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Company Law Reform Bill [HL]

My Lords, I beg to move that this Bill be now read a second time. One hundred and fifty years ago, my predecessor Robert Lowe, later First Viscount Sherbrooke, brought forward the Bill that created the joint stock limited liability company. It was the first nationwide codification of company law in the world, and he has recently been described as ““the father of modern company law””. Our company law continues to have an excellent record. Since 1997 new incorporations have risen by over 60 per cent and the number of foreign firms incorporating in the UK has more than quadrupled. No doubt this is because, according to the World Bank’s assessment, it is quicker and cheaper for companies to set up in the UK than in any other EU member state. We think that improvements can still be made. Companies operate internationally and recent legal judgments make cross-border incorporations easier. Overseas owners hold around a third of the stock in listed UK companies—more than twice the level in 1993. If we want these owners to continue to invest in UK companies, we need them to retain their confidence in our system of corporate governance. Over the past half century, a number of significant Companies Acts have been introduced by governments from all parts of the political spectrum, often following on from the deliberations of an expert committee. The first post-war legislation—the Companies Act 1947—implemented the Cohen report of 1945 and, among other things, proposed the requirement that a company’s accounts represent a ““true and fair view”” of the state of affairs of the company. The Companies Act 1967 introduced, among other things, the requirement for all companies to file accounts with Companies House. Shorter Acts followed: in 1976, dealing with accounts and audit; in 1980, implementing the distinction between public and private companies; and, in 1981, making detailed provisions on the form and content of company accounts and implementing a European directive in this area. The 750 sections of the consolidating 1985 Act remain of course the centrepiece of our current law. This was followed in 1986 by the Financial Services Act, marking the beginning of a separate branch of legislation for securities, and by the Companies Act 1989, which implemented the EC’s Eighth Company Law Directive on group accounts and the EC’s Eighth Company Law Directive on the qualifications of auditors. I hope that that short and partial review of the past makes clear the need constantly to update our company law in response to changes in the way that companies do business and how that is often best done, as in this Bill, based on a previous review by independent experts and taken forward largely on a cross-party basis. I hope that we can, as far as possible, continue that tradition. That said, I do not think that the Bill is merely ““business as usual””. In its clear focus on simplification, on the needs of small businesses, which are so important to our economy, and on deregulation, I believe it represents a break with the past. The Bill has been drawn up in a unique partnership with business. In 1998, we commissioned the Company Law Review—an independent group of experts, practitioners and business people—to take a fundamental look at our system of company law. The review conducted a thorough and authoritative assessment of the changes that need to be made and is the essential blueprint for the reforms we now propose. The review was followed by two White Papers, in 2002 and 2005, and by further consultation on specific proposals. The Bill includes significant deregulatory change and, based on the information we have had from stakeholders, we estimate that it will produce savings for business of around £250 million a year, of which £100 million a year will benefit small business. That includes: significant savings relating to moves away from paper communications towards electronic communications, which could be close to £50 million per year for FTSE-listed companies alone; benefits for many companies, particularly smaller private ones, of simplifications to the way they take their decisions, including, for example, removing the requirement for them to hold annual general meetings and a move towards greater use of written resolutions with savings perhaps in the range of £25 million to £100 million a year; greater clarification provided by the Bill on directors’ duties; and the general savings to companies, their advisers and all users of the law from redrafting it and providing a clearer structure and language. It is also important to emphasise the less easily quantifiable, but no less real, economic benefits which we believe could arise for all companies and for the economy as a whole from the enhancements to corporate governance, shareholder engagement and the modernisation of decision-making processes that the Bill introduces. The Bill repeals about two-thirds of the Companies Acts 1985 and 1989, including all the provisions most frequently used by small companies. The legislation has been reordered and redrafted in clearer language to make it much easier for companies of whatever size to understand the requirements on them. I hope that noble Lords will be able to join me in complimenting parliamentary counsel on the clarity of the drafting, which has been favourably commented on by a number of those whom we have consulted. Noble Lords may ask why the Bill is not a complete consolidation of existing company law. That is largely a case of reflecting the views of those whom we consulted. They told us that they wanted to see restatement of the areas which were of day-to-day relevance but not to see provisions reworked for the sake of it. On capital maintenance, for example, which is a large chunk of what remains in the 1985 Act, we are pressing for fundamental reform in the EU. To restate in advance of that would not be helpful for users, although the Bill does make some useful specific changes. In practice, we are told that, when referring to company law, users use publications such as Butterworths, which shows the Acts as amended and includes relevant statutory instruments and, indeed, financial services legislation.