Company Law Reform Bill [HL]

The amendment would remove subsection (2), which prevents companies changing their status successively from limited to unlimited and back again. The Bill reflects existing companies legislation in preventing this practice, and the Company Law Review considered carefully whether the bar should be maintained or removed. It concluded that it should be retained to prevent companies taking short-term advantage of a merely temporary change of status. The Company Law Review does not seem to have believed that this has placed any obstacle in the way of legitimate market developments; nor are the Government aware of any evidence to that effect. I therefore support the CLR’s conclusion that the bar should remain. I should add that we are currently considering whether the condition in Clause 102(2)(b), which prevents a company beginning life as limited, re-registering as unlimited, then re-registering as limited and finally re-registering as unlimited again, is strictly necessary given that Clause 105(2) prevents a limited company which has re-registered as unlimited reverting to limited status. These highly technical issues are complicated by the need to consider possible multiple re-registrations under earlier legislation. We are considering whether any change is needed. As to the potential mischief that the subsection is designed to prevent, in some areas regulation of unlimited companies is less strict than for limited companies—for example, unlimited companies are exempt from the requirement to file annual accounts and reports with the registrar—reflecting the lesser need for third-party protections, given the unlimited liability of the members. I understand that the Company Law Review was influenced in reaching its conclusion by the possibility, however remote, that in some circumstances companies might change their status to unlimited to take momentary advantage of this less stringent regulation before reverting to limited status.