Tuesday, 29 January 2019

UK: Companies, Limited Liability Partnerships and Partnerships (Amendment etc) (EU Exit) Regulations 2019

An update on the Companies, Limited Liability Partnerships and Partnerships (Amendment etc) (EU Exit) Regulations 2019. The Regulations were relaid on 10 January (replacing those laid on 5 November 2018). The Joint Select Committee on Statutory Instruments considered the Regulations on 23 January and decided that the Regulations did not need reporting to both House of Parliament: see here. A motion to approve the Regulations has since been tabled by the Government, notwithstanding the concerns expressed by the Secondary Legislation Scrutiny Committee in its thirteenth report of the 2017/19 session: see here. To quote directly from this report (emphasis in the original):
The purpose of these draft Regulations is to ensure that the UK’s company law framework can operate effectively after a possible ‘no deal’ exit from the EU. While the Department for Business, Energy and Industrial Strategy (BEIS) says that the instrument aims to preserve the company law framework unchanged as far as possible and appropriate, the information provided in the Explanatory Memorandum (EM) suggests that some of the proposed changes appear to be more significant. A key proposal in the draft Regulations is to end the preferential treatment currently afforded in some aspects of UK company law to businesses from the European Economic Area (EEA). Amongst other changes, the instrument proposes to revoke provisions that enable the current regime for mergers between UK companies and companies in EEA countries. BEIS estimates that around 50 cross-border mergers are carried out under this regime every year. Other proposed changes would involve a loss of voting rights and a loss of the ability to make distributions for certain EEA businesses after a one-year transition period following exit. Despite the significance of these proposals, the EM provides only limited information on the expected impact of these changes on shareholders and other relevant stakeholders. The EM also says that to minimise sensitivities ahead of negotiations with the EU, only the Law Society was consulted. The Committee recommended an upgrade of these Regulations to the affirmative procedure when they were initially laid before Parliament as a proposed negative instrument, because of the significance of the changes and the lack of information provided on their expected impact. The Committee remains concerned that the Department has not provided more extensive information to assist Parliament in its scrutiny of these draft Regulations".

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