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Grand Committee

Wednesday, 17 June 2009.

Arrangement of Business


3.45 pm

The Deputy Chairman of Committees (Lord Geddes): Before the Minister moves that the first statutory instrument be considered, I remind noble Lords that in the case of each statutory instrument, the Motion before the Committee will be that it do consider the statutory instrument in question. I should make it clear that the Motion to approve each statutory instrument will be moved in the Chamber in the usual way. If there is a Division in the House, the Committee will adjourn for 10 minutes.

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

Copy of the Order
16th Report from the JCSI

Considered in Grand Committee

3.46 pm

Moved By Lord Young of Norwood Green

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Lord Young of Norwood Green): The draft statutory instruments which we are debating this afternoon are an important part of our implementation of the Companies Act 2006. The Act reformed and clarified company law in many areas and brought company legislation together in one place. The Act makes it easier to set up businesses, gives investors greater information and confidence, and promotes shareholder engagement and effective dialogue between business and investors.

The Act has been implemented in stages and these statutory instruments relate to provisions which are due to come into force in October 2009. This staged approach gave companies time to prepare, allowed us to coincide changes with parallel EU requirements and allowed Companies House to update its systems to support the new measures.

The first debate concerns two statutory instruments relating to the Registrar of Companies. The basic functions of the registrar are set out in Part 35 of the Companies Act 2006. This 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 maintain the register as a useful and accurate source of information for users. The

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draft Registrar of Companies and Applications for Striking off Regulations supplement Parts 31 and 35 of the 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. It was recognised on both sides of this House during the passage of the Bill that more needs to be done to address the filing of inaccurate, forged or fraudulent information on the register. The Companies Act 2006 introduces two new statutory procedures requiring the registrar to rectify the register—that is, to remove material from the register under 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. It is, we believe, an important step towards a more accurate register, although I should make it clear that it is not a panacea, and that matters requiring adjudication of competing claims should be left to the courts.

Under the draft regulations, it will be possible for an applicant to seek removal of company officers’ details from the register. Companies House will follow the procedure set out in the regulations and, if no objection is received, the material will be removed. It will also be possible for companies to seek removal of material relating to changes to a company’s registered office address. We believe that the way in which the provisions of the 2006 Act are framed in relation to a company’s registered office and the grounds for rectification effectively precludes the possibility of an applicant, other than a company, making an application in respect of a registered office address and prevents the administrative procedure being used at all in respect of a registered office address provided on incorporation of the company.

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 this issue where there was a change of directors in an established company, but the revised regulations address it also where directors are purportedly appointed when a company is first set up.

We are very conscious that the provisions of the Act and the draft regulations do not provide a full answer to issues relating to the accuracy of the register, particularly where the company has provided fraudulent information. We will consider these matters further and if solutions can be identified, we are minded to consult on possible changes to the law in this area, including to the 2006 Act in due course.

The second area where the draft regulations make more detailed provision is annotation of the register. They authorise the registrar to annotate the register where he believes that any material is misleading or confusing.

The Act contains rules about the language in which documents can be drawn up and delivered to the registrar under company and insolvency legislation.

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The basic rule is that they must be drawn up and delivered in English. This does not apply to Welsh companies, which can deliver documents in Welsh so long as they are accompanied by an English translation. The draft regulations relax this exception further, prescribing documents relating to certain Welsh companies that can be delivered to the registrar in Welsh without a certified translation into English. The draft regulations also add further documents to the list of documents in the 2006 Act that can be delivered to the registrar in a language other than English, provided that they are accompanied by a certified translation into English. They also provide the characters and symbols that are permitted in names and addresses.

Finally, the draft Registrar of Companies 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 that prevent the application 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 which are required to send material to Companies House. It has therefore 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 this by making consequential amendments to each individual area of law, but we believe that the legislation will be clearer and simpler if we amend Part 35 to achieve this. The draft Companies Act 2006 (Part 35) (Consequential Amendments, Transitional Provisions and Savings) Order will give effect to this.

I should make it clear that the amendments made by the draft order are relatively modest in their impact, being concerned essentially with procedural and administrative matters. The draft order does not seek to extend all the provisions of Part 35 and does not seek, for example, to extend the provisions about correcting or removing material on the register.

These 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. I beg to move.

Lord De Mauley: I thank the Minister for introducing the order and the regulations. I welcome him to his new department. The SIs are not particularly controversial, so I shall not detain your Lordships long, but perhaps I may ask a couple of quick and rather more general questions of the Minister.

The order is an amendment to Part 5 of the Companies Act 2006. If it has taken the ever-growing Department for Business, with all the resources at its disposal, until 2009 to work its way through the complexity and conclude that there is a need for it, one has to ask what hope there is for the small businessman trying to go through the entire pile of regulation and work out whether and how each item of it affects him.

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The Explanatory Memorandum to the order says, under “Matters of special interest to the Joint Committee on Statutory Instruments”, that,

that is, Part 35 of the Companies Act—

Is it easier for the layman if it is done that way rather than by amending the various pieces of legislation? If so, it would be helpful to understand why in a little more detail. I do not ask that with any formed opinion; I would just like to know, because it is important that steps should be taken to ensure that legislation and regulation are accessible and understandable to those being regulated.

With that in mind, my final question is rather more general. What steps are being taken to codify the huge volume of extant legislation and regulation so that a layman stands a chance?

Lord Razzall: Clearly, these regulations are appropriate and relatively straightforward, although I take the point that the noble Lord, Lord De Mauley, makes about the complexity of statutory instruments under this legislation. I have two points to make. First, I very much welcome the confirmation that the Minister gave that this area will be kept continually under review. I have some scepticism about whether the appetite of Parliament, under any party, for another Companies Act will be met in the foreseeable future, after living through the last one. As the Minister said, anecdotally there is beginning to be a bit of an increase in fraudulent formation of companies, with directors’ names being used who were never directors and never actually signed the consent form—somebody else forged their signature. Recognising that that is a problem, I welcome the undertaking that the Minister has given that this will be kept under review.

My second point is on a slightly more difficult question. I am always amused by the report that we, rightly, receive on consultation outcomes, when the phrase is used,

I would always like to know what objections people had who did not generally support the proposed regulations. Clearly, we will not have a statement in this document, because it has already been written, but it would be helpful if the Minister could give some indication about the objections, because they are not stated and they are not obvious to me. If anyone is sitting behind him who can summarise it for him, I would be grateful.

Lord Lyell: I wonder whether I might impudently ask the Minister one or two gentle queries on the order before us today. First, I declare a very minor interest. I look around the Committee today to find the Minister, my noble friend and perhaps one or two other noble Lords who have ground through the years to become chartered accountants. Indeed, I am reminded of the musical, “Evita”, when the young lady says, “Somebody called me something unmentionable” and an old man says, “Yes, madam, they still call me an

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admiral, although I left the sea many years ago”. With regard to the accountancy profession, that is very much up my street.

The Minister referred at least twice to language. I beg him not to trouble himself today, but I hope that he can answer this impudent question in writing. The Minister referred twice to the language requirements, which are mentioned right at the bottom, in paragraph 4, Section 1059A(4), Sections 1102 to 1105 and 1107(18). I think that he mentioned Welsh. I had the opportunity to serve in Northern Ireland. I do not think that any cantankerous people would wish to have financial documents in Irish—or I doubt it. Do the language requirements cover other languages? I think particularly of oriental languages such as Japanese or Chinese, let alone Vietnamese. I understand that the Minister served in Vietnam. I was curious about that; perhaps he could reassure me that there should be no problem here. He referred to Welsh, which should be the only one.

On page 4, paragraph 13 refers to Section 1109(1) and,

Is there a problem there? I am curious as to quite what that refers to. I am not necessarily aware of that section in the Companies Act. Could the Minister reassure me that there is no problem there? If he cannot today, perhaps he could write to me as I would not wish at any time to delay the Committee.

4 pm

Lord Young of Norwood Green: The starting point is that Part 35 contains a mixture of provisions that apply generally and provisions that have either more limited application or that contain references to companies but which are essentially intended to apply generally. I hope that I will reassure the noble Lord, Lord De Mauley, that it takes relatively little to amend some of the provisions so as to generalise them or make it clear that they apply generally. That is more efficient than amending other legislation simply by writing in the provisions we want to apply with very little adaptation.

Our approach leaves Part 35 as the foundation of the law about the register’s function and material sent to the register. Other legislation will build on that foundation by applying the less straightforward provisions, including those that require greater adaptation to fit particular cases. An example of that is provided by limited liability partnerships. We intend to apply most of Part 35 to limited liability partnerships. The amendment made by the draft order will provide the foundation for that.

I am not sure that that actually deals with the noble Lord’s point. Unless I misunderstood it, the point was whether it would make it easier for lay people to deal with this issue. I am looking at my officials to see whether they will say yea or nay. In the mean time, I will deal with a point raised by the noble Lord, Lord Razzall about the proposed approach being generally supported. He asked what objections anybody had. We received relatively few written responses, but both the department and Companies House discussed them in detail with our leading stakeholders. We are not aware of any areas where our approach is not supported, other than those relating to rectification, which we have already said we will keep under review. So we have nothing up our sleeves on that one.

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The noble Lord, Lord De Mauley, asked whether we would codify for clarity. We will not be codifying secondary legislation made under the Act, but we will publish guidance on the websites for the Department for Business, Innovation and Skills and for Companies House. We will also work closely with our leading stakeholders and leading publishers.

As regards the point the noble Lord, Lord Lyell, raised—we will confirm this in writing just to ensure I get it absolutely right—English is the preferred language but there are allowances for other languages provided that they are accompanied by a translation. The reference to Roman characters is shorthand for the characters set out in the schedule. Only these may be used in names and addresses in documents delivered to the registrar. Not a lot of people know that.

I hope that that has dealt with all the questions. As regards the point of the noble Lord, Lord De Mauley, we believe that this will be a reasonable procedure for lay people. Proof of that particular pudding will be in the eating.

Motion agreed.

Registrar of Companies and Applications for Striking Off Regulations 2009

Copy of the Regulations
16th Report from the JCSI

Considered in Grand Committee

4.05 pm

Moved By Lord Young of Norwood Green

Motion agreed.

Overseas Companies Regulations 2009

Copy of the Regulation
16th Report from the JCSI

Considered in Grand Committee

4.06 pm

Moved By Lord Young of Norwood Green

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Lord Young of Norwood Green): We are today debating the draft Overseas Companies Regulations. They set out a simplified regime for registration of information at Companies House of companies incorporated overseas that operate their business in the United Kingdom through an establishment. We are talking not about UK incorporated subsidiaries of overseas companies, rather about overseas companies that are conducting their business through a local representative or have a small, permanently active base in the UK, such as a

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representative office, warehouse or shop. The regime concerns only obligations to file specified information in the UK at Companies House. The internal governance of companies incorporated outside the UK is for the law of the country of their incorporation.

In order to best protect UK creditors and the needs of law enforcement agencies, a regime has been prepared that continues to meet the EU requirements of the 11th directive for branches of overseas companies and also includes companies operating a place of business in the UK. The draft regulations include a revised accounting regime for overseas companies that is transparent, straightforward and up to date. Overseas companies will primarily file accounts prepared under the parent law of the country where the company is incorporated. However, where that is not applicable, accounts are to be prepared and disclosed in a manner compatible with the requirements for UK companies as set out in the Companies Act 2006. The regulations do not cover the law on the execution of contracts or the requirement to register the use of their assets in the UK to secure loans. These will be covered by a separate statutory instrument that will be made by negative resolution after these regulations have been made.

In line with the approach in the Companies Act 2006, the draft regulations apply to the United Kingdom rather than, as at present, to Great Britain only. This considerably simplifies the position for overseas companies that conduct business in both Northern Ireland and the rest of Great Britain by allowing them to register their presence in the UK once and therefore avoid the burden of duplicate filing. These draft regulations meet the concerns raised during the consultation process. They provide a single regulatory regime for the filing obligations of overseas companies operating in the UK. I commend this instrument to the Committee.

Lord De Mauley: I cannot see anything in the regulations to object to per se. Indeed, if my reading is correct, according to the Explanatory Memorandum, the majority of respondents to the consultation exercise agreed with what is being done here, although in line with the comments made by the noble Lord, Lord Razzall, in the previous debate, it would be interesting to know how big the minority was and what its major concerns were.

My only question is on the regulatory impact assessment. I explained before in this Committee my scepticism of the figures put on costs and, in particular, the claimed benefits of certain regulations in RIAs. In the case of these regulations, the net benefit claimed is no less than £43,360,000. I have followed the calculations, which are based on a sweeping assumption that half the 7,847 overseas companies will be in a position to provide parent company accounts and the other half will not. A further assumption is made about the average costs for each of those categories of company. The whole of the annual saving so calculated is then, I think, subjected to a net present value calculation, which itself makes assumptions—for example, about the cost of capital—which must be, to put it mildly, fairly subjective in the current market. I do not disagree that it is helpful to have a regulatory impact assessment, but I wonder what value there is in a claim of benefit

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to corporate entities based on such huge assumptions. I wonder whether the Government have, in a wider context, given thought to improving the techniques followed for arriving at a cost-benefit analysis, or at least to giving an indication of the subjectivity.

Lord Razzall: My Lords, I join the noble Lord, Lord De Mauley, in agreeing that the regulations are appropriate. Clearly, it makes enormous sense to simplify the procedure for registration of an overseas company, so that the company no longer has to take legal and accounting advice about the form of registration it requires. That lifts the regulatory and cost burden on overseas companies establishing places of business in the UK, which is welcome.

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