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Session 2008 - 09
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Public Bill Committee Debates

The Committee consisted of the following Members:

Chairman: Mr. Mike Hancock
Atkins, Charlotte (Staffordshire, Moorlands) (Lab)
Bone, Mr. Peter (Wellingborough) (Con)
Burt, Lorely (Solihull) (LD)
Clelland, Mr. David (Tyne Bridge) (Lab)
Cohen, Harry (Leyton and Wanstead) (Lab)
Farrelly, Paul (Newcastle-under-Lyme) (Lab)
Heppell, Mr. John (Nottingham, East) (Lab)
Hutton, Mr. John (Barrow and Furness) (Lab)
Kawczynski, Daniel (Shrewsbury and Atcham) (Con)
Lucas, Ian (Parliamentary Under-Secretary of State for Business, Innovation and Skills)
Meale, Mr. Alan (Mansfield) (Lab)
Penrose, John (Weston-super-Mare) (Con)
Syms, Mr. Robert (Poole) (Con)
Thurso, John (Caithness, Sutherland and Easter Ross) (LD)
Wright, Mr. Anthony (Great Yarmouth) (Lab)
Wright, Jeremy (Rugby and Kenilworth) (Con)
Sarah Hartwell-Naguib, Committee Clerk
† attended the Committee

First Delegated Legislation Committee

Monday 29 June 2009

[Mr. Mike Hancock in the Chair]

Draft Registrar of Companies and Applications for Striking Off Regulations 2009
4.30 pm
The Chairman: As it is very hot in here, it is permissible for anyone who wants to remove their jacket to do so, including the Doorkeeper.
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Ian Lucas): I beg to move,
That the Committee has considered the draft Registrar of Companies and Applications for Striking Off Regulations 2009.
The Chairman: With this it will be convenient to consider the draft Companies Act 2006 (Part 35) (Consequential Amendments, Transitional Provisions and Savings) Order 2009.
Ian Lucas: It is a pleasure to appear before you for the first time, Mr. Hancock. I have already experienced your courtesy with the decision on our jackets.
The draft regulations and the draft order, with their snappy titles, cover the functions of the registrar of companies. The basic functions are set out in part 35 of the Companies Act 2006, which largely replaces the relevant provisions of the Companies Act 1985, but it provides new powers and duties for the registrar which will help Companies House to maintain the register as a useful and accurate source of information for users.
The draft Registrar of Companies and Applications for Striking Off Regulations 2009 supplement parts 31 and 35 of the 2006 Act by making more detailed provision in four areas: rectification of the register, annotation of the register, language requirements, and an application by a company to have its name struck off the register. The registrar does not currently have any statutory powers to remove information from the register, although the registrar will remove material if a court order authorises it.
The 2006 Act introduces two new statutory procedures requiring the registrar to rectify the register—that is, to remove material from the register—under a court order or under a new administrative procedure on application to the registrar. The new administrative procedure has been introduced to permit certain information to be removed from the register without a court order. That will help to address issues relating to the filing of inaccurate, forged or fraudulent information on the register, although we believe that matters requiring adjudication of competing claims should be left to the courts.
An earlier draft of the regulations was withdrawn in the light of fresh evidence that some companies were purportedly appointing directors without the consent or knowledge of the persons concerned. The earlier draft addressed that issue when there is a change of directors in an established company, but the revisited regulations also address the issue when directors are purportedly appointed when the company is first set up. We are aware that the provisions of the Act and these draft regulations do not provide a full answer to issues relating to the accuracy of the register, particularly when the company has provided fraudulent information about its registered office address. We will consider the matters further, and we intend to consult in due course on possible changes to the law in that area, which might include changes to the 2006 Act.
The second area in which the draft regulations make more detailed provision is annotation of the register. The draft regulations authorise the registrar to annotate the register when he believes that any material on it is misleading or confusing.
The 2006 Act contains rules about the language in which documents can be drawn up and delivered to the registrar under company and insolvency legislation. The basic rule is that they must be drawn up and delivered in English. The draft regulations add further documents to the list in the 2006 Act that can be delivered to the registrar under companies legislation in a language other than English provided that they are accompanied by a certified translation into English. That does not apply to Welsh companies, which can deliver any document to the registrar in Welsh so long as it is accompanied by an English translation. The draft regulations relax that exception for Welsh companies further, prescribing documents relating to certain Welsh companies that can be delivered to the registrar in Welsh without a certified translation into English.
The regulations also provide the characters and symbols that are permitted, to the exclusion of others, in names and addresses contained in documents delivered to the registrar.
Finally, the draft regulations require an application by a company to have its name struck off the register to contain a declaration that there are no circumstances as set out in sections 1004 and 1005 of the 2006 Act which prevent the application from being made.
It is important to Companies House and very helpful to business to have a coherent and consistent registration system for all types of business that are required to send material to Companies House. It has always been our intention to apply provisions of part 35 relating to the registrar of companies to forms of business association other than companies. Some provisions already apply generally to companies and other bodies, but others, such as certain provisions relating to electronic delivery, must be applied to other bodies to provide a coherent system. It would be possible to do that by making consequential amendments to each individual area of law. We believe that the legislation would be clearer and simpler if we amend part 35 itself to achieve that. The draft Companies Act 2006 (Part 35) (Consequential Amendments, Transitional Provisions and Savings) Order 2009 will give effect to that.
I should make it clear that the amendments made by the draft order are relatively modest in their impact, as they are concerned essentially with procedural and administrative matters. The draft order does not seek to extend all provisions of part 35, and does not seek, for example, to extend the provisions about correcting or removing material on the register.
The instruments will make an important contribution to our efforts to make the register a useful and accurate source of information for users. I commend them to the Committee.
4.37 pm
John Penrose (Weston-super-Mare) (Con): It is a pleasure, Mr Hancock, to have you in the Chair this afternoon. I thank the Minister for a clear exposition of some pretty detailed and technical measures that are embodied in both instruments. In general, the principles that underline them, which are those of administrative simplicity and of ensuring that accurate, clear and up-to-date information is available about the companies that are operating in this country, clearly have support on both sides of the House. Therefore, my party certainly has no objection in principle to any of the measures. However, I have a couple of technical questions for the Minister to ensure that we have understood one or two of the implications of the things that he has been discussing.
Paragraph 7 of the explanatory memorandum of the draft regulations says it will be possible
“to have certain fraudulently filed material removed from the register without making an application to the court.”
I want to get a sense from the Minister of what quantification his Department has done to assess the extent of the problem. How many examples of fraudulent material are being filed every year? Is the problem getting worse or better? What is the scale of the problem?
That moves us on to my second query. I want to get a sense from the Minister of whether the measures are proportionate to the scale of the problem. If it is a major problem and getting worse, large-scale measures will be in order. If it is a relatively minor problem that the Government are trying to nip in the bud, minor measures might be enough. We do not want to overreact.
The Minister mentioned that the original draft regulations were laid and then withdrawn, and he explained why. Paragraph 8.2 of the explanatory memorandum states that the revised draft regulations
“were placed on the BERR website for information on 2 May 2008.”
Has there been any positive or negative reaction to the revised draft regulations? It is important to know that because paragraph 10.1 of the explanatory memorandum states:
“The instrument has a negligible impact on the costs of business, charities or voluntary bodies. An Impact Assessment has therefore not been produced.”
If there has been little reaction and the people who could be affected are entirely unworried, that is ample evidence to suggest that the proportionality of the Government’s reaction to the perceived problems is about right. It would help to know whether stakeholders have made any comments so that there is external verification of the Government’s assertion that an impact assessment is not necessary.
I have a similar question about the snappily titled draft Companies Act 2006 (Part 35) (Consequential Amendment, Transitional Provisions and Savings) Order 2009. The Government say that they have undertaken no public consultation on the grounds that the measures are minor and technical. Paragraph 8.1 of the explanatory memorandum states that the Department
“has not carried out a public consultation on the draft Order because it does not confer new obligations to deliver documents to the registrar”.
Paragraph 10.1 states that there is no need for an impact assessment. If there has been no public consultation, how do the Government know that? What evidence do they have to reassure me and others that the order is purely technical, that the Government response is proportionate and that we are not inadvertently imposing unexpected and unwanted costs on business through the law of unintended consequences?
Assuming that the Minister provides cogent and straightforward answers, I do not anticipate having any further objections or concerns.
4.43 pm
John Thurso (Caithness, Sutherland and Easter Ross) (LD): It is a pleasure to appear under your chairmanship, Mr. Hancock. I know that you have chaired many Committees, but this is the first time that I have had this pleasure.
I thank the Minister for his comprehensive explanation of this detailed and technical draft legislation. It is important that Companies House is an accurate source of information. It is the first port of call for many people when trying to discover the sort of company with which they are dealing.
Like the hon. Member for Weston-super-Mare, I am interested to know what will be the implication of not having a court order. I have personal experience of the matter. Some years ago, a company had me listed as a director three years after I had formally resigned. It was quite a job of work to get myself off the register. I suspect that that case would have been made easier if a court order had not been needed. If that is the case, I welcome the measure. The Minister said that the register is not wholly accurate and that there is more to do to make it so. I am glad that he and his officials are working on that.
I, too, noted the consultation process. The Department listened to what people said about the initial draft regulations and looked at them again. I look forward to the Minister’s answers to the questions that have been asked on that.
I have just one small set of questions on the elements that deal with translation. The instrument allows for documents to be lodged in a language other than English provided that they are accompanied by a certified translation. The first question is, in the event that legal proceedings are necessary at any point, would the original language or the certified translation hold sway in a British court of law? There is a subtle difference in relation to that because, even if they are certified, not all translations are necessarily an accurate legal reflection of the document that they purport to translate.
The second thing is that although I welcome the exemption for the Welsh language and the fact that a certified translation is not always required, does that not make it slightly difficult for those of us who are not fluent Welsh speakers? Should some provision be made, so that we can at least have a sense of what has been included? The third question, which follows on neatly from that, is that if the Welsh are allowed to place their documents on record in Welsh, which is I think is “P” Gaelic as opposed to “Q” Gaelic, or it might be the other way around, why cannot Scotland, which recognises the other form of Gaelic—Scots Gaelic—as a language in Scotland not benefit from the same relaxation? I am sure that an answer to that question would keep my nationalist friends happy.
4.46 pm
Harry Cohen (Leyton and Wanstead) (Lab): I want to ask the Minister just one question about companies set up in the UK with the main purpose of dealing with overseas companies. The draft order alters the arrangements for overseas branches, although they do not have to be called that. I am thinking of the case of Bernie Madoff, who had a company in the UK that operated his affairs for him here. I also think that money—perhaps even for political purposes—has come into companies operating in this country which was really meant for overseas companies. If a company has a primary purpose of dealing with an overseas company, is there not a case for saying that a registered company should put that down as its main purpose in the register so that people have some clarity in that regard? I know that the subject is not covered by the instruments, but I put it to the Minister that it perhaps should be considered and added.
4.48 pm
Ian Lucas: I thank hon. Members for their contributions to improve the interests covered by debate. First, I shall deal with how widespread the procedure is likely to be. I understand that approximately 60 to 80 filings a month are alleged to be fraudulently filed at Companies House. Such filings relate either to a change of registered office address or to the appointment or removal of a director or secretary. The numbers involved are not small, but they certainly merit attention and, indeed, action.
John Penrose: Will the Minister give us an indication of what proportion of the monthly total that is and whether the problem is increasing, declining or holding relatively steady?
Ian Lucas: Before I respond to that question, I will clarify the matter by saying that the rectification procedure would be used not just for fraudulent cases, but for cases that involved simple factual errors. That would enable Companies House to deal with matters much more efficiently and swiftly than by applying to the court, which is the necessary process currently.
On the reaction to the proposals, the draft regulations were discussed in detail with major stakeholders and published on the departmental website. We have received full support for them, and there has been an attempt to provide more accurate and reliable information on the register. We also heard that stakeholders wished to look in more detail at rectification. That is why we are consulting further and making efforts to respond further to the points that have been raised through the process.
We are keen to work with stakeholders to reach a satisfactory conclusion. This is not the end of the story, but we will certainly do all that we can to work with stakeholders to come to the end of the story as soon as possible.
John Penrose: I want to ensure that I fully understand the Minister’s comment. I understand that the original draft regulations, which were withdrawn, had a lot of support, although there were some technical concerns that the Government say they have dealt with in their revised draft regulations. However, have there been any additional reactions to those revised drafts, as opposed to the original set, and were those positive or negative?
Ian Lucas: I understand that the reaction to the revised drafts led to the further discussions that now are taking place. That is why our debate on these draft regulations is not the end of the story. We need to return to the matter and deal with the queries that are being raised now.
Perhaps it will assist the hon. Gentleman if I give an example of the type of thing that has been raised. If details of a registered office were given by a company without the consent of the person who lived at that registered office, the representation by the business that presented that registered office would be factually correct, but there would not be an element of consent from the individual who lives there. That example was raised in the consultation that is taking place and it has not yet been resolved by the process that we have gone through.
John Penrose: The Minister’s reply worries me. I thought that the Government had consulted on the original regulations, seen that there were problems, withdrawn them and replaced them with the draft regulations that we are discussing, which would mean that the newer draft regulations are acceptable. However, I think that he is telling me that they are not acceptable, but none the less we are debating them and the Government want to go ahead with them now.
I am concerned that we are being asked to approve something that the Government think is flawed, because the Minister said that the Government will come back and have another go—another bite of the cherry—later on. If the draft regulations are currently flawed, should not the Government withdraw them now and return with revised ones later in the interests of getting it right, rather than go through the process several times and come back again with more amendments?
Ian Lucas: The draft regulations are not flawed; they deal correctly with matters that were raised in the previous consultation, which is what they aim to do. Some things have not been resolved to date, but the draft regulations do not seek to resolve those. We are dealing with what was raised in response to the original consultation. However, this is not the end of the story, because there is commitment to come back to the Committee on some things, including the example that I mentioned.
On the proportion of cases, more than 2 million companies and more than 8 million directors are on the register. While the figure for fraudulent entries is not completely insignificant, it is still a small proportion of the cases that have been presented.
The Chairman: Order. If I may interrupt for the benefit of the Committee, I think that the question was more about what proportion that 80 was of the ones that were registered.
John Penrose: Thank you for your helpful comment, Mr. Hancock, which is absolutely right. My question was about the 60 or 70 that were fraudulent as a proportion of the flow each month, rather than of the total stock of companies that are registered, and about whether the percentage of that flow is growing or declining.
Ian Lucas: I cannot give a figure on the monthly transactions, but I shall write to the hon. Gentleman on that matter and the interesting figure of whether the number is increasing or declining.
From the comments of the hon. Member for Caithness, Sutherland and Easter Ross about Gaelic, I sensed a local press release coming on, but perhaps I am being desperately unfair.
John Thurso rose—
The Chairman: If you can avoid it, do not bite.
John Thurso: Let me reassure the Minister that there is no way that I would wish to issue a press release on that, as there is a controversy in Caithness, which does not regard itself as speaking Scots-Irish Gaelic, but if there is Gaelic, it prefers the old British, which is the Welsh kind. I leave all of that to the Highland Council and would not wish to intervene.
The Chairman: I am glad, because that would take us far outside the remit of this legislation.
Ian Lucas: Indeed, and I represent a constituency from Wales, so I am well aware of the complications involved in that subject. However, I am grateful to the hon. Gentleman for raising the issue of translations, because it is important and the Government have a statutory commitment to the Welsh language under the Welsh Language Act 1993. On translations more generally, if any litigation arises from the content, Companies House will provide a translation of the content of the documentation at Companies House. His point about which language is the admissible language in court is important. I need to take advice on it and will write to him.
I also listened carefully to the question that my hon. Friend the Member for Leyton and Wanstead asked. I am grateful to him for raising that point, but, again, I need to check the position, so I shall write to him about that.
I hope that I have dealt with the issues that hon. Members have raised. The instruments will make an important contribution to our efforts to make the register a more useful and accurate source of information for users, and I therefore commend them to the Committee.
Question put and agreed to.

Draft Companies Act 2006 (Part 35) (Consequential Amendments, Transitional Provisions and Savings) Order 2009

That the Committee has considered the draft Companies Act 2006 (Part 35) (Consequential Amendments, Transitional Provisions and Savings) Order 2009.—(Ian Lucas.)
The Chairman: I thank all hon. Members for their courtesy and for being so good-natured.
4.59 pm
Committee rose.

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