Company Law Reform Bill [HL]

It would be helpful if I explain the Government’s approach. Part 31 has attracted a good deal of comment already, in particular in our debates at Second Reading. I am also very conscious of and grateful for the views of the Delegated Powers and Regulatory Reform Committee and the committee on the constitution. As noble Lords will see, the Government do not intend to proceed with the proposal to include the general reform power in the Bill. But I make no apologies for the attempt. I believe that the reform power was a principled attempt to address a very real issue. I would like to take the committee briefly through the reasons why we decided that it was sensible in the first place and what happens next. It is important to keep in sight the underlying rationale for the power. There is a number of areas where there may be a need for changes to company law in the medium term but where we cannot yet set out exactly what the change should be. I give one example: capital maintenance—that is to say the rules on the relationship between the amount of share capital a company has on its books and its ability to distribute money back to investors as dividends. As we discussed in an earlier sitting, those are rather technical rules where we are to some extent constrained by Europe, certainly as far as public companies are concerned. As and when Europe relaxes the rules for those companies, we may find ourselves wanting to make deregulatory changes for all companies in the UK. We cannot cater for that precisely in the Bill now. We do not know how far Europe will go. But it is important to business that as soon as we can relax the rules, we do so. In proposing the reform power in Part 31, we wanted to cover that sort of eventuality. We recognised that the power was wide and novel. For that reason we took the decision to cast it in the form of a super-affirmative power, with stringent procedures attached for public consultation and parliamentary scrutiny. In doing so, in large part we followed the precedent of existing super-affirmative powers under the Regulatory Reform Act. As I said, I still believe that this was a serious attempt to tackle a genuine problem. The intention behind a general power of this sort was that it would have enabled us to tackle not just those areas where we already suspect that there may be an issue in the medium term, such as capital maintenance, but also others that may emerge over time but of which we are as yet ignorant. I have not yet recognised the extent to which this House has already indicated its serious concern at the proposal. Opposition has not of course been universal, but I must and do take particularly seriously the comments that we have received from the Delegated Powers and Regulatory Reform Committee and from the committee on the constitution. Both committees made some comments of detail on the proposals. To the extent that their concerns related to specific procedural aspects, I believe that in many areas we would have been able to come up with acceptable answers to their concerns. But, ultimately, I have to recognise that there remains an issue of principle, in particular, over the simple question of whether it is appropriate for a relatively wide and novel power like this, which raises issues of some potential constitutional significance, to be included in a Bill which is devoted to one specific area, such as the Company Law Reform Bill. I have a great deal of sympathy with this argument. In particular, the overall landscape has been changed by the introduction in another place of the Legislative and Regulatory Reform Bill. The powers contained in that Bill are not identical with that in Part 31, but there is considerable overlap. Of course that Bill is now in another place, and will come to your Lordships’ House in due course. I am sure that there will be many interesting debates. But I believe that the proposals set out in that Bill lessen the case for a specific general reform power in company law. That Bill perhaps provides a more appropriate vehicle for discussing the principles relating around super-affirmative powers more generally. Therefore, the Government have decided not to proceed with the proposal in Part 31. I do not think that we can simply leave the matter there. The underlying need to provide some means of making changes over time in certain key areas remains. There is a particular problem for company law, which dates back to Victorian times and beyond, when many provisions have traditionally appeared in primary legislation rather than in regulations. That approach caused few problems in a period when the law was generally simpler, shorter and less subject to the demands of a rapidly changing business environment. But in today’s world it can create difficulties. Where once the provisions on reports and accounts, for example, occupied no more than a page or two of an Act, they are now spread over more than 200 pages of primary and secondary legislation. There is a regular need to keep them updated. It is in recognition of those realities that more recent legislation has adopted a somewhat different approach. Financial services, for example, offers a close parallel to company law, but one where the legislation is of a much more recent date. In regulating in this area, Parliament has agreed that a sensible approach is to place the key central provisions in primary legislation with the detail left to secondary regulations, which can be updated as necessary over time. I believe that the time is now right for company law to move closer to this modern model of legislation. I therefore propose to introduce amendments on Report to provide for specific powers to make provision by way of regulations in a handful of areas. We will of course have an opportunity to debate those proposals in due course, but for the moment I would simply say that we would envisage no more than three or four specific powers in clearly defined areas. These will include capital maintenance, as I mentioned, as well as changes to the existing system of company charges—that is to say, the public record of the property that companies have used to secure their borrowing—including a power to ensure the operability of the new registration system for floating charges in Scotland and a power to make changes to reporting and accounting provisions very much on the lines of the one already set out in Section 257 of the Companies Act. As a general principle, I would envisage that those specific powers will be ““standard”” in form; that is, to be exercised by affirmative or negative procedure in the normal way. We would not seek to add any particular super-affirmative procedures. Clearly, as with any delegated power, we would expect the Delegated Powers and Regulatory Reform Committee to want to look at the detail of the proposals in the usual way. I hope that I have been able to set out why I believe that the underlying intention behind the proposals in Part 31 was serious, why we are dropping the proposal in this Bill, and what I would intent should happen next. On that basis, I therefore oppose the Question that the clauses in this part should stand part of the Bill.