behalf of the company against its directors. Under the
transitional provisions, the new derivative procedures must be used for
all claims started on or after 1 October 2007, but the courts must
ensure that the outcome of any claim based on acts or omissions by a
director before then will be as it would have been under the old,
common law that applied at the
time.
I hope that I
have explained the key elements of the order. Its purpose is to deliver
the key benefits of the 2006 Act and to bring the company law framework
into the 21st
century.
4.36
pm
Mr.
Jonathan Djanogly (Huntingdon) (Con): We can thank the
Joint Committee on Statutory Instruments for exercising its normal due
diligence on the order. My humble opinion is that it is a masterpiece
of drafting skills and technical expertise. It is hugely complicated
and it took me no little time to get my head around it, so I
congratulate those who had the nous to put it together. It is so
complicated that it would make the most complicated of
Voldemorts spells look simple.
I shall run through a few points
relating to the order, some more general than others. My first is on
the general order of play. Looking at the order, one wonders in
retrospect whether we should have gone for the big bang approach rather
than the bit-by-bit approach; however, that decision was taken with our
consent and we are living with the consequences of it. Having heard
back from practitioners, we know that implementation is proving to be a
complicated business. We need to keep that in mind, and it would be
helpful if the Minister referred to that problem and said whether he
has been speaking to practitioners about the implications of putting
the Act into
practice.
To kick off
my specific questions, will the Minister explain why only some of the
provisions on company directors are being brought into force on 1
October? Why are sections 327(2)(c) and 330(6)(c) of the 2006
Act, on resolutions and meetings, not being commenced at that early
date? Why are the provisions on the control of political donations and
expenditure being commenced only in relation to Great Britain on 1
October, whereas they will not come into force in Northern Ireland
until 1 November?
We
welcome the bringing into force of sections 115 to 117, which were
prompted by the Conservative partys concern to have defences
against extremists using the register of members to access
shareholders addresses and to counter the growing threat of the
fraudulent use of the register through so-called boiler rooms. However,
during the passage of the Bill we made the point that those provisions
would be pretty ineffective if companies were still to be required to
publish details of their members names and addresses in their
annual returns. I believe that the Government are proposing changes to
deal with that problem. Will the Minister advise the Committee what
those changes will be and why they are not being brought in at the same
time as those sections, considering how vital they are to making the
provisions work?
The
Government are bringing in on 1 October the new requirements on
requests to inspect or obtain copies of a register of members, which
are in sections 116 to 119 of the Act. However, the equivalent
requirements on the register of debenture holders in sections 744 to
747, which are more or less identical, do not appear to be coming in
until 6 April 2008. Will the Minister explain
why?
In paragraph 13(4)
of schedule 1 to the order, it would be helpful if the proposed
transitional insertions into section 300 relating to the ancillary
documents to be supplied to members where a written resolution is to be
passed in certain circumstancesfor example, a buy-back, where
the buy-back contract must be sent to memberscould make it
clear that it is sufficient to circulate copies of the relevant
documents, as the new Act does in relation to the replacement
provisions.
A minor
point on which clarification would be helpful relates to the
transitional provisions in paragraph 32 of schedule 3 to the order.
When the Government published the February consultation paper,
paragraph 4(9)
said:
If a
private company has express provision for holding AGMs in its articles
the effect of this will be preserved. But indirect references to the
AGM will be disregarded, so that where the articles provide for the
directors or officers to retire by
rotation at the AGM, their appointments will continue until terminated
in accordance with the Act or other provisions of the
articles.
It is arguable
that that is still implied, for example, where a private company has
adopted table A in an unmodified form, containing the retirement by
rotation provisions in regulations 73 to 80, directors
appointments will become indefinite until otherwise terminated. That is
not quite as clear as set out in the consultation paper, and it might
be helpful if the Minister could at least confirm that the
Governments thinking has not changed on that
point.
4.41
pm
Mr.
Timms:
I am grateful to the hon. Member for Huntingdon for
his kind remarks about the ingenuity of those who have put the order
together. He makes a perfectly fair point about the complexity. The
challenge has been to ensure that, although we are implementing
different parts of the Act over a period up to October 2008, by which
time almost all of it will have been implemented, the overall body of
company law remains coherent and complete at every stage; hence much of
the complexity reflected in the order.
The hon.
Gentleman makes the point, very fairly, that with the benefit of
hindsight, some people might have argued for doing everything in one go
in October 2008, rather than in stages. What we have doneeven
with the benefit of hindsight, I think that it is the right
approachis to implement as soon as possible some of the changes
where the deregulatory benefits are the greatest, such as allowing
electronic communications, which companies were very anxious should be
implemented as soon as possible. Companies felt strongly that some of
the measures that we are implementing in the order should be
implemented early, but there are other measures for which companies
need longer to prepare. On some measures, companies want time to go
through the next AGM season to make changes, if they are required,
before implementation in October 2008.
The other
factor we must bear in mind is the need to comply with changing
European law. We want to ensure that we implement European Union
company law requirements falling due during the implementation period.
That is a further complication in timing all the measures and their
implementation between now and October 2008.
The hon.
Gentleman asked why the provisions are being commenced separately in
Northern Ireland. The provisions in part 14 of the Companies Act 2006,
and therefore this order, are being separately commenced for Northern
Ireland on 1 November this year to coincide with the commencement of
the Political Parties, Elections and Referendums Act 2001 (Northern
Ireland Political Parties) Order 2007. That order is made under the
2001 Act and the Northern Ireland (Miscellaneous Provisions) Act 2006.
In other words, the aim is coincide with the implementation of other
legislative provisions for Northern Ireland.
Under sections 327(2) and 330(2)
of the Companies Act 2006, as originally drafted, the record date for
proxy votes in polls would have been the time at which the poll was
demanded. That was not what was intended. The intention was to provide
for a clear 48-hour period prior to the meeting. We are therefore not
commencing those two subsectionsthey would
not have had the intended effect, and we think that the legislation
works without them.
The
hon. Gentleman asked about the timing in respect of some of the
directors duties measures. We consulted extensively with
business in drawing up the commencement timetable. Business leaders
said that they would like the conflict of interest duties to be
commenced in October 2008 so that companies would be able to review the
provisions in their articles of association in that area. That reflects
the point that I made about waiting for another AGM season. We can
implement some provisions early, but we need to wait until October 2008
for others.
On section
116 of the 2006 Act, we will be making changes to the rules relating to
annual returns so that details of members will not usually be required.
However, those changes will require changes to Companies House systems
that cannot be made until 1 October 2008. That is another of the
constraints on us. The hon. Gentleman makes a fair point about the
annual return to Companies House, which requires all members
names and addresses to be listed. We intend that requirement on the
annual return to change, but not until October 2008 because of the need
for the
registrar of companies to implement the associated changes to Companies
House systems and processes.
The one point of comfort that I
can offer is that every company may, if it wishes, take the benefit of
the new provisions simply by filing an annual return soon after 30
September 2007in other words, doing so earlier than they would
otherwise have done. That will be the last occasion on which they need
to provide the full list of members names and addresses. The
next time a filing is required will be after the change has taken
effect, so the full list will not be required. I do not claim that as a
great gain, but it is something that a lot of companies might want to
reflect on and take advantage of. They will be able to make an early
filing, immediately after 30 September 2007, because they do not need
to wait until their annual returns are due before they make a
filing.
I hope that I
have managed to answer the hon. Gentlemans questions. I am
grateful for his support for our changes. It is agreed across the House
that the Companies Act 2006 offers significant deregulatory benefits,
and people are looking forward to seeing the provisions of the order
coming into effect.
Question put and agreed
to.
Committee
rose at eleven minutes to Five
oclock.