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Lord McIntosh of Haringey: My Lords, I am grateful to both noble Lords for their reception of the regulations, and I shall seek to answer the questions directly. The noble Lord, Lord Hodgson, asked whether microfiche will continue to be available directly. Yes, it will. He asked about the fees for the Companies Registry in Northern Ireland. I am afraid that we do not have information on that as it is a separate registry. That is what devolution means.
The noble Lord asked about the 9 per cent return as against the target of 6 per cent. The 9 per cent figure arose because there was an exceptionally large number of company registrations in that period. Contrary to what he expects, there continues to be a large number of company registrations. Therefore, if we did not take any action at all, there would probably be a higher rate of return than the target. However, we have the flexibility administratively to vary a number of the fees.
The fact that this is an affirmative resolution is a nonsense. I should not be taking up the time of the House today. It arose from a time when we were insufficiently aware of the value of the time of the House and the undesirability of having continuing amendments. I can reassure the noble Lord on that point, however, because the House of Commons committee on statutory instruments queried whether it was right for us to be doing this in this piecemeal way. In response, we have undertaken to prepare a consolidation order which will bring all of the changes into effect. However, some of the fees still require statutory approval. That is a matter which can be addressed in companies legislation in the longer term.
The noble Lord asked me about a disaster recovery programme. Companies House has a comprehensive disaster recovery programme and has recently undertaken considerable risk management assessment. I am sure that that means that there is adequate backup for the circumstances with which he is concerned.
I agree with the noble Lord, Lord Roper. Having run a business information company for a number of years and having to use microfiche myself, I hate microfiche: I hate searching, I hate the heat, and I hate the spiky metal on them. I do not want to see a microfiche reader again. However, he can rest assured that those who insist on microfiche can have it. There are microfiche readers in all of the Companies House public offices. It has been noticed, however, that they are very much less used than they were in the past.
On Question, Motion agreed to.
Regulatory Reform (Removal of 20 Member Limit in Partnerships etc.) Order 2002
4.34 p.m.
Lord McIntosh of Haringey rose to move, That the draft regulatory reform order laid before the House on 24th October, Session 2001–02, be approved [29th Report, Session 2001–02, from the Regulatory Reform Committee].
The noble Lord said: My Lords, this is the first order from the Department of Trade and Industry to be brought forward under the Regulatory Reform Act 2001. The order is designed to remove the 20 member limit which at present applies, with some exceptions, to partnerships, limited partnerships, unregistered companies and associations, formed for the purpose of gain.
The impetus for the order came from recommendations of the Law Commission and the Scottish Law Commission that the 20 partner limit for partnerships be abolished. The 20 member limit was enacted in the 19th century in response to a problem of the day and reflected the business and legal environments at that time. The limit was intended to prevent abuses by certain deed of settlement companies which were common in the 18th and 19th centuries.
The membership of a deed of settlement company could be large and could change often. To sue a deed of settlement company under common law, the aggrieved party had to be able to name all the shareholders. This was exploited by the unscrupulous who set out to defraud the public. By constructing a large partnership with a fluctuating membership, they made it virtually impossible for an aggrieved party to sue. This difficulty was the basis for the size restriction that was first introduced in the Joint Stock Companies Act 1844.
Following the fusion of equity and common law in 1873, aggrieved parties could sue partnerships in England and Wales in the firm's name. They no longer had to be able to name all the members. The situation is slightly less straightforward in Scotland, however—the differences would not cause procedural differences for the plaintiff.
My department consulted extensively on this proposal. It received overwhelming support. Respondents agreed that, although specific exemptions can be made to the 20 member limit (and a large number have been made over the years), it does impose burdens. It prevents the expansion of business through the introduction of new partners, restricts the development of multidisciplinary and international partnerships, restricts the use of joint ventures, especially in the private equity and property sectors, and imposes legal complexity and administrative costs.
This order will increase the freedom of businesses to organise in the way most appropriate to their circumstances, facilitate the introduction of new partners and the development of multidisciplinary partnerships, result in cost savings to business and remove the need for increasingly complex applications for exemption.
The committee concluded that the proposal to remove the 20 member limit removed a burden within the meaning of the Regulatory Reform Act 2001 and did not create a new burden. The department also demonstrated to the satisfaction of the committee that the proposal will neither confound any reasonable expectations nor reduce any necessary protection. I thank members of the Select Committee on Delegated Powers and Regulatory Reform for the time they spent scrutinising the proposal and for recommending the proposal to the House.
The committee in the other place also considered that the proposal removed a legal burden from members of partnerships, and those wishing to enter into partnership arrangements, and agreed that it was not necessary to replace the limit with any other protections. I confirm that the regulations conform with the European Convention on Human Rights. I commend the order to the House.
Moved, That the draft regulatory reform order laid before the House on 24th October, Session 2001–02, be approved [29th Report, Session 2001–02, from the Regulatory Reform Committee].—(Lord McIntosh of Haringey.)
Lord Hodgson of Astley Abbotts: My Lords, once again I am grateful for the Minister's explanation. Before I make my remarks I have an interest to declare as I have been, and at this moment remain, a limited partner in at least three parallel partnerships of the sort described in the briefing. I have therefore seen at first hand the administrative complexities as well as the need to use offshore vehicles and other cost ineffective devices which the old regulations impose. It seems to me, therefore, extremely welcome that we should be considering their removal.
The Minister mentioned the private equity industry which has been greatly affected by the 20 partner limit. The private equity industry in the UK has been a great success. It has assisted in the development of the entrepreneurial culture in the country and added yet another area of expertise to the formidable range already available in the City of London.
I wish to raise three small points. First, does the deregulation apply to Northern Ireland? I think not. If not, why not? Secondly, if and when the order goes through what is the position of parallel partnerships? Are they permissible or impermissible?
Thirdly, I have a familiar moan about the density and incomprehensibility of the parentage of the legislation. The notes to page 2 of the regulation state that the regulations have as their parent the Companies Act 1985, the Financial Services and Markets Act 2000, the Banking Act 1979 and the Trade Union and Labour Relations (Consolidation) Act 1992. That makes the legislation extraordinarily dense and difficult to understand and, although I do not know how, I hope that we can find a way to make it more comprehensible to the man or woman in the street.
I accept the point that has been made that it is possible to construct scenarios in which people with malice aforethought could seek to take advantage of
the change. However, I have heard of no evidence that such schemes could not have been introduced under the old parallel partnership route but were not. I see no reason why that should be different in future. This is a deregulatory measure that will cut costs and increase the United Kingdom's competitiveness, and we therefore support it.As this is the last of the orders and I have kept noble Lords here for the best part of an hour, I take the opportunity to wish happy Christmas to the noble Lord, Lord Grocott, the Captain of the Gentlemen-at-Arms, to the noble Lord, Lord McIntosh, who I see from my grey book I should properly call the Captain of the Yeomen of the Guard, and to the noble Baroness, Lady Blackstone.
4.41 p.m.
Lord Phillips of Sudbury: My Lords, I must declare an interest as a partner of 30 years' standing and as one who has sued many partnerships on behalf of clients. I would not say that that was a mug's game, but it is the most difficult form of legal suit to entertain and pursue, except perhaps as regards an unincorporated association. I might even have been sued as a partner, but I do not think so.
I broadly welcome the measure. I do not seek to prevent its passage, as that would be fruitless, but I do seek to persuade the Minister and the Government of the need for parallel regulations for public disclosure by the large partnerships that will flourish in the wake of this change. In doing so, I am supporting the representation referred to in the statutory statement prepared by the Department of Trade and Industry in relation to this deregulatory measure. One representation is anonymous and the other is advanced by the well-known firm of solicitors named William Sturges. Both representations were to the effect that, without a measure of public disclosure, the prospects for the sort of anti-social activities that originally gave rise to the limit of 20 partners will be created once again.
I noted the Minister's description of those partnerships. He referred to large partnerships with "fluctuating partners" under the settlement partnerships. I put it to the House that, although the vast majority of partnerships are thoroughly proper, well conducted and many, if not most of them, are professionally regulated, many are not.
Partnerships have always been concentrated in the service area, as they are not suitable vehicles for large asset-carrying and creating entities. In the context of much of today's financial services business, which is extremely fast-moving and global, there are many types of partnership that will be able to be formed in the wake of this measure that will, I fear, try to play fast and loose with the public. I am sure that I do not need to enumerate the many scandals, large and small, that have afflicted the financial services sector in recent times.
The Government should by all means proceed with this deregulating measure, but could they actively review the representations by William Sturges and the anonymous firm? In that way, there could be only a
short delay between the coming into effect of the delimited number and the bringing into effect of publicity requirements. At the moment, partners do not need to disclose any of those pieces of information that are necessary for companies. There is no register of directors or of partnerships. They do not need to produce an annual report or to lodge any form of annual accounts or their constitution so that people can see where governance lies. There is no need to specify the executive partners. In fact, anyone seeking redress against a partner is, frankly, up against it if those partners are trying to evade their responsibilities. I say that in the firmest possible way and with a great deal of personal professional experience.The document produced by the DTI is, dare I say, a bit naive with regard to the current reality. For example, it suggests that if one does not know the name of the partners, one should ask the solicitor,
- "authorised to accept service on behalf of the partnership firm".
- "by leaving the notice with either a partner or a manager/controller of the firm at the firm's principal place of business".
- "sending or transmitting a copy of the notice to . . . a partner's usual or last known address".
All noble Lords would deplore any misuse of this development for improper purposes. I therefore hope that the Government will accept that we should introduce regulations that more nearly equate the public disclosure responsibilities for companies with those for large partnerships. I suggest that those publicity requirements should be confined to partnerships of more than 20. Subject to that, I welcome the order.
4.45 p.m.
Lord Fraser of Carmyllie: My Lords, I join my noble friend on the Front Bench in welcoming this broadly deregulatory measure. I also acknowledge that he appreciated the existence of the separate legal persona of a partnership in Scotland. Many of the difficulties that have been set out probably do not exist north of the Border. There may be problems with ever-larger partnerships south of the Border. I have never seen any magic in the figure of 20 but something of an issue may arise if partnerships are allowed to expand indefinitely.
I hope that, in the wake of a welcome deregulatory measure, we do not find ourselves subsequently encumbered with too many requirements about the increased size of a partnership, which would transform the order from a deregulatory measure to one that would impose greater burdens on those who were in a position to decide that they wanted to increase their partnership in a natural manner from more than 20 to 22, 24, 26 or whatever the figure may be. I understand that there might be some cause for concern about a really large partnership.
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