| Company Law Reform Bill [HL] - continued | House of Lords |
| back to previous text | |
|
Clause 755: Deemed delivery of documents and information sent by post or electronic means 1421. This clause sets out when communications from the company are deemed to have been delivered, but it can be excluded by contrary provision elsewhere. Subsection (4) provides that the 48-hour period for deemed delivery is counted during normal business days only. Notice of appointment of certain officers Clause 756: Duty to notify registrar of certain appointments etc Clause 757: Offence of failure to give notice 1422. These clauses are new provisions. The requirement to give notice of the appointment of a judicial factor (in Scotland) gives effect to a recommendation by the CLR (Final Report, paragraph 11.39). This is because a judicial factor displaces directors. Clause 757 makes it an offence for the judicial factor not to notify the registrar of his/her appointment. 1423. Clause 756 also requires the Charity Commissioners to notify their appointment of a receiver and manager and the regulator of community interest companies to give notice of the appointment of a manager. These officers also displace directors. Courts and legal proceedings Clause 758: Meaning of "the court" 1424. This clause defines the term "the court" for the purposes of the Companies Acts. The effect of this definition is that except where an enactment or rule of law provides otherwise, cases under the Companies Acts relating to companies registered in England and Wales can be heard either in the High Court or the county court; cases relating to companies registered in Scotland can be heard either in the Court of Session or the sheriff court; and cases relating to companies registered in Northern Ireland are to be heard in the High Court of Northern Ireland. 1425. The allocation of cases between the county court (or sheriff court) and the High Court (or Court of Session) will be determined partly by the courts' general powers and partly by subordinate legislation. Clause 759: Power of court to grant relief in certain cases 1426. Under this clause, an officer of a company (such as a director) or a person employed by a company as auditor may apply to the court for relief from liability for negligence, default, breach of duty or breach of trust. A court may grant relief if it appears to the court that:
1427. Subsections (1), (2) and (4) restate section 727 of the 1985 Act without substantive amendment. 1428. Subsection (3) extends the scope of the court's power to grant relief so that it can be applied to reporting accountants appointed by companies that are charities of an intermediate size under clause 459. As charity law in Scotland is a matter for the Scottish Parliament, this change applies only in England, Wales and Northern Ireland. PART 29: COMPANIES: INTERPRETATION Meaning of "undertaking" and related expressions Clause 760: Meaning of "undertaking" and related expressions; Clause 761: Parent and subsidiary undertakings 1429. These two clauses restate the provisions of, respectively, sections 259 and 258 of the 1985 Act. 1430. Clause 760(1) defines the meaning of "undertaking" for the purposes of the Companies Acts as encompassing both incorporated and unincorporated entities. Subsection (2) defines references to shares for all undertakings - undertakings with share capital, undertakings with capital but no share capital and undertakings without capital. 1431. Clause 761 and Schedule 8 restate the provisions of section 258 of, and Schedule 10A to, the 1985 Act. They define the expressions "parent undertaking" and "subsidiary undertaking" which are used for the purposes of the accounting provisions of the Companies Acts and which derive from the Seventh Company Law Directive 83/349/EEC. Other definitions Clause 762: Classes of shares 1432. "Classes of shares" (or "class rights") is not defined in the 1985 Act but at common law this term is normally used where the rights that attach to a particular share relate to matters such as voting rights, a right to dividends and a right to a return of capital when a company is wound-up. Rights attach to a particular class of shares if the holders of shares in that class enjoy rights that are not enjoyed by the holders of shares in another class. 1433. This clause provides that for the purposes of the Bill, shares are of one class if the rights attached to them are in all respects uniform. It reproduces the provision in section 128(2) of the 1985 Act. It is particularly relevant to the provisions of clause 535 (power of directors to allot shares etc: private company with only one class of shares) and clause 543 (disapplication of pre-emption rights: private company with only one class of shares). This definition of "classes of shares" also applies in determining the extent to which shares constitute different classes for the purposes of the statement of capital required to be filed under various provisions of the Bill. Clause 763: Dormant companies 1434. This clause restates the definition in section 249AA(4) to (7) of the 1985 Act of what is meant by a company being dormant. Subsection (1) of this clause provides that "a company is "dormant" during any period in which it has no significant accounting transaction". The term "significant accounting transaction" is defined in subsections (2) and (3). Subject to certain exceptions a dormant company is exempt from having its accounts audited (see clauses 457 and 458). " Clause 764: Meaning of "EEA state" and related expressions 1435. This clause provides a definition of "EEA State" - reproducing the definition in section 744 of the 1985 Act without change of substance - and of "EEA Company" and "EEA undertaking". Clause 765: The former Companies Acts 1436. This clause defines "former Companies Acts" by listing those pieces of companies legislation (which will no longer be in force) which are included within the term. The list expands upon that in section 735 of the 1985 Act to take account of equivalent provisions for Northern Ireland. General Clause 766: Minor definitions: general 1437. This clause provides definitions of a number of other terms used in the Bill. Clause 767: Index of defined expressions 1438. This clause introduces Schedule 9 to the Bill, which provides an index setting out where the definitions of terms used in the Companies Acts are to be found. PART 30: COMPANIES: MINOR AMENDMENTS Clause 768: Power of Secretary of State to bring civil proceedings on company's behalf 1439. This clause repeals the power of the Secretary of State, under section 438 of the 1985 Act, to bring civil proceedings on behalf of a company. Subsections (2) and (3) are consequential amendments to sections 439 and 435 of the 1985 Act respectively. This repeal does not affect any proceedings begun before this clause comes into force. Clause 769: Repeal of certain provisions about company directors 1440. This clause repeals various provisions of Part 10 of the 1985 Act. 1441. Section 311 of the 1985 Act prohibits a company from paying a director remuneration free of income tax. The Law Commissions recommended its repeal as the tax which the company agreed to pay is itself taxed as part of the emoluments of a director and as the company is required to disclose in its annual accounts an estimate of the tax which it has undertaken to pay. 1442. Section 323 of the 1985 Act prohibits directors (including shadow directors) from buying "put" and "call" options in listed shares or debentures in the company or another in the same group. This prohibition is extended to spouses and minor children of directors by section 327 of the 1985 Act. The Law Commissions recommended its repeal. 1443. Sections 324 to 326, 328 to 329 and Schedule 13 deal with the duty of a director to notify interests in shareholdings to his company and impose an obligation on the company to record those interests in a register and to disclose them to the relevant exchanges. 1444. Sections 343 and 344 of the 1985 Act makes special provision for banking companies and the holding companies of credit institutions, allowing them to disclose in their annual accounts abbreviated particulars of loans, quasi-loans and credit transactions with directors or their connected persons. Clause 386, which replaces the annual accounts disclosure requirements of the 1985 Act in respect of loans, quasi-loans and credit transactions, makes its own special provision for banking companies and the holding companies of credit institutions. Clause 770: Repeal of requirement that certain companies publish periodical statement 1445. This clause repeals section 720 and the related Schedule 23 to the 1985 Act. Section 720 required certain insurers and deposit, provident or benefit societies to publish a periodical statement in the form set out in the Schedule. The statement contains basic information about certain liabilities and assets and, in the case of a company with shares, basic information about its share capital and issued shares. This general disclosure requirement has been superseded by specialised regulatory developments in particular fields of financial services. The application of the section is now very limited as it does not apply to any UK insurance company which is regulated by the FSA under FSMA 2000 and which complies with its rules as to the publication of annual accounts and balance sheet. Nor does it apply to any insurer authorised in any other EEA State carrying on business in the UK if it complies with equivalent rules of its home State. Clause 771: Repeal of requirement that Secretary of State prepare annual report 1446. This clause repeals the requirement, under Section 729 of the 1985 Act, for the Secretary of State to cause a "general annual report on matters within the Companies Acts" to be prepared and laid before both Houses of Parliament. Clause 772: Repeal of certain provisions about company charges 1447. This clause repeals the provisions in Part 4 of the 1989 Act relating to company charges. These provisions have not been brought into force. Clause 773: Access to constitutional documents of RTE and RTM companies 1448. This clause enables the Secretary of State to make an order amending certain provisions of the Commonhold and Leasehold Reform Act 2002 and the Leasehold Reform, Housing and Urban Development Act 1993 so as to make it easier to ascertain the contents of the articles, memoranda and other constitutional documents of Right To Manage ("RTM") and Right to Enfranchise ("RTE") companies (two new types of company provided for in the 2002 Act - in the case of RTE companies, by amendment to the 1993 Act). 1449. Under the Commonhold and Leasehold Reform Act 2002 and the Leasehold Reform, Housing and Urban Development Act 1993 as amended by it, the Secretary of State may make regulations prescribing model memoranda and articles of association for RTM and RTE companies, and the provisions of the model memoranda and articles so prescribed may have effect notwithstanding contrary provision in the memoranda and articles of such companies as registered at Companies House. As the legislation stands currently, a person consulting the Companies House record of an RTM or RTE company's memorandum or articles may not be aware of the company's RTM or RTE status, and therefore may also be unaware that its registered memorandum and articles have to be read in the light of any relevant regulations prescribing model memoranda and articles for RTM or RTE companies. Since the prescribed memoranda and articles may invalidate provisions of the registered documents and apply in place of them, this may cause problems. 1450. The clause refers to memoranda because these are constitutional documents under the existing legislation, even though they will be of no real constitutional significance when the provisions of Part 2 of the Bill on company formation come into force and the RTM and RTE legislation is amended to take account of the new distribution of constitutional provisions between the articles and other documents applicable to companies generally. Reference is made to "other constitutional documents" because it is possible that under the new constitutional arrangements, the RTM and RTE legislation should make provision about the contents of constitutional documents other than the memorandum and the articles (i.e. to those documents which in future will contain some of the information currently contained in memoranda). PART 31: COMPANY LAW REFORM POWER 1451. This Part introduces a new power to reform company law by means of a special form of secondary legislation. It originates in the proposals in the Government's consultation document "Flexibility and Accessibility" (May 2004). This discussed the suggestion by the CLR that many areas of company law, particularly those where provisions were most likely to require updating over time, should be moved from primary into secondary legislation and concluded that in most areas it was not in practice easy to establish a clear dividing line between "core" provisions (which could remain in primary legislation) and "detail" (which could sit in regulations) and such a line might risk separating one subject into two places. This Part introduces a new "super-affirmative" power to enable appropriate changes to company law to be made as they may become necessary. Draft clauses to this effect were published and consulted on in the "Company Law Reform" White Paper of March 2005. 1452. The law relating to companies is a mixture of primary and secondary legislation as well as common law. The 1985 Act already provides for the use of regulations to amend the primary legislation in specific areas - for example disclosure of interests in shares (section 210A) and contents of reports and accounts (section 257). Where there remains a case for such specific individual powers, the Bill retains them, and in some areas introduces new ones. Company law reform orders by contrast are intended to provide flexibility to cater for future amendments to the law which cannot yet be foreseen (and thus for which no specific power can yet be framed), or for wider changes where the existence of "super-affirmative procedures" (discussed below) are appropriate. 1453. Three specific areas have been identified where the use of company law reform orders may be appropriate:
1454. Clauses 774 and 775 confer the new power, clauses 776-782 set out various restrictions on the power and clauses 783-788 provide the procedure for consultation and scrutiny of company law reform orders. The power Clause 774: Power to reform company law 1455. This clause (together with clause 775) introduces the concept of a "company law reform order", and sets out the extent of the law that such an order can affect. Subsection (2) makes clear that the power could be used either for reform, for restatement (i.e. changes of language or ordering which do not affect the substance) or for codification of the law relating to companies. Clause 775 explains what the law relating to companies is (see below). 1456. Subsection (3) provides that the power may be used to make any such provision as may be made by Act of Parliament. This would in principle include power to tax, subdelegate and create criminal offences, and appropriate limitations are therefore included under subsequent clauses. It would include power to amend primary legislation, provide that it comes within the scope of the power. Subsection (4) provides definitions of "amend", "codify", "restate" and "subordinate legislation" for the purposes of the power. Clause 775: Definition of "company" and related expressions 1457. This clause provides further definitions relating to the scope of the power to reform company law. 1458. In company law, there is a fundamental and inescapable interconnection of statute and case law in the existing body of company law. Much of company law developed originally through case law, and although a considerable amount has been brought into statute much remains as common law, or continues to develop through it. Subsections (3) and (6) therefore ensure that orders will be able reform both statutory provisions (i.e. explicit provision in primary legislation), and rules of law (i.e. unwritten provisions contained in case law). 1459. Subsection (3) means that company law reform orders may only be used to affect the law "in relation to companies", by which is meant law relating to the creation, operation, regulation or dissolution of companies. In other words, it is broadly intended to relate to the law which affects companies qua companies, and not (for example) other areas of law which happen to apply to companies but whose purpose is essentially different. 1460. Subsection (5) makes clear that a subsequent order is able to amend an earlier order, but no order will itself be able to change the provisions of this Part of the Bill which creates the power to make orders in the first place. Restrictions on the power Clause 776: No power to impose taxation 1461. This clause ensures that the orders cannot be used for the purposes of imposing or increasing taxation. Subsection (2) ensures that this does not prevent provisions being restated, or case law codified, even if they include provisions which touch on taxation. Clause 777: Restrictions on penalties for criminal offences 1462. This clause provides limitations on the new criminal penalties that can be created under the order-making power. If a new offence is created by an order made under the power, the maximum penalty which the order can provide would be, on summary conviction, six months in prison or a fine at level 5 on the standard scale and, on indictment, two years in prison or an unlimited fine. Where the offence is triable either way, the maximum fine is the statutory maximum. The one exception to these limits is when the new offence is replacing an existing offence carrying higher penalties than these. In this case the limit would be the level of the existing penalties. Orders under the power can be used to change the level of criminal penalties for offences, but not to increase them beyond the maxima mentioned above. 1463. Subsections (3) and (4) make provision for the effect on criminal penalties by sections 154 (1) and 281 (5) of the Criminal Justice Act 2003. Clause 778: Restrictions on provisions for forcible entry etc. 1464. This clause prevents a company law reform order from being used to create new powers of forcible entry, seizure and search or for the compelling of evidence. Subsection (2) does not, however, prohibit such orders from extending existing law for purposes of a like nature as to those which applied before a company law reform order was made, nor prevent the restating or codification of such powers. This will allow company law reform orders to restate, codify and reform existing provisions of this nature (subsection (3)). Clause 779: Restrictions on powers to legislate 1465. This clause provides restrictions on the extent to which orders can themselves create new order-making powers. This will only be possible where the new order-making power relates to fees and charges, to procedural or administrative matters, or to technical matters. An example of where the creation of new powers might be appropriate would be developments in technology, where it could become clear over time that provision needs to be made rapidly to cater for new communications possibilities, but where the specific provisions themselves would be at a level of detail for it to be appropriate to set them out in secondary legislation of more standard form, subject to affirmative or negative resolution as the case may be. Clause 780: Restriction on exercise of powers in relation to Scotland 1466. Company law is a reserved matter under the Scotland Act 1998. However, it sometimes interrelates with matters which are devolved and are within the competence of the Scottish Parliament (for example in the case of a company which is also a Scottish charity), and there is an exception reflecting this in the Scotland Act. This clause ensures that company law reform orders cannot extend into these areas except in consequence of a matter which is reserved. Clause 781: Restrictions on delegation of legislative functions 1467. This clause provides that, if companies legislation confers a function on a particular person or body (an example might be the FRC) an order cannot normally be used to enable that body or person to delegate the function elsewhere. There is one exception and that is where an existing enactment already enables a delegation, in which case a company law reform order can extend that enactment to cover additional circumstances of a like nature (see subsection (2)). 1468. Subsection (3) provides that these restrictions do not prevent the restatement of enactments under the power which already delegate legislative functions, and subsection (4) ensures that where such a restatement occurs, requirements that the delegation is required to be done by statutory instrument or that a specified Parliamentary procedure is to be followed may not be removed or altered. Clause 782: No power to make provision with retrospective effect 1469. This clause ensures that company law reform orders cannot have retrospective effect. Procedure 1470. The following clauses describe the procedure which must be followed in making a company law reform order. In summary, before bringing forward an order, there has to be consultation with interested parties. The Secretary of State has to provide a detailed document to Parliament, as described below, including his reasons for the order. There is then a period for Parliamentary scrutiny, before a draft order can be laid for approval under the affirmative resolution procedure. It would be possible, as has been done in connection with other procedures for super-affirmative orders, for Parliament to devise a procedure by which the orders are effectively amendable. Clause 783: Procedure for making orders 1471. This clause outlines the procedure for bringing forward an order:
1472. The Parliamentary consideration is further described below. Clause 784: Consultation 1473. This clause imposes an obligation to consult organisations representing those whose interests may be substantially affected by the proposals. The Secretary of State is also required to consult the Law Commissions where appropriate. He must also consult such other persons as he considers appropriate. 1474. One use of the orders may be to implement recommendations of the Law Commission. In these circumstances, the Commission will normally already have consulted on its proposals. Subsection (2) allows the Secretary of State to have regard to that consultation when it comes to considering the need for and scope for and extent of any further consultation. 1475. Where, as result of the consultation, variations to the whole or part of the original proposal are made, these must themselves be subject to such further consultation, as the Secretary of State considers appropriate (subsection (3)). 1476. Subsection (4) provides that consultation undertaken before the Bill is passed is to be capable of satisfying the consultation requirements under these provisions. |
| |
| © Parliamentary copyright 2005 | Prepared: 17 November 2005 |