Company Law Reform Bill [HL]

moved Amendment No. 435:"After Clause 589, 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, (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: My Lords, in moving Amendment No. 435, I shall speak also to Amendments Nos. 436 to 439. They all relate to the new Part 19A that I would like to add to the Bill. This new clause meets in considerable part the urgent need to reform the rules on dividends. The present rules in Part VIII of the Companies Act 1985 are now in disrepute because, first, the link between distributions and accounts has created considerable practical problems leading to more than 100 pages of additional guidance from the Institute of Chartered Accountants in England and Wales and the Institute of Accountants of Scotland. They are also in dispute because, 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—for example, the IFRS one and the existing UK accounting standards one—because the link between dividends and accounts is not catered for under the IFRS. Dividend blocks would be created, leading to a shortage of dividends to the public parent company, leading inevitably to restrictions on the parent’s ability to pay dividends to shareholders, which of course include many pension funds. On the distribution of assets, the amendment removes a piece of the 1980 UK gold-plating EC second company law directive. That directive applies only to public companies. The UK chose to apply its distributions’ provision to both public and private companies. Public groups have been forced to use IFRS from 2005. UK accounting is likely to converge with IFRS by 2009. The UK cannot wait for an EC solution to emerge. Ministers will see how urgent this will become. Amendment No. 436 results in a consistent regime applying to private company distributions—as that proposed for private companies’ reduction of share capital set out in Part 19 of the Bill. The focus is on insolvency. Paragraph (b) ensures that directors consider their general fiduciary duties. This is the ““solvency”” test. Amendment No. 437 preserves the current penalty in the 1985 Act. The further clauses seek to exempt private companies from existing rules. Special companies—for example, investment and insurance companies—will stay within the existing regime as of this time. The other provisions are the equivalent of Section 281 of the Companies Act 1985, amended as appropriate to fit the proposed new regime. I think that my final amendments speak for themselves. I hope that Ministers will consider these and come back at Third Reading, if they do not agree this evening. I beg to move.