Company Law Bill [HL]

moved Amendment No. A96:"After Clause 584, insert the following new clause—" ““PART 19A       LIMITS OF PRIVATE COMPANY’S POWER OF      DISTRIBUTION CERTAIN DISTRIBUTIONS PROHIBITED    In this Part, ““distribution”” means every description of distribution of a company’s assets to its members, whether in cash or otherwise, except distribution by way of— (a)   an issue of shares as fully or partly paid bonus shares, (b)   the redemption or purchase of any of the company’s own shares out of capital (including the proceeds of any fresh issue of shares) or out of unrealised profits in accordance with Chapter VII of Part V of the Companies Act 1985 (c. 6), (c)   the reduction of share capital by extinguishing or reducing the liability of any of the members on any of the company’s shares in respect of share capital not paid up, or by paying off paid up share capital, and (d)   a distribution of assets to members of the company on its winding up.”” The noble Baroness said: In moving Amendment No. A96 I wish to speak also to Amendments Nos. A97, A98, A99 and A100. The new Part 19A would meet, in considerable part, the urgent need to reform the rules on dividends. This represents rules in Part VIII of the Companies Act 1985, which are now in disrepute for two reasons: first, the link between distributions and accounts has created considerable practical problems. This has led to over 100 pages of additional guidance from the Institute of Chartered Accountants in England and Wales and ICAS in Scotland. Secondly, private companies that are subsidiaries of public companies are keen to move to using solely international financial reporting standards—IFRS. They are being forced to keep two sets of accounting records; that is, the IFRS one and the existing UK accounting standards one. This is because the link between dividends and accounts is not catered for under IFRS. Dividend blocks are being created, leading to a shortage of dividends in the public parent companies and this leads invariably to restrictions on the parents’ ability to pay dividends to shareholders. This, of course, includes many pension funds. The new clauses would remove a piece of 1980 UK gold plating of the EU Second Company Law Directive. The directive applies only to public companies but the United Kingdom chose to apply its distribution provision to both public and private companies. Public groups were forced to use IFRS from 2005, and UK accounting is likely to comply with IFRS by 2009. The UK cannot wait for an EU solution to merge. The new clause on distribution of assets would result in the regime applying to private company distribution being consistent with that proposed for private companies’ reduction of share capital as set out in Part 19 of the Bill. The focus is on solvency and directors considering their general duties. The new clause on approval of distributions is clear. The new clause on consequence of unlawful distribution would preserve the current penalty in the 1985 Act. The new clause concerning amendments to the Companies Act 1985 seeks to exempt private companies from the existing rules. Special companies—that is, investment and insurance companies—will stay within the existing regime this time. The new clause on saving for other restraints on distribution is the equivalent of Section 281 of the Companies Act 1985, amended as proposed to fit the proposed new regime for private companies. I beg to move.