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Companies Bill [Lords]

Chapter 4 of part 10 is designed to deal with situations in which there is a requirement for prior shareholder authorisation, because a director has a conflict of interest. The chapter replaces provisions of part 10 of the Companies Act 1985 with ones that will be more accessible and more consistent. It also implements various recommendations of the Law Commission and the company law review. I turn first to loans, quasi-loans and credit transactions. The Bill makes a major deregulatory change to the regime that applies to loans and other similar transactions made by a company for its directors. At the moment, such transactions are prohibited unless certain exceptions apply. The Bill replaces that prohibition with a requirement for member approval. The Bill was drafted to implement the Law Commission’s recommendation that all the rules on loans, quasi-loans and credit transactions for directors should extend to all companies. That would increase regulation for most private companies, as many of the current rules apply apply to relevant companies. In broad terms, relevant companies are public companies and private companies that are in the same group as a public company. Although that recommendation was endorsed by the company law review, we have carried out further informal consultation in the light of the discussion in Committee. Stakeholders clearly supported the proposal that the requirements that currently apply only to relevant companies should not be extended to all private companies. Government new clauses 72, 73 and 74 and Government amendments Nos. 592 to 597, 599 and 601 to 612 will make the relevant changes to the Bill. Amendments Nos. 405 and 406, tabled by the hon. Member for Huntingdon (Mr. Djanogly), relate only to the rules on credit transactions and would retain the increase in regulation for loans and quasi-loans. We believe that it would be better to remove that additional regulation. Therefore, under the Government amendments, the Bill will no longer apply the rules on credit transactions or quasi-loans to private companies, unless they are associated with a public company, or apply the rules on loans, quasi-loans and credit transactions with persons connected to a director to private companies, unless they are associated with a public company. Unlike in those Opposition amendments, we have not gone back to the concept of ““Relevant company””, as that added to the complexity of the current law. Instead, Government amendments use the concept of ““associated company””, which creates consistency with the rest of this part of the Bill. The rules that currently apply only to relevant companies will, under these amendments, apply only to public companies, and to any private company associated with a public company.