Company Law Reform Bill [HL]

It may be useful to set out the background to Amendment No. 90. If a company of type A wishes to become a company of type B, it is always open to the members of company A to form a company of a different type—company B—and then for company B to acquire essentially everything in company A, with company A being wound up. This is not always straightforward—it has been acknowledged that there could be tax and other implications—but it is possible. Certain transitions of company type are, however, fairly common; for example, those from a private company limited by shares to a public company. Company law has, therefore, provided an express mechanism—re-registration—for dealing with this sort of transition. Necessarily, the re-registration mechanisms need to provide proper safeguards for members of the companies concerned, and for their creditors. The procedures are, therefore, different in different cases. Essentially, the existence of a specific re-registration procedure for any given type of transition recognises that there is a market need for a specific procedure, and that the complexity of the process which would need to be established does not outweigh that need. The current law permits certain types of re-registration, but, as acknowledged, not the kind that the amendment would provide for: between companies limited by shares and those limited by guarantee, and vice versa. There are reasons for this. First, guarantee companies are nowadays not as common as companies limited by shares, and are certainly far less used in the commercial world. There is simply less market need—I do not say none, but less—to make such changes of status. Secondly, some specific and quite complex legal issues would need to be considered in deciding how to translate a guarantee company which does not have a share capital, and whose liability is limited by that guarantee, into a company with a share capital whose liability is limited by shares and where the shares can generally be disposed of by the member. These issues do not arise in, for example, transitions from one type of share company to another. I am not saying that it would be impossible to design a scheme which permitted re-registrations of this sort but, in considering the possibilities, we were struck by the potential complexity of the arrangements that would be necessary for legal drafting and for the processes that companies might need to go through. Although it is clear that some organisations would find such options helpful in some circumstances, neither we nor the Company Law Review, which recommended that the option be explored and which recognised the particular difficulties attached to it, received any overwhelming evidence of dissatisfaction with the current legal position, or a need for change. On balance, therefore, I remain of the view that the case for change does not outweigh the difficulties of delivering it.