Company Law Reform Bill [HL]

My Lords, Clause 92(1)(c) carries forward the current requirement contained in Section 43(3)(b) of 1985 Act for a written statement made by the company’s auditors confirming that the company’s net assets are not less than the aggregate of its called-up share capital and undistributable reserves. This provision applies where the company is proposing to re-register from private to public and is essentially protective: it provides a valuable check as regards the company’s share capital and net assets at the point of application for re-registration and is designed to ensure that when a private company applies to re-register as public, its allotted share capital is backed by assets. In Grand Committee, the noble Lord, Lord Hodgson, tabled an amendment that would have produced the same effect as the amendment that we are debating this afternoon—the removal of the requirement for a written statement. I offered to write to the noble Lord on this point at that time, but I am afraid that the noble Lord was slightly quicker off the mark on this occasion than we were, and my letter did not go out until after he had tabled his amendment. A copy of my letter is in the Library. I hoped that he would have been content to withdraw his amendment. If he has not had a chance to absorb the letter, or still wishes to press the amendment, perhaps I can explain again our thinking on the matter. Noble Lords will be aware that the second EC company law directive imposes minimum requirements as to share capital for public companies. Clause 92(1)(c) implements Article 13 of that directive, which calls for safeguards where an existing company is proposing to re-register as a public company—those are equivalent to the safeguards laid down for public companies that are formed as such. The safeguards that apply on application for re-registration as a public company are expressed in a somewhat different form from the provisions as they apply to public companies formed as such. It would be impractical to require a company that is re-registering as public to jump through the same hoops as a public company that is formed as such. For example, under Section 103 of the 1985 Act, where a public company allots shares other than for cash, the consideration for the allotment must be independently valued under Section 108 of that Act. It would not make sense to require retrospective reports from independent experts on the value of any non-cash consideration for shares that were issued by the company prior to its re-registration as public, particularly as the application for re-registration may be made several years after the shares were issued. Clause 92(1)(c), like Section 43(3)(b) of the 1985 Act, therefore takes a more broad-based and practical approach to satisfying our obligations under EU law: it provides that the company’s net assets at the point of re-registration as a public company should be at least equal to the called-up share capital and the company’s undistributable reserves. We accept that this is a different test from the one that is applied when a public company is formed as such. It does not guarantee that in every case where shares were issued for a non-cash consideration that consideration was worth at least as much as the nominal value and any premium on the shares, but it nevertheless provides an equivalent safeguard, as any shortfall on a particular share issue has to be made good from other surpluses. I hope that that further explanation will enable the noble Lord to withdraw the amendment. The provision is a requirement under the directive, which is why it is in the Bill.