Clause 785: Document to be laid before Parliament

1477.     Following the consultation exercise the results will be made available to Parliament. The Secretary of State must lay before Parliament a document:

• containing the proposed order;

• including an explanation as to the way in which the order will reform, restate or codify the law relating to companies;

• explaining, where the order is restating law, of which enactments are being restated; and

• identifying any new powers to make subordinate legislation.

1478.     The document must also give details of who was consulted, what representations they made and any changes that have been made to the proposals in the light of that consultation (subsection (6)).

1479.     If the order is implementing or responding to a recommendation from one of the Law Commissions, the document must also identify the relevant report and recommendations, the manner in which the proposed order is intended to implement or respond to those recommendations, and give details of reasons for any differences between what the relevant Law Commission has recommended and what the order contains.

Clause 786: Reasons for proposed order

1480.     The Secretary of State must explain (in the document) the reasons for making the order. In the case of an order which reforms company law this must include the ways which he considers the order would:

• remove inconsistencies or anomalies in the existing law;

• make companies (or particular types of company) a more effective vehicle for conducting business; or

• increase the effectiveness of the system of regulating companies in the UK.

1481.     In the case of restatement or of codification of case law, the Secretary of State will need to explain how he considers the order would make the law more accessible or more easily understood by those it affects.

1482.     These provisions are designed to provide criteria against which orders can be judged during the Parliamentary scrutiny process.

Clause 787:     Representations made in confidence etc

1483.     This clause provides that individual responses from consultees may remain confidential, if to disclose the response would be a breach of confidence which was actionable. Alternatively, if they can, they may be presented in an anonymised form, where appropriate.

Clause 788:     Parliamentary consideration of proposals

1484.     In addition to the affirmative resolution procedure, a period of time is provided for scrutiny after an explanatory document (including a draft of the proposed order) has been laid before Parliament and before the draft order itself can be laid for approval. This period is set out in subsection (2) as being 60 Parliamentary sitting days.

1485.     Experience of the procedures adopted by Parliament in relation to other super-affirmative orders (in particular, regulatory reform orders) indicates it would be possible for Parliament to devise a procedure by which the orders become effectively amendable. This is for Parliament to determine, but Ministers are making suggestions as to how the procedure might be made effective and proportionate to the reform powers here proposed.

1486.     The Bill requires that following the period for Parliamentary scrutiny, the Secretary of State is to take account of the outcome of the scrutiny and any other representations received before laying a draft order for approval under the affirmative resolution procedure. At this stage the Secretary of State is also required when he lays the draft order for approval to lay a statement before Parliament setting out any changes made to the proposal as a result of representations or resolutions or reports of either House or their Committees during the scrutiny period (see subsection (4)).

1487.     The order itself is then subject to affirmative resolution.

PART 32: BUSINESS NAMES

1488.     The provisions of this Part replace the Business Names Act 1985.

CHAPTER 1: RESTRICTED OR PROHIBITED NAMES

Introductory

Clause     789: Application of this Chapter

1489.     This clause partly replaces section 1 of the Business Names Act 1985. It ensures that the restrictions on the use of names in the course of business:

• apply to all companies and not (as in the Business Names Act) just to any company capable of being wound up under the Insolvency Act 1986 when trading under a name other than that under which it is registered; and

• apply to any partnership whose members include a company and not (as in the Business Names Act) only if the name under which such a partnership does business includes names for the corporate partners other than those under which they are registered.

1490.     As now, the restrictions do not apply to individuals if they trade either alone or in partnership under their surnames augmented only by their forenames and/or initials.

1491.     Clause 805 extends the exception to names that are surnames augmented by recognised abbreviations of a name. Thus the restrictions on names in this Chapter would not apply to James Alexander Scotland if he were to trade as James Alexander Scotland or J. A. Scotland or Jim A. Scotland; they would apply if he were to trade as Scotland Bakers or John Scotland.

1492.     The main effect of the wider coverage is that controls apply to all oversea companies carrying on business in the UK. It also removes any uncertainty as to whether the controls apply to business entities other than companies incorporated under the Companies Acts.

Sensitive words or expressions

Clause 790: Name suggesting connection with government or public authority

Clause 791: Other sensitive words or expressions

Clause 792: Requirement to seek comments of government department or other relevant body

1493.     These clauses replace sections 2, 3, 6 and 7 of the Business Names Act 1985. Clause 796 (see below) contains savings equivalent to those currently in subsection 2(2) of the Business Names Act.

1494.     These clauses require prior approval for the use of any name for carrying on business for which a company would require approval before it could be registered under it. (Clauses 55 to 57, replacing sections 26(2) and 29 of the 1985 Act, apply corresponding restrictions to company names.) The differences between the requirements under these clauses and the existing requirements are:

• Clause 790(1)(a) requires prior approval for names likely to give the impression that the business is connected with any part of the Scottish administration or Her Majesty's Government in Northern Ireland;

• Clause 790(1)(c) requires prior approval for names likely to give the impression that the business is connected with any public authority specified in regulations;

• The definition of local authority in clause 790(2) is brought up to date for Scotland and includes a district council in Northern Ireland;

• Section 792(4) makes explicit that the Secretary of State may refuse to consider an application for approval that is not compliant with the statutory requirements.

Clause     793: Withdrawal of Secretary of State's approval

1495.     This clause makes explicit that approval for the use of a name may be withdrawn in appropriate circumstances.

Misleading names

Clause      794: Name containing inappropriate indication of company type or legal form

1496.     This clause replaces sections 33, 34 and 34A of the Companies Act 1985. These sections make it an offence for those entitled to carry on business under names using the statutory indicators of legal status for, respectively, public companies, private companies and community interest companies. Section 34 extends the protection to any contraction or imitation of the indicators for private companies; section 33 and 34A do not do the same for public companies and community interest companies.

1497.     These clauses provide power for regulations to specify which indicators are protected and which similar words. It complements clause 53, which controls the use of statutory indicators of legal status in companies' registered names. It enables the protection to apply, for example, to "open-ended investment company".

Clause     795: Name giving misleading indication of activities

1498.     This clause makes it an offence to use a business name that gives so misleading an indication of the nature of the activities of the business as to be likely to cause harm to the public. This clause complements clause 76 which gives the Secretary of State power to direct a company to change its registered name in these circumstances. This offence will apply throughout the UK.

Supplementary

Clause 796: Savings for existing lawful business names

1499.     This clause provides exemptions for those continuing to use a name that was lawful before the Bill comes into force. The exemption is both from the requirement for prior approval and from using names that include a protected indicator of company status. It also retains the existing provision for when a business is transferred: providing the name was previously lawful, the business may continue under that name for 12 months even if otherwise it would not be lawful for whoever is now carrying on the business.

CHAPTER 2: DISCLOSURE REQUIRED IN CASE OF INDIVIDUAL OR PARTNERSHIP

1500.     This Chapter re-enacts for individuals and partnerships the Business Names Act provisions relating to information which must be displayed at places of business and in correspondence. These clauses ensure that a business's suppliers and customers can discover the legal identity of the person with whom they are doing business and can serve documents upon it. Clause 800 makes special provision for large partnerships so that not all the partners' names are required in all business documents.

Introductory

Clause 797: Application of this Chapter

1501.     This clause partly replaces Section 1 of the Business Names Act 1985. It provides that this Chapter applies to:

• sole traders if they trade under any name other than their true surnames augmented only by their forenames and/or initials. (Clause 805 defines initial to include any recognised abbreviation of a name);

• partnerships unless the name is the surnames of all its human partners (augmented only by their forenames and/or initials) and the registered names of its other partners.

1502.     It also excludes sole traders and partnerships if the only addition to their name shows the business's previous ownership.

1503.     This clause ensures that the coverage of this Chapter is the same as the Business Names Act except that, unlike that Act, it does not apply to any companies. The comparable requirements for companies are in Part 4, Chapter 5.

Clause 798: Information required to be disclosed

1504.     This clause replaces section 4(1)(a)(i),(ii) and (iv) of the Business Names Act 1985. It specifies the information that is to be the subject of disclosure under this Chapter (ie names and addresses for service).

Disclosure requirements

Clause 799: Disclosure required: business documents etc

Clause      800: Exemption for large partnerships if certain conditions met

1505.     These clauses replace subsection 4(1)(a) and (2)-(7) of the Business Names Act 1985. They are designed to ensure that customers and suppliers:

• of sole traders know the true identity of the person with whom they are dealing and have an address for him/her which is effective for the service of documents relating to the business;

• of partnerships with 20 or fewer partners know the identity of every partner and the address which is effective for the service of documents relating to the business;

• of larger partnerships know the address which is effective for the service of documents relating to the business and either the identity of every partner of the address at which they can discover the identity of every partner.

1506.     Large partnerships are not permitted to choose which partners' names are included in documents: they must either include the names of all the partners or none (except in the text or as a signatory).

1507.     This clause also provides power for regulations relating to the form of a notice giving the trader's or partners' name(s) and address in response to any person who asks for the information in the course of business.

Clause 801: Disclosure required: business premises

1508.     This clause replaces section 4(1)(b) of the Business Names Act 1985 so far as it applies to sole traders and partnerships. It makes provision to enable customers and suppliers to discover the name(s) and the address for service of documents when visiting any business premises of the trader or partners.

Consequences of failure to make required disclosure

Clause 802: Criminal consequences of failure to make required disclosure

1509.     This clause replaces section 7 of the Business Names Act 1985 so far as it applies to sole traders and partnerships. It retains the existing offences for failure to comply with the requirements relating to disclosure of name and address in documents and notices.

Clause 803: Civil consequences of failure to make required disclosure

1510.     This clause replaces section 5 of the Business Names Act 1985 so far as it applies to sole traders and partnerships. It provides legal rights to anyone who has sustained losses as a result of failure to comply with this Chapter's requirements by a sole trader or partnership

CHAPTER 3: SUPPLEMENTARY

Clause 804: Application of general provisions about offences

Clause 805: Interpretation

1511.     These clauses replace subsection 7(6) and section 8 of the Business Names Act 1985.

PART 33: STATUTORY AUDITORS

1512.     The effects of this Part are:

• To replace Part 2 of the 1989 Act and equivalent Northern Ireland provisions, by restating those provisions with some modifications.

• To extend the category of auditors that are subject to regulation and to make provision for the registration and regulation of auditors in countries outside the Community who audit companies which are incorporated outside the Community but listed in the UK;

• To provide that the Comptroller and Auditor General and the regional Auditors General are eligible to be appointed to perform statutory audits and provide a mechanism for the regulation and supervision of their functions as statutory auditor.

CHAPTER 1: INTRODUCTORY

Clauses 806 to 808: Introductory

1513.     Part 2 of the 1989 Act regulates only the auditors of companies. Clause 807(1) defines the meaning of statutory auditor more broadly. Persons within paragraphs (a) to (g) are 'statutory auditors'. This list includes those persons who audit companies (as required under Part 16 of the Bill) and those who audit building societies, insurers that are friendly societies and insurance undertakings. In addition, the Secretary of State has a power to add auditors of other persons to this list. The reference to "persons" includes any individual, body corporate or body of persons forming an unincorporated association or partnership. Clause 808 cross refers the eligibility for appointment as a statutory auditor to the requirements contained in Chapter 2 or Chapter 3 of this Part of the Bill.

CHAPTER 2: INDIVIDUALS AND FIRMS

Eligibility for appointment

Clause 809: Individuals and firms: eligibility for appointment as a statutory auditor

Clause 810: Effect of ineligibility

1514.     These clauses are restatements of sections 25 and 28 of the 1989 Act adapted so as to apply in relation to statutory auditors. The clauses provide that for a person or firm (defined in clause 857) to be eligible for appointment as a statutory auditor, the person must be a member of a recognised supervisory body and be eligible for appointment under the rules of that body. (Clause 814 and Schedule 10 address the recognition of supervisory bodies.) Clause 810 provides that no person may act as a statutory auditor if he is ineligible. It specifies that, on becoming ineligible, the auditor must resign his office and give notice in writing. Failure to comply with this requirement is an offence, conviction of which can result in a fine (subsections (3) and (4)). If the auditor continues to act as a statutory auditor after conviction (subsection (5)), or continues to fail to give notice that he is ineligible for appointment as a statutory auditor (subsection (6)), he commits a further offence for which a daily fine may be imposed after conviction (subsection (7)). Subsection (8) provides that if the person did not know or had no reason to believe that he was, or had become, ineligible then he has a defence.

Clause 811: Independence requirement

1515.     This clause restates section 27 of the 1989 Act and indicates circumstances where a person may not act as a statutory auditor. Under subsection (2) persons who are either officers or employees of the audited entity, or the partner or employee of such a person or a partnership of which such a person is also a partner, must not act as the entity's statutory auditor. Under subsection (3), if the person is an officer or employee of an associated undertaking of the audited entity, or a partner of such a person or a partnership of which such a person is also a partner, they must also not act as statutory auditor. Subsection (4) allows the Secretary of State to make regulations regarding other connections between the audited entity and the statutory auditor by virtue of which a person will be regarded as lacking independence. Subsection (5) prevents auditors being regarded as either an officer or employee of an audited entity by virtue of their appointment as auditor. Subsection (6) defines 'associated undertaking' of an audited person as a parent or subsidiary undertaking or a subsidiary undertaking of a parent undertaking (see definitions in clause 761).

Clause 812: Effect of lack of independence

1516.     This clause sets out the consequences of the prohibition from acting as a statutory auditor, as defined in clause 811. They replicate the effect of ineligibility as explained for clause 810.

Clause 813: Effect of appointment of a partnership

1517.     This clause is a restatement of section 26 of the 1989 Act. The effect of the clause is to ensure that when a partnership constituted in England and Wales, Northern Ireland, or any other country or territory in which a 'partnership' is not a legal person, is appointed as a statutory auditor under this Part there exists continuity of appointment even if a partner leaves the partnership. For a partnership or other person to be considered as appropriate for the appointment to continue, they must be eligible for appointment as a statutory auditor and not be prohibited (as indicated in clause 811(1)). Without this provision, the appointment would cease every time the membership of the partnership changed.

Clause 814: Supervisory bodies

1518.     This clause restates section 30 of the 1989 Act and defines a supervisory body as a body established in the UK which maintains and enforces rules regarding the eligibility of persons appointed as a statutory auditor and the conduct of statutory audit work. The rules of the supervisory body referred to here must be relevant to the purposes of this Part of the Bill and relate to persons who are seeking appointment or acting as a statutory auditor, whether or not they are a member of the supervisory body. Subsection (4) introduces Schedule 10 that deals with the recognition of supervisory bodies, for the purposes of this Part of the Bill.

Schedule 10: Recognised supervisory bodies

Part 1: Grant and Revocation of a Supervisory Body

Paragraph 1: Application for recognition of supervisory body

1519.     This paragraph is a restatement of paragraph 1 of Schedule 11 to the 1989 Act. It identifies the steps a body is required to take to become recognised by the Secretary of State. A new provision is contained in sub-paragraph (7) and clarifies what is meant by the reference to 'guidance' contained in sub-paragraph (6)(b).

Paragraph 2: Grant and refusal of recognition

1520.     This paragraph is a restatement of paragraph 2 of Schedule 11 to the 1989 Act. It specifies that, on completion of the requirements in paragraph 1, the Secretary of State may either accept or refuse the application.

Paragraph 3: Revocation of recognition

1521.     This paragraph is a restatement of paragraph 3 of Schedule 11 to the 1989 Act. It specifies the steps that the Secretary of State is required to take if the recognition of the body is revoked. At sub-paragraph (6)(c) the effect of the provisions contained in this paragraph have been extended to any other person whom the Secretary of State considers has been affected by the decision to revoke recognition.

Paragraph 4: Transitional Provision

1522.     This is a new provision that allows bodies recognised under either the 1989 Act or the Companies (Northern Ireland) Order 1990 to continue to be recognised under paragraph 2 (1) of this Schedule.

Paragraph 5: Orders not statutory instruments

1523.     This provision provides that orders under this Part are not statutory instruments.

Part 2: Requirements for recognition of a supervisory body

Paragraphs 6 and 7: Holding of appropriate qualification

1524.     These paragraphs are a restatement of paragraphs 4 and 5 of Schedule 11 to the 1989 Act. They require a recognised supervisory body to ensure that persons eligible for appointment as a statutory auditor hold appropriate qualifications. They require a firm that is a statutory auditor to be controlled by qualified persons.

Paragraph 8: Auditors to be fit and proper persons

1525.     This paragraph is a restatement of paragraph 6 of Schedule 11 to the 1989 Act. It requires the body to have rules and practices that are adequate to ensure that statutory auditors are fit and proper persons. Sub-paragraph (2) identifies those areas that the body may take into account when making this consideration.

Paragraph 9: Professional integrity and independence

1526.     This paragraph is a restatement of paragraph 7 of Schedule 11 to the 1989 Act. It also extends the scope of the provisions to statutory auditors from company auditors. It requires bodies to have rules and practices to ensure that the integrity and independence of the statutory audit is maintained. A new provision is contained in sub-paragraph (2) that requires the body to comply with the standards referred to in paragraph 20.

Paragraph 10: Technical standards

1527.     This paragraph is a restatement of paragraph 8 of Schedule 11 to the 1989 Act. It also extends the scope of the provisions to statutory auditors from company auditors. It requires the body to have rules and practices in place regarding the technical standards to be applied in statutory audit.

Paragraph 11: Procedures for maintaining competence

1528.     This paragraph is a restatement of paragraph 9 of Schedule 11 to the 1989 Act. It also extends the scope of the provisions to statutory auditors from company auditors and requires the body to have rules and practices to ensure that auditors maintain an appropriate level of competence.

Paragraph 12: Monitoring and enforcement

1529.     This paragraph is a restatement of paragraph 10 of Schedule 11 to the 1989 Act. It requires the body to have arrangements in place to ensure compliance with the rules. The body may delegate these functions to another body or person. However, responsibility for the monitoring still rests with the body.

Paragraph 13: Independent monitoring of audits of listed companies and other major bodies

1530.     This provision restates paragraph 10A of Schedule 11 to the 1989 Act and deals with the statutory audits of companies in which there is a major public interest. Sub-paragraph (1) requires the body to participate in the independent monitoring arrangements as detailed in paragraph 22 (1).