UK: the new Department for Business, Innovation and Skills

The Department for Business, Innovation and Skills came into existence today, following the merger of the Department for Business, Enterprise and Regulatory Reform and the Department for Innovation, Universities and Skills. The Secretary of State for the new department is Lord Mandelson. For further information see here. Click here for a history of the DBERR and its predecessors, dating back to the Board of Trade formed in 1621. 

UK: Companies Act (2006) implementation update

The Department for Business, Enterprise and Regulatory Reform has today updated its Companies Act (2006) what's new? web page to include information about recently published draft statutory instruments and Government responses to earlier consultations.

UK: the FSA's power to grant immunity

Yesterday the Coroners and Justice Bill received its first reading in the House of Commons. Amongst many other things, the Bill will provide the Financial Services Authority with the power to grant immunity from prosecution, subject to the consent of the Attorney General: see clause 96 ("Powers in respect of offenders who assist investigations and prosecutions") which will amend section 71 of the Serious Organised Crime and Police Act 2005. The FSA has long demanded this power, which it believes will enable it to secure more prosecutions for offences such as market abuse. Clause 96 also extends the power to the Secretary of State for DBERR acting personally. 

Explanatory notes have been published: see here (HTML) or here (PDF). A related FSA press release is available here. 

UK: listed companies: calling general meetings after 3 August 2009

The UK's implementation of the Shareholder Rights Directive (2007/36/EC) will require several changes to the Companies Act (2006) with regard to the calling of general meetings by listed companies. The Department for Business, Enterprise and Regulatory Reform is currently consulting on the implementation of the Directive and the amendments it will make to the 2006 Act - see the DBERR consultation paper for further information; the consultation period ends on 30 January. The deadline for implementing the Directive is 3 August.

The Directive requires a minimum of 21 days for annual general meetings (this is the current requirement for public companies under Section 307 of the Companies Act (2006)). Article 5 of the Directive provides that Member States may permit other general meetings (i.e., extraordinary general meetings) to be called with 14 days' notice providing the following criteria are met:

[1] the shareholders have approved the holding of general meetings on 14 clear days’ notice by passing an appropriate resolution at an AGM; and
[2] that the company offers "the facility for shareholders to vote by electronic means accessible to all shareholders".

The Directive requires the approval required in [1] to be by no-less than a two-thirds majority. DBERR is consulting on whether this should be a 75% majority in order that it is the same as that required for a special resolution (see Section 283 of the Companies Act (2006)). Until the outcome of the consultation is known, DBERR has recommended that listed companies consider passing a special resolution at their next AGM in order that they are able to call general meetings on 14 days' notice after 3 August 2009. This resolution would need to be passed at each subsequent AGM. 

With regard to the requirement in [2] that electronic voting "accessible to all shareholders" is offered, it is noted in the DBERR consultation paper (at para. 3.16):

It is not entirely clear in this context what this final phrase covers in terms of accessibility and the circumstances when accessibility is required. For example it may mean that companies must offer the facility for members to vote electronically (eg. via the company’s website) at all times; or it might mean that any method available to vote electronically (eg. via certificate acceptable and that shareholders should use such facilities.

UK: articles of association under the Companies Act 2006

The Companies (Model Articles) Regulations 2008 were laid before Parliament on 17 December 2008 and come into force on 1 October 2009. The Regulations contain the model articles for private companies limited by shares, private companies limited by guarantee and public companies.

The model articles provide default rules: they apply to companies formed on or after 1 October 2009 unless alternative provisions (in whole or part) are adopted. Further information is available in the accompanying explanatory memorandum. Non-statutory guidance (aimed at small companies) will be published in early 2009 on the DBERR website and will explain the differences between the default articles in the Companies (Tables A to F) Regulations 1985 and the new model articles. In addition, there are updated FAQs on the DBERR website. 

UK: Professional Oversight Board annual report

The Professional Oversight Board - part of the Financial Reporting Council - has published its report to the Secretary of State for BERR in respect of the year to 31 March 2008. In a statement accompanying the report's publication, the POB's Director, Paul George, noted:

The primary purpose is to report on our oversight of audit regulation carried out by the professional accountancy bodies that we recognise for this purpose. We focused in 2007/08 on key areas of risk at each body and on those regulatory systems where there had been significant recent change. Overall we conclude that the recognised bodies take their responsibilities extremely seriously and that much regulatory practice is of a high standard. However, the detailed comments in the report highlight those aspects of regulatory activity that are less strong or where there is room for improvement".

Click here for further information about the role of the POB. 

UK: House of Commons Business and Enterprise Committee reports

The House of Commons Business and Enterprise Committee has recently published two interesting reports. In its thirteenth report for the 2007/08 session, the Committee examined the operation of Companies House. The Committee concluded that Companies House "appears to be fulfilling its core functions reasonably well" but recommended a review of its role in verifying the information supplied to it. The Committee was concerned that users of Companies House were unaware that Companies House could not guarantee the accuracy of the information it held. The Committee also noted that the Companies Act (2006) could have given greater rectification powers to the Registrar to remove incorrect from the register without recourse to the courts.

In its fourteenth report, the Committee considered the accountability of the Secretary of State for Business, Enterprise and Regulatory Reform (Lord Mandelson), and the BERR ministerial team, to the House of Commons. The Committee was concerned that Members of the House of Commons were unable effectively to make their voices heard when a significant proportion of the BERR ministerial team was based in the House of Lords or shared with other departments. The Committee suggested:

The obvious solution, and the neatest, would be to the amend Standing Orders to allow the Secretary of State [Lord Mandelson] to answer questions at the Despatch Box [in the House of Commons]. But this may encourage governments to appoint more members of the House of Lords as heads of department, and that would be an unwelcome and significant constitutional change. Detailed discussion about a mechanism for parliamentary questions to the Secretary of  State for Business, Enterprise and Regulatory Reform is best taken forward by the Procedure Committee. However, we are convinced such a mechanism is needed, particularly at a time of such economic turmoil. We call upon our colleagues to look at this matter urgently, and upon the Government to co-operate fully in such an inquiry, particularly given the concerns expressed by the Secretary of State himself".

UK: Rights Issue Review Group report and recommendations

Amongst the documents published today, as part of the Government's pre-budget report, is the report of the Rights Issues Review Group. The Government has agreed with the Group's recommendations, which include the following short-term objectives (to quote directly from the report):

• The FSA and BERR to consult on reducing the rights issue subscription period from 21 to 14 days.
• BERR to take forward the practical transposition of the Shareholder Rights Directive to maintain the option of a 14 day notice period for companies’ general meetings.
  
• The Association of British Insurers (ABI) to review its guidance on the ceiling on allotments in light of the Group’s recommendation that it be increased from one-third to two-thirds of an issuer’s issued share capital.
  
• The FSA to continue to maintain oversight of the conflict of interest regimes with a view to reinforcing transparency between issuers and underwriters.
  
• The FSA to facilitate the development by market participants of non-prescriptive guidance on the issues that an issuer could usefully consider when embarking on a capital raising by way of a rights issue.
  
• The FSA to take forward consultation on a new form of open offer which will provide compensation and which may be run over a 14 day period in conjunction with a general meeting notice period. 

Several medium term objectives are identified, including:

• Working at the EU level for the adoption of a short form prospectus for rights issues.
  
• The possible increased use of shelf registration for equity issuance.
  
• The FSA to consider further a basis for conditional dealing in rights issues to allow the general meeting notice period and the rights issue subscription period to be run in parallel.
  
• The FSA to undertake further informal discussions on the usefulness of progressing with further work to introduce more accelerated rights issue models including for this purpose the Australian RAPIDS [Renounceable Accelerated Pro-rata Issue with Dual-bookbuild] model.
  
• The FSA market consultation on a more permanent position on short selling in rights issues.
  

UK: the Companies Act 2006 (Accounts, Reports and Audit) Regulations 2009

The Department for Business, Enterprise and Regulatory Reform has published a draft of the Companies Act 2006 (Accounts, Reports and Audit) Regulations 2009. In the accompanying consultation paper, BERR explains that the Regulations are required to implement the requirements of Directive 2006/46/EC in respect of corporate governance statements which are published separately from the directors' report. 

The Regulations deal with the publication and auditing of such corporate governance statements. They also make changes to Part 15 (Accounts and Reports) of the Companies Act (2006) in order to correct several minor errors. 

UK: The Companies (Trading Disclosures) (Amendment) Regulations 2008

A draft of the Companies (Trading Disclosures) (Amendment) Regulations 2008 has been laid before Parliament. The purpose of the Regulations, which will amend the Companies (Trading Disclosures) Regulations 2008 (SI 2008/495), is to introduce two exceptions to the requirement for each company to display its registered name at all its premises: insolvency and the protection of sensitive locations.

Updated FAQs with regard to trading disclosures have been published by the DBERR here and an explanatory memorandum for the Regulations has been published (see here, in PDF).

UK: DBERR consultation on the European Private Company Statute

The Department for Business, Enterprise and Regulatory Reform has published a consultation paper concerning the European Commission's European Private Company proposal. The consultation paper notes (para. 2.7):

The French Presidency hope that broad political agreement can be reached on the Proposal by the end of 2008. This is a very demanding timetable and therefore this consultation will only last five weeks, closing on 21st November".

UK: new corporate governance minister

Following the recent cabinet reshuffle, a new minister has responsibility for corporate governance and company law matters: Dr Ian Pearson MP. Dr Pearson is the MP for Dudley South and has a majority of 4,244 votes. His ministerial responsibilities are split between DBERR (as Under-Secretary) and HM Treasury (as Economic Secretary). Dr Pearson's contributions to parliamentary debates and his voting record can be followed here.

UK: financial regulation - Conservative Party's reform proposals

The Conservative Party has published, at the start of its conference in Birmingham, a policy document titled "Reconstruction - our plan for a strong economy". The proposals are many and wide-ranging; they cover the tax system, consumer credit regulation, the housing market and the role of the Bank of England and Financial Services Authority. Amongst the proposals are the following (to quote directly from the report):

• Improve the system for regulating banks by asking the FSA to tackle irresponsible bonus structures. Institutions that use massive bonuses to encourage short-term reckless risk-taking will have to hold more capital to offset their higher risks. 
• Improve the quality of regulation by matching the FSA’s new responsibilities with new funding. Financial institutions will have to contribute more funds and skilled secondees to the FSA so that the regulator is more equal to the regulated.
• Introduce more transparency into the regulation of complex financial instruments and off balance sheet vehicles.
• Make DBERR the clearing house across Whitehall for all legislation which has a regulatory impact.

UK: England and Wales: stay of proceedings - the director/shareholder as employee

Earlier this year, in Neufeld v A & N Communications in Print Ltd & Secretary of State for BERR [2008] UKEAT 0177_07_1104, His Honour Judge McMullen QC held that a 90% majority shareholder was an employee for the purposes of Section 230 of the Employment Rights Act (1996). As such the shareholder qua employee was able to benefit from Section 182 of the 1996 Act following the company's insolvency in order to claim redundancy, notice and holiday pay from the Secretary of State (the payments coming from the National Insurance Fund).  

The Secretary of State appealed. The Court of Appeal will hear the appeal in early December. Meanwhile, a stay of all proceedings concerning "the circumstances in which a director and majority shareholder of a company may be regarded as an employee for the purpose of a claim against the Secretary of State pursuant to Section 182 of the Employment Rights 1996 as statutory guarantor for certain categories of debts owed to employees, but unsatisfied on the insolvency of an employer" has been announced pending the Court of Appeal's decision. Click here for further information.  

Note: HHJ McMullen QC relied upon the guidance provided by the President of the Employment Appeal Tribunal in Clark v Clark Construction Initiatives Ltd & Anor [2008] UKEAT 0225_07_2902 (noted here). 

UK: BERR consultation on proposed changes to the European Works Council Directive (94/45/EC)

Earlier this year the European Commission published proposed changes to the European Works Council Directive (94/45/EC). The Department for Business, Enterprise and Regulatory Reform has now published a consultation paper with regard to the Commission's proposals, the closing date for responses being 6 October 2008. This does not provide much time; the reasons for this short consultation period are explained in the consultation paper (p. 3):

The French Presidency and the European Commission are seeking political agreement from the Member States and the European Parliament on the revision of the EWC Directive by December 2008. The Commission's proposals will therefore be subject to early and detailed consideration by the Council this autumn, starting with Working Group meetings scheduled for mid-September".

UK: limited partnership reform - DBERR consultation paper published

In November 2003 a joint report (Law Com No 283; Scot Law Com No 192) concerning the reform of partnership law was published by the English and Scottish Law Commissions. Although the Government does not plan, at present, to implement the Commissions' recommendations with regard to general partnerships, changes to the law governing limited partnerships have been proposed by the Department for Business, Enterprise and Regulatory Reform in a consultation paper published last week. 

DBERR's aim is to remove doubts about the operation of limited partnerships and to produce a coherent body of law relating to them. The consultation paper contains recommendations falling within the following categories:

• The establishment, registration and de-registration of a limited partnership.
  
• The liability of limited partners to third parties.
  
• The rights and obligations of general and limited partners in a limited partnership.
  

The consultation paper contains a draft of the The Legislative Reform (Limited Partnerships) Order 2009 and The Companies Act 2006 (Index of Company Names and Consequential Provisions relating to Limited Partnerships Act (1907) Order 2008.

UK: DBERR consultation on the creation of a UK wide companies registry

DBERR has published a consultation paper concerning its proposal to integrate the Northern Ireland Registry of Companies with Companies House to create a single UK Registry of Companies. According to the consultation paper:

In practical terms the merger would mean that customers would be able to refer to one Register only for registration and information relating to UK companies. It would also mean that all UK customers had access to the same products and services at the same price. The system would operate in much the same way as Companies House currently works with Scotland. The Registrar for Northern Ireland would be retained, and would be an appointee of the Secretary of State for BERR, as is the case for England and Wales and for Scotland; in practice the Northern Ireland Registrar would report to the Chief Executive of Companies House. The office in Belfast would remain, but would use systems, hardware, processes and have corporate standards in common with Companies House. Registry operations in Northern Ireland would be maintained with no detrimental impact upon customers, but the existing company data would be migrated to give customers full UK information on companies. There would be a common fee structure, and customers would have the benefit of common filing and search services covering the whole of the UK. There would be an exercise to value and transfer (if applicable) relevant assets and liabilities".

UK: Limited Liability Partnership Accounts Regulations published

The following Regulations have been published on the OPSI website and come into force on 1 October 2008. Their purpose is to apply to limited liability partnerships the accounting provisions of the Companies Act (2006). For further information see these FAQs prepared by BERR. 

[1] The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 - see here for the explanatory memorandum.

[2] The Small Limited Liability Partnerships (Accounts) Regulations 2008 - see here for the explanatory memorandum.

[3] The Large and Medium-sized Limited Liability Partnerships (Accounts) Regulations 2008 - see here for the explanatory memorandum.

UK: Companies Act (2006) - The Companies (Reduction of Share Capital) Order 2008

The Companies (Reduction of Share Capital) Order 2008 has been published on the OPSI website, together with an explanatory memorandum. The Order was made on 17th July and comes into force on 1 October 2008. It sets out the form of the solvency statement for private companies wishing to reduce their share capital in accordance with Sections 642 to 644 of the Companies Act (2006). For background information see these FAQs provided by BERR. 

UK: BERR annual report published

The UK Government department responsible for company law - BERR, or the Department for Business, Enterprise and Regulatory Reform - has published its annual report. Click here to view the entire report (be warned: it contains 267 pages) or here to view separate sections. For those interested in the Government's perception of its role in corporate governance there are some interesting insights. For example, the report notes (on page 55) that one of BERR's roles is to "create fair and flexible labour markets and to ensure that confident and informed shareholders and consumers drive markets".