Regulation of actuaries etc

1644.     Clauses 863, 864 and 865 amend sections 16 and 17, and are also relevant to section 18, of the Companies (Audit, Investigations and Community Enterprise) Act 2004 (the "C(AICE) Act").

1645.     Sections 16 to 18 of the C(AICE) Act 2004 have three principal functions, namely:

a)     to allow the Secretary of State to make a grant to any body whose activities include oversight of accountancy and the auditors' profession;

b)     to allow the Secretary of State to impose a levy on certain other bodies and persons payable to the body undertaking the oversight role for the purpose of meeting any part of its expenses;

c)     to provide the oversight body with a statutory immunity from liability in damages in respect of its oversight activities.

1646.     These clauses are the first step in implementing the central recommendation of the Morris Review of the Actuarial Profession, namely that the Financial Reporting Council (the "FRC") should take on a similar role in relation to the oversight of the actuarial profession to the one it currently exercises in relation to accountancy and the auditors' profession.

1647.     In welcoming the recommendations of the Morris Review, the Government announced in Budget 2005 its intention to legislate in due course to put the oversight regime onto a full statutory footing. It has not been possible to develop such a regime in time for inclusion in this Bill. It was therefore agreed with the FRC and the Institute and Faculty of Actuaries that, pending the introduction of a full statutory regime, the FRC would begin voluntary oversight of the actuarial profession at the earliest possible opportunity. The intention is that the interim regime should begin in April 2006.

1648.     The aim of the proposed clauses is to provide the minimum necessary statutory underpinning to facilitate a voluntary regime. They do this by making amendments to the C(AICE) Act 2004 in two ways. First, they extend the statutory immunity conferred on the FRC and its companion bodies so that it covers acts or omissions relating to oversight of the actuarial profession. Second, they allow the Secretary of State, if necessary, to make regulations to require beneficiaries of the actuarial oversight to contribute towards the funding costs of the proposed regime. This is intended to be a reserve power. It is proposed, as is currently the case with accountancy and the auditors' professions, to fund this activity on a non-statutory basis by agreement with the insurance and pensions industries and the actuarial profession. The FRC on 12th October 2005 issued a consultation document on the funding of its proposed oversight role.

1649.     The amendments made by these provisions apply to Scotland only insofar as they relate to matters for which provision would be outside the legislative competence of the Scottish Parliament.

1650.     The amendments extend to Northern Ireland.

1651.     By virtue of clause 885, clauses 863 and 865 will obtain early commencement, taking effect immediately upon Royal Assent.

Clause 863: Grants to bodies concerned with actuarial standards etc

1652.     This clause amends section 16 of the C(AICE) Act 2004.

1653.     Subsection (2) amends section 16(2) by inserting, into the pre-existing list of matters carried on by bodies eligible for grants, a list of matters relating to the carrying on of activities concerned with the setting of actuarial standards, compliance with those standards, oversight of the actuarial profession and related matters.

1654.     Subsection (3) amends section 16(5) so that it includes definitions of "professional actuarial body" and "regulatory functions". These amendments are consequential on the amendments to section 16(2).

Clause 864: Levy to pay expenses of bodies concerned with actuarial standards etc

1655.     This clause amends section 17 of the C(AICE) Act 2004.

1656.     Subsection (2) amends section 17(3)(a) so that it includes amongst those by whom a levy may be payable under this provision certain persons (as defined in the following subsection) as well as bodies.

1657.     Subsection (3) inserts a new subsection into section 17, which defines persons for the purposes of section 17(3)(a) as the administrators of a public service pension scheme and the trustees and managers of an occupational or personal pension scheme (within the meaning of the Pension Schemes Act 1993). The amendments in subsections (2) and (3) therefore enable the Secretary of State to specify such persons as being liable to pay a levy if he considers that the activities of the FRC, or any of its subsidiary activities, are relevant to a significant extent.

1658.     Subsection (4) inserts into section 17(4) a provision enabling regulations under section 17 to make different provision for different cases so that, for example, they can provide for different rates of levy to be payable by different kinds of bodies or persons.

1659.     Subsection (5) inserts after section 17(12) a new subsection, the effect of which is to prevent the first regulations under section 17, and any other regulations under that section that would result in any change in the bodies or persons by whom the levy is payable, from being treated as hybrid instruments for the purposes of the standing orders of either House of Parliament. The effect of such regulations not being treated as hybrid instruments for these purposes is that they would not be subject to the special procedures in the House of Lords that apply to such instruments.

1660.     Subsection (6) ensures that the amendments made by the previous subsections have effect in relation to any regulations made under section 17 of the C(AICE) Act 2004 after this Bill becomes an Act, even if those regulations impose a levy to meet expenditure incurred before the Bill attains Royal Assent.

1661.     Subsection (7) amends Schedule 3 to the Pensions Act 2004 to enable the Pensions Regulator to disclose restricted information to the Secretary of State to enable or assist him in the exercise of his functions under section 17 of the C(AICE) Act 2004.

Clause 865: Application of provisions to Scotland and Northern Ireland

1662.     This clause further amends section 16 of the C(AICE) Act 2004.

1663.     Subsection (2) provides that paragraphs (a) to (t) of section 16(2), which list matters carried on by bodies eligible for grants, only apply to Scotland insofar as they relate to matters for which provision would be outside the legislative competence of the Scottish Parliament. This is necessary because, whilst section 16 of the C(AICE) Act 2004 and (by virtue of clause 884) clauses 863 and 865, extend to Scotland, some of the matters listed in paragraphs (a) to (t) are not reserved matters for the purposes of section 30 to the Scotland Act 1998 and, as such, would otherwise cover areas within the legislative competence of the Scottish Parliament.

1664.     Subsection (5) amends section 66(2) of the C(AICE) Act 2004 to the effect that sections 16 and 18, as well as section 17, extend to Northern Ireland.

Exercise of voting rights by institutional investors

Clause 866: Institutional investors: information about exercise of voting rights

1665.     Institutional investors own and manage assets on behalf of and for the benefits of clients or members and have an obligation to manage those assets in their interests. In some cases there is a trustee - beneficiary relationship between the institution and the client, and in all cases there are contractual and regulatory requirements imposing duties of asset management on the institution. Voting is central to the exercise of ownership control. However, the ability of ultimate beneficiaries (e.g. members of a pension fund) to monitor the way in which institutional investors exercise voting rights is limited in practice.

1666.     The CLR (Final Report, paragraph 6.39) concluded that disclosure of voting by institutional shareholders was a desirable objective. There has been a growing trend internationally to require disclosure. There has also been an increasing trend by UK fund managers towards voluntary disclosure.

1667.     This clause confers a power on the Secretary of State and the Treasury to make regulations requiring certain categories of institutional investor to provide information about the exercise of their voting rights.

1668.     Exercise of the power is subject to affirmative resolution procedure.

1669.     The power could be exercised so as to apply to the institutions listed in subsection (2). Subsection (3) allows the regulations to extend or restrict the list of institutions to which they apply.

1670.     The regulations would specify the markets in relation to which the disclosure obligation was to apply. For example, the scheme could initially require disclosure of the way in which voting rights had been exercised in companies on the UK regulated market, but could be extended to UK non-regulated markets and to overseas markets.

1671.     Institutional investors in many cases hold shares through another collective investment vehicle. Subsection (7) contains a power to require institutional investors to procure disclosure of voting by such second-tier vehicles. Institutional investors would need to make sure that their investment contracts required such information to be passed on to them or disclosed on their behalf. Some institutions may have interests in third and even fourth tier vehicles. Regulations will not be capable of requiring institutional investors to procure disclosure of the way in which such vehicles have exercised voting rights.

1672.     Under subsection (9) the regulations may specify to whom the disclosure is to be made. This would allow the regulations to require disclosure to clients and members only, or alternatively to the public generally.

1673.     Where regulations under this clause oblige an investor to provide information to a person, and this is not done, subsection (10) enables the person to whom the information should have been provided to enforce the obligation. The obligation is also enforceable by a regulatory authority specified in the regulations such as the FSA.

Disclosure of information under the Enterprise Act 2002

Clause 867: Disclosure of information under the Enterprise Act 2002

1674.     This clause amends Part 9 of the Enterprise Act 2002 to enable public authorities, in certain circumstances, to disclose information where the information is to be used in civil proceedings or where it is to be used to decide whether civil proceedings should be brought.

1675.     Part 9 of the Enterprise Act applies to information which public authorities receive in connection with competition and consumer functions under certain Parts of the Enterprise Act 2002 and under other specified competition and consumer protection legislation. Such information relating to the affairs of an individual or business must be kept confidential unless Part 9 permits its disclosure.

1676.     This clause inserts a new section 241A into Part 9. Subsection (1) allows a public authority to disclose prescribed information to any person for the purposes of bringing prescribed civil proceedings in the UK (including deciding whether to bring proceedings). Information is "prescribed" if it is prescribed by the Secretary of State by order under this section (subsection (3)).

1677.     Subsection (2) excludes from the scope of the information that may be disclosed information which has been obtained by a public authority in connection with competition functions.

1678.     Subsection (5) prohibits a person to whom information is disclosed under the section for civil proceedings from using it for any other purpose.

Expenses of winding up

Clause 868: Expenses of winding up

1679.     This section inserts a new section 174A in the Insolvency Act 1986. The provision is designed to reverse the House of Lords decision in Buchler and another v Talbot and others in re Leyland Daf [2004] UKHL 9. The effect will be that, where necessary, assets subject to a floating charge will be available to fund the general expenses of a liquidation. Subsection (2) makes a similar change for Northern Ireland.

Commonhold associations

Clause 869: Amendment of memorandum or articles in pre-commonhold period

1680.     This clause makes an amendment to paragraph 3(1) of Schedule 3 to the Commonhold and Leasehold Reform Act 2002. It is concerned with commonhold associations. Commonhold associations are a new form of company limited by guarantee established under that Act.

1681.     Commonhold associations must register their memoranda and articles of association both with Companies House (on formation) and with HM Land Registry (on registration of the commonhold). The period of time between a commonhold association's incorporation and when the land specified in its memorandum becomes commonhold land is known as the "pre-commonhold period".

1682.     At present, like other companies, commonhold associations may alter some of the provisions of their articles and (in certain respects) the provisions of their memoranda.

1683.     Paragraph 3 of Schedule 3 to the Commonhold and Leasehold Reform Act 2002 provides that any alteration of a commonhold association's memorandum or articles which is not registered with the Land Registry is of no effect. The purpose of that provision is to ensure that the version of those documents held by the Land Registry is up to date. An unintended consequence of the provision, however, is that it effectively prohibits any change of the memorandum or articles until they are registered at Land Registry.

1684.     This clause amends paragraph 3(1) so as to remove this difficulty by creating an exception, for commonhold associations during the pre-commonhold period, from the general rule that alterations of memoranda or articles must be registered with the Land Registry.

PART 35: NORTHERN IRELAND

1685.     Companies Acts since 1929 have extended to Great Britain only. But Northern Ireland companies legislation has followed changes in GB companies legislation very closely. The principal piece of current Northern Irish companies legislation, the Companies (Northern Ireland) Order 1986, is effectively a copy of the 1985 Act, with only very minor modifications to fit the Northern Irish context.

1686.     A public consultation, initiated by Northern Ireland Ministers (letter of Angela Smith MP of 7th September 2005, available through the DTI webpages at http://www.dti.gov.uk/cld/facts/clr.htm) proposed that the Bill, and future legislation under it, should extend directly to Northern Ireland, along with certain other areas of law closely related to companies legislation. Company law would remain in formal terms a transferred matter, and a future Northern Ireland Assembly could for example decide to enact separate Northern Ireland companies legislation if it considered it desirable. In the meantime, the effect of the proposal would be that companies in Northern Ireland would experience the regulatory effects of new companies legislation at the same time as their GB counterparts. The Bill proceeds on this basis.

Clause 870: Extension of Companies Acts to Northern Ireland

1687.     This clause provides that the Companies Acts will extend to the whole of the UK, including Northern Ireland. The Companies Acts are defined in clause 2 of the Bill: in essence, they include the company law provisions of this Bill, the 1985 Act and Part 2 of the C(AICE) Act 2004 (which relates to community interest companies). The clause also repeals the principal pieces of separate Northern Ireland companies legislation.

Clause 871: Extension of GB enactments relating to SEs

Clause 872: Extension of GB enactments relating to certain other forms of business organisation

Clause 873: Extension of enactments relating to business names

1688.     These clauses similarly extend to Northern Ireland GB legislation in various areas related to company law, and repeal the separate Northern Ireland legislation in these areas. This is the case in relation to:

• SEs (European Public Limited-Liability Companies) (clause 871);

• certain other forms of business organisation where the law is partly modelled on, and closely relates to, company law; namely limited liability partnerships, limited partnerships, open-ended investment companies, and European Economic Interest Groupings (clause 872); and

• business names (clause 873).

PART 36: GENERAL SUPPLEMENTARY PROVISIONS

Regulations and orders

Clauses 874 to 878: Regulations and orders

1689.     These clauses provide how regulations and orders made under the Bill are to be made.

1690.     Clause 874 provides that, unless the provision in the Bill creating the power states otherwise, all regulations and orders are to be made by statutory instrument.

1691.     Most of the powers to make regulations or orders are exercisable by the Secretary of State and are to be made by statutory instrument. The Bill also confers powers on the registrar of companies to make rules, which are not required to be made by statutory instrument (clause 725 requires appropriate publicity). Other non-statutory instrument powers are conferred on the Takeover Panel and the FSA.

1692.     Virtually all the provisions of the Bill conferring power to make regulations or orders by statutory instrument specify one or other of the following three types of Parliamentary procedure:

• negative resolution procedure (defined in clause 875): the statutory instrument containing the regulations or order is laid before Parliament and must be revoked if either House passes a resolution against it within 40 Parliamentary days. An instrument subject to the negative procedure is normally laid at least 21 days before it is to come into effect to ensure scrutiny of the instrument before its provisions come into force;

• affirmative resolution procedure (defined in clause 876): the statutory instruments containing the regulations or order are laid before Parliament in draft and can only be made when approved by affirmative resolution in each House. This means that they are always subject to debate in each House;

• approval after being made (defined in clause 877): the statutory instrument containing the regulations or order is laid before Parliament after being made. It ceases to have effect after 28 Parliamentary days unless it is approved by resolution of each House during the 28 day period. Should the regulations cease to have effect at the end of the 28 days, anything done under the regulations during the period remains effective and new regulations may be made.

1693.     Clause 878(1) provides that regulations or orders may make different provision for different cases or circumstances, may include supplementary, incidental and consequential provision, and may make transitional provision and savings.

1694.     Subsections (2) to (4) of clause 878 enable orders or regulations to be made combining provisions in relation to which different procedural requirements apply. A power to make regulations can be exercised by making an order, and a power to make an order can be exercised by making regulations. Provisions subject to the affirmative resolution procedure, provisions subject to the negative resolution procedure and provisions subject to no Parliamentary procedure at all may be included in a single instrument.

Meaning of "enactment"

Clause 879: Meaning of "enactment"

1695.     This clause explains what the term "enactment" used in the Bill includes, unless the context in which it is used dictates otherwise:

• an enactment contained in subordinate legislation within the meaning of the Interpretation Act 1978 (c.30);

• an enactment contained in, or in an instrument made under, an Act of the Scottish Parliament;

• an enactment contained in, or in an instrument made under, Northern Ireland legislation within the meaning of the Interpretation Act 1978 (c.30).

Consequential and transitional provisions

Clause 880: Power to make consequential amendments etc

1696.     This clause confers on the Secretary of State, and on the Treasury, order-making powers in connection with the commencement of any provision in the Bill. Such amendments and repeals are additional to those made by any other provision of the Bill.

1697.     Orders may be made to amend, repeal or revoke any enactment that is:

• passed or made before the passing of this Bill;

• contained in this Bill or in subordinate legislation made under it;

• passed or made before the end of the next Parliamentary session.

1698.     In particular, orders may extend to other forms of organisation any provision made in the Bill in relation to companies, and they may make provision corresponding to that made in the Bill in relation to companies. The provisions of this Bill may be applied with any adaptations or other modifications that appear to be necessary or expedient.

1699.     Orders under this section are subject to negative resolution procedure.

Clause 881: Repeals

1700.     This clause introduces Schedule 15, the repeal Schedule. The repeals include, in addition to purely consequential repeals, repeals of enactments that are no longer of practical utility.

1701.     Schedule 15 repeals a number of parts and/or sections of a number of pieces of legislation, including the 1985 Act and the Companies Act 1989. It also revokes Part III of the Companies (Northern Ireland) Order 1990 (SI 1990/593 (NI 5))

Clause 882: Power to make transitional provision and savings

1702.     This clause give the Secretary of State and the Treasury order-making powers to make transitional provision and savings in connection with the commencement of any provision made in the Bill.

1703.     Orders under this section are subject to negative resolution procedure.

PART 37: FINAL PROVISIONS

Clause 883      Short title

1704.     This clause sets out the short title of the Bill.

Clause 884      Extent

1705.     This clause provides that, except where otherwise provided for or the context requires otherwise, the Bill extends to the whole of the UK (in other words, including Northern Ireland, as provided for in Part 35 and discussed in the notes to that Part).

Clause 885     Commencement

1706.     This clause provides for when provisions in the Act come into force.

1707.     Subsection (1) provides for commencement on Royal Assent (i.e. early commencement) of clauses 863 and 865 so that the provisions conferring a statutory immunity from liability in damages in relation to the oversight of the actuarial profession come into force on that date. It also provides that the provisions of Part 36 (general supplementary provisions) and of this Part itself will come into force on that date.

1708.     Subsection (2) provides that the provisions of and relating to Part 31 (company law reform power) will come into force two months after Royal assent.

1709.     Subsection (3) provides for the Secretary of State or the Treasury to appoint by order the exact timing of commencement of the other provisions of the Bill.

EFFECT ON PUBLIC EXPENDITURE AND PUBLIC SERVICE MANPOWER

1710.     There will be costs to Companies House in two respects:

• the need to alert companies to the changes being introduced in the Bill; and to provide advice and guidance on the changes and the new regime;

• staffing and systems changes within Companies House itself, to prepare for and implement any changes introduced by the Bill to the way in which Companies House itself must operate.

1711.     On the first point, it is clear that some form of public outreach campaign will be necessary on and before the point at which the Bill changes take effect. There are a range of options currently being discussed, with a range of potential costings.

1712.     There will also be costs for systems changes required by measures in the Bill, particularly in respect of the incorporation process, and information on directors. These system changes within Companies House itself should be seen against the background of its ongoing (non-legislative) modernisation and efficiency programme, including changes already underway to facilitate e-communications, and to comply with recent European law. Nonetheless the Bill itself will impose additional costs which the Regulatory Impact Assessment provisionally estimates at perhaps £3m.

1713.     The changes are generally expected to produce operational efficiencies and savings for businesses themselves, and they should be recouped from companies in the form of higher transaction charges. (Companies House operates as a trading fund, sponsored by DTI).