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									                        House of Lords
      Delegated Powers and Regulatory Reform Committee

                Example delegated powers memoranda


                           In increasing length of bill:
Page 1:      Northern Ireland (St Andrews Agreement) Bill (First
             Report 2006-07)
Page 5:      National Lottery Bill (15th Report 2005-06)
Page 11:      Company Law Reform Bill [HL] (9th Report 2005-06)


             _________________________________________________


           Northern Ireland (St Andrews Agreement) Bill
               Memorandum by the Northern Ireland Office
                         for the House of Lords
           Delegated Powers and Regulatory Reform Committee

1.     This Memorandum describes the purpose and content of the Northern
Ireland (St Andrews Agreement) Bill; identifies the provisions of the Bill which
confer powers to make delegated legislation; and explains in each case why the
power has been taken and the nature of, and reason for, the procedure selected.
Background and purpose of the Bill
2.      At the beginning of 2006, the British and Irish Governments made clear
their commitment to achieving restoration during 2006 and embarked on new all
party talks in February 2006 with the aim of agreeing a way forward. On 6 April
2006 the Prime Minister and Taoiseach published a joint statement setting out the
Governments’ strategy for achieving devolution by the end of 2006. This strategy
was incorporated into what became the Northern Ireland Act 2006, which
provided for Assembly members to be brought together to participate in a process
to select a Northern Ireland Executive by 24 November 2006. Further political
talks were held between the British and Irish governments and the Northern
Ireland political parties at St Andrews between 11 to 13 October 2006. This
culminated in the St Andrews Agreement, published on 13 October, which sets
out a framework for the restoration of devolved government in Northern Ireland.
This Bill gives effect to those parts of the St Andrews Agreement requiring primary
legislation.
3.     If the process is successful, an Assembly election will be held on in March
2007, followed by full restoration of devolved government on 26 March 2007. In
this scenario, the Bill also provides for the repeal of the Northern Ireland Act
2000, and, on restoration, amendments to the Northern Ireland Act 1998 arising
from the St Andrews Agreement to take effect.
4.      If, however, attempts to form an Executive fail before 25th March, the
Secretary of State will make an order dissolving the Assembly, and the Assembly
election will be postponed indefinitely. If an Executive is not formed following
restoration of the Assembly, dissolution, and postponement of the next election
will similarly occur.
5.      The Government has considered carefully the need for the powers to make
subordinate legislation conferred by the Bill, and believes that the proposals in the
Bill are justified in the light of the delicate political situation in Northern Ireland,
the need for speed and flexibility in responding to the outcome of negotiations in
such a situation, and the fact that the overall aim of the powers in the Bill remains
the restoration of a democratic functioning legislature as soon as circumstances
allow.
Clause 2: compliance or non-compliance with St Andrews Agreement
timetable
       Powers conferred on: Secretary of State
       Power exercised by: order (commencement, restoration, and suspension)
       Parliamentary procedure: none
6.      Clause 2 deals with the consequences of success in meeting the St Andrews
Agreement framework, or, alternatively, failure to do so. Under subsection (1), if
at any time before 25th March 2007 the Secretary of State considers that there is
no reasonable prospect of an Executive being formed successfully, he may make an
order bringing Schedule 3 into force on the day following the day on which the
order is made. Subsection (6) provides for the order to be made by statutory
instrument. The effect of bringing Schedule 3 into force is dissolution of the
Northern Ireland Assembly, and postponement of the next Assembly election. The
order under subsection (1) of clause 2 is not subject to Parliamentary procedure,
as it is a commencement order, to be made in the limited circumstances set out
above.
7.      Clause 2(2) deals with the contrasting situation where the Secretary of State
does not make an order under subsection (1). In this case, he must make a
restoration order on 25 March 2007, and, under clause 2(2)(b), Schedule 2 will
come into force on 26 March 2007. The power to make a restoration order is
conferred by section 2(2) of the Northern Ireland Act 2000 (“the 2000 Act”),
which enables the Secretary of State to provide that section 1 of that Act is to
cease to have effect on a specified date. (Section 1 provides for the suspension of
the Northern Ireland Assembly). Normally a restoration order would be subject to
the affirmative resolution procedure. However, in the light of the fact that the
circumstances in which the order is to be made are set out in the Bill, and in view
of the particular requirements of the St Andrews Agreement timetable, subsection
(7) of clause 2 omits that requirement in this case. Section 7(2) of the 2000 Act
already enables a restoration order to make consequential, supplemental or
transitional provision. Paragraph 4 of Schedule 2 amplifies this by stating that this
may include provision to treat things done under the Bill as having been done
under the 1998 Act, and things done by or in relation to the Transitional
Assembly as having been done by or in relation to the Northern Ireland Assembly.
This could be used to avoid the need for the signing of the roll and community
designation to be repeated following restoration, if it had already been done shortly
before in the Transitional Assembly.



                                            2
8.     Clause 2(3) and (4) deal with the case in which a restoration order is made,
but by the end of 26 March 2007 it appears to the Secretary of State that one or
more of the Ministerial offices is not filled. In this case, subsection (4) requires
him to make an order on 27th March revoking the restoration order, thereby
suspending the Northern Ireland Assembly again, to come into force on 28th
March. Like the restoration order under subsection (2), the revocation order is
similarly made under the 2000 Act, and, for the same reasons, the usual
requirement for the affirmative resolution procedure has been lifted.
Clause 11 – committee to review functioning of Assembly and Executive
Committee
       Power conferred on: Secretary of State
       Power exercisable by: order made by statutory instrument
       Parliamentary procedure: negative resolution
9.      Clause 11 provides for standing orders to ensure that a new Assembly
committee is established to examine the functioning of the Assembly and
Executive Committee. One of its tasks will be to consider whether or not the
changes to the way that the First and deputy First Ministers are appointed
introduced by the Bill should be retained after the 2011 Assembly election. If the
Committee determines that the changes made by the Bill should be reversed, then
it is required to make a recommendation to the Secretary of State to this effect,
and under clause 11(2) the Secretary of State will be under a duty to make an
order amending the Northern Ireland Act 1998 to secure that it has effect as if
those changes had not been made. The relevant amendments are defined as “the
executive selection amendments” in subsection (3), so that the effect of the order
is already clearly defined in advance. For this reason, the negative resolution
procedure is thought to be appropriate, notwithstanding the fact that the order will
amend primary legislation. An order under this provision may include
supplementary, incidental, consequential, transitional or saving provision (see
subsection (4)).
Clauses 23 and 24 – power to make consequential provision etc
       Power conferred on: the Secretary of State
       Power exercised by: order made by Statutory Instrument
        Parliamentary procedure: affirmative (with urgency procedure) or negative
resolution,    depending on the contents of the instrument
10.     Clause 23 enables the Secretary of State to make an order making
supplementary, incidental, or consequential provision, and transitional and savings
provisions. This power is intended to be used to make any changes that may be
needed in consequence of the coming into force of Schedules 2 or 3, and any
transitional or saving provision that may be required as a result of the repeal of the
2000 Act under Schedule 4. Some transitional provision to cover the
consequences of that repeal is made in the Bill itself, in paragraph 2 of Schedule 4,
but the nature of the legislation has meant that it has not been possible to make
full transitional provision, and more is likely to be needed. For example, it is likely
to be necessary to make the kind of provision found at paragraphs 4 and 10 of the
Schedule to the Northern Ireland Act 2000, which deal with matters such as the
validity of executive functions. Clause 23(2)(b) enables the order to amend
another enactment, which includes paragraph 2 of Schedule 4 to this Bill. This is
aimed at the possible need to adjust those provisions in the light of the further
transitional or saving provision made in a subsequent order.
                                            3
11.     The Parliamentary procedure to be followed depends on the content of the
order. If the order amends or repeals any provision of an Act or Northern Ireland
legislation, it may not be made unless a draft has been laid before and approved by
each House of Parliament under clause 24(1) and (3)). Provision is made for an
urgency procedure if the Secretary of State considers that expedient: clause 24(4)
and (5). In such a case the order must be laid after being made, and will cease to
have effect if not approved by a resolution of each House before the end of the
period of 40 days starting on the date on which the order is made. If the order
does not amend or repeal primary legislation (including Northern Ireland
legislation), the negative resolution procedure applies. This combination of
procedures seems to the Department to strike an appropriate balance between the
need to secure a quick and smooth transition to devolved government and the
need to respect Parliamentary involvement where legislation is to be amended.
Schedule 3 – non-compliance with St Andrews Agreement Timetable
          Power conferred on: Secretary of State
          Power exercised by: order
          Parliamentary procedure: draft affirmative (each House, with urgency procedure).
          Other relevant provisions: section 31 and section 96(2) to (2D) of the Northern
Ireland          Act 1998.
12.    Schedule 3 deals with the consequences of failure to select an Executive and
confers on the Secretary of State power to postpone the next Northern Ireland
Assembly election (paragraph 2).
13.    Paragraph 2(1) of Schedule 3 amends the 1998 Act so as to substitute
section 31(2) with new subsections (2) to (2D). The substituted material provides
that the next election to the Assembly will not take place until a date the Secretary
of State specifies by order. New section 31(2) and (2A) provides for the making of
that order, and enables the Secretary of State to fix a date after the date on which
the election would, in the normal course of events, take place. New section 31(2B)
enables the order to make modifications (including amendments or repeals) to any
enactment or subordinate legislation for the purposes of the order – this may be
necessary to cater for the procedural steps required in connection with the holding
of elections, for example to avoid a clash with the canvass. To be consistent with
the existing structures and procedures provided in section 31 of the 1998 Act, the
substituted provisions attract the Parliamentary procedure set out in section 96(2)
of that Act, namely, the affirmative resolution procedure, with the possibility of an
urgency procedure. (The urgency procedure provisions in section 96(2A)-(2D)
were inserted by the Northern Ireland (Elections and Periods of Suspension) Act
2003).

14.    Paragraph 2 of Schedule 3 thus ensures that the structures of the 1998 Act
(and subsequent Acts) remain in place, ready to be activated at the right moment.
And it gives the Secretary of State a power to respond to political developments
favourable to devolution by calling for an election to the Assembly when he judges
the time to be right. The Department submits that in the circumstances it is
appropriate to adopt the existing Parliamentary procedures provided for the
making of subordinate legislation, since the new provisions are consistent with the
framework provided by the 1998 Act.
Northern Ireland Office
16 November 2006
                                              4
                             National Lottery Bill

      Memorandum by the Department for Culture, Media and Sport
                       for the House of Lords
         Delegated Powers and Regulatory Reform Committee


Introduction
1. This Memorandum identifies the provisions in the National Lottery Bill which
confer power to make delegated legislation. It explains the purpose of the
delegated power proposed; why the matter is to be dealt with in delegated
legislation; and the nature and justification for any parliamentary procedures
which apply.

Background
2. The legislative framework for the National Lottery is set out in the National
Lottery etc Act 1993 (c.39) (“the Act”). This was amended by the National
Lottery Act 1998 (c.22). The National Lottery Bill seeks to make further changes
to this legislation.
3. The Department for Culture, Media and Sport has undertaken a number of
consultations with regard to the National Lottery. The ‘Review of Lottery
Licensing and Regulation’ consultation document of June 2002 focused on
licensing and regulation of the Lottery. This was followed in November 2004 by
the ‘National Lottery Licensing and Regulation Review Decision Document’
setting out the Government’s proposals in the light of this consultation.
4. On distribution of Lottery funds, the consultation document ‘Review of Lottery
Funding’ was published in July 2002 with a further consultation document the
‘National Lottery Funding Decision Document’ published in July 2003. The
National Lottery Bill implements the legislative proposals that emerged from both
the licensing and regulation and Lottery funds distribution sets of consultations.
5. Current legislation has established the National Lottery Commission as the
regulating body for the National Lottery. The Commission issues and enforces
licences for the operation of the Lottery. The present operator of the Lottery is
Camelot Group plc. A proportion of the money raised by the Lottery is distributed
to good causes. The money for good causes (approximately 28p per £1 of the
money raised by Camelot through its operation of National Lottery games), goes
into the National Lottery Distribution Fund (NLDF) for payment to the various
individual distributing bodies set up to administer the good causes (the money
held in the NLDF is known as a distributor’s balance).
6. The apportionment of monies held in the NLDF for the individual good causes
is set out in legislation: the current five good causes are; sports, the arts, heritage,
charitable expenditure (administered by the National Lottery Charities Board –
also known as the Community Fund) and health, education and the environment
(administered by the New Opportunities Fund). The Community Fund and the
New Opportunities Fund are now jointly operating under the name of the Big
Lottery Fund.
7. Legislation also sets out the Lottery distributing bodies, the amount of the
proceeds of the Lottery held in the NLDF for those bodies, provisions for
payments from the NLDF in respect of expenses incurred by those bodies and
provides for the investment of the undistributed monies held in the NLDF.
                                           5
Overview of the bill
8. The purpose of the bill is to provide for those elements requiring primary
legislation of the Government’s reforms of the Lottery, as have emerged from the
consultations mentioned above.
9. The reform of distribution arrangements are intended to change the distribution
of National Lottery money in a way that responds to public priorities; improve
efficiency by reducing the number of distributing bodies; and allow more National
Lottery money to be spent more quickly on good causes.
10. It will do this by establishing a new distributor, the Big Lottery Fund, to
replace the Community Fund, the New Opportunities Fund and the Millennium
Commission - and will establish a new good cause (charities, health, education and
environment) to reflect the Big Lottery Fund’s functions.
11. It will allow the Big Lottery Fund to advise on cross-cutting issues, to lead on
ensuring that best practice is shared and on developing pre-application support for
all applicants, common standards of service, and common application forms across
Lottery distributors.
12. It will also allow the Big Lottery Fund to handle non-Lottery money and to
make grants in relation to the Isle of Man and the Channel Islands.
13. It will provide all Lottery distributors with the legal powers to ensure they are
able to consult and take into account the views of the public in making distribution
decisions, and enable them to promote the Lottery as a whole.
14. The allocation of interest earned by the investment of undistributed funds in
the NLDF will be reformed and a power will be taken to allow reallocation of
excessive unspent balances held for particular distributors in the NLDF.
15. The bill also allows for changes to the National Lottery Commission
constitution, enabling the Secretary of State to appoint the Chair and up to two
executive members and removing the limit on the number of Commissioners. This
brings it in line with the Gambling Commission which was recently established
under the Gambling Act 2005 (c. 19). It also makes provision in relation to the
licensing system, and in particular sets out a reserve power to allow for a system of
multiple licences to be issued to run for different parts of the Lottery.

Provisions for delegated legislation

Clause 5: fees
16. Clause 5 inserts new section 7A into the National Lottery etc. Act 1993 (“the
Act”) to provide that the holders of licences under section 5 (to run the National
Lottery) and section 6 (to promote individual Lottery games) must pay an annual
fee to the National Lottery Commission. New section 7A(2) provides that the
amount of the fee will be prescribed in regulations made by the Secretary of State.
17. Currently under section 7(5) of the Act, to be repealed by this bill, holders of
such licences must only pay a fee on the granting of the licence. The amount of the
fee is prescribed by order made by the Secretary of State. The movement to an
annual fee from a fee payable only on the granting of a licence will allow the fee to
properly reflect the expenses incurred by the National Lottery Commission in
exercising all of its licensing functions (e.g. monitoring of the licences on an
ongoing basis) and not just its function to grant licences.


                                         6
18. This is a standard fee setting power and the Department considers that it is
appropriate that the fee is set out in secondary legislation as the level of the annual
fees will need to be updated regularly to reflect inflation and the changes in the
National Lottery Commission’s costs of carrying out its licensing functions in an
area subject to considerable innovation in the design of the new Lottery games..
This power is administrative in nature, and it is considered that it is suitable for
the negative resolution procedure to apply in line with current fee setting power
under section 7(5) of the Act.

Clause 6 and Schedule 1: Licensing structure
19. Schedule 1 amends Part 1 of the Act to provide for the reserve licensing
structure for the National Lottery. Briefly, the current system of issuing one
licence under section 5 to run the National Lottery and subordinate licences
(normally to the section 5 licence holder) under section 6 to promote individual
Lottery games such as Lotto, Euromillions and scratchcards, will be replaced by a
system where one type of licence is issued to run different parts of the Lottery e.g.
one licence for the main Lotto game, one licence for scratchcards etc.
20. However, the Secretary of State only intends to commence these provisions in
the unlikely event that the current licensing structure has failed in creating an
effective competition for the licence under section 5 of the Act to run the National
Lottery and so risks maximising returns to good causes. Given that we do not
intend to commence Schedule 1 immediately, if at all, and to reflect the National
Lottery Commission’s independent role in running the licence competition the
Department considered that it was inappropriate to rely on the normal
commencement powers set out in clause 21 to bring Schedule 1 into force. We
considered that it was appropriate to have an enhanced procedure: to require
consultation with the National Lottery Commission and to make the order subject
to the negative resolution procedure.
21. In practice in such an eventuality we would expect the National Lottery
Commission, which runs the competition for Lottery licences, to make a
recommendation to the Secretary of State about commencing the reserve licensing
structure set out in Schedule 1. The Commission would only do so if in line with
its overriding duties in section 4 of the Act – in particular, the duty to maximise
the returns to good causes.
22. The usual practice is for commencement orders to have no Parliamentary
procedure, and given that this power is simply an enhanced commencement
provision we consider the negative resolution procedure is appropriate. Schedule 1
would also need to be brought into force quickly given that its commencement
would only be in the event of an unsuccessful competition with time pressing until
the expiry of the existing licences. Any delay could be very costly in terms of
income loss to the good causes.
23. If this reserve licensing structure is commenced, paragraph 6 of Schedule 2
inserts new sections 6 and 6A into the Act. New section 6(1)(d) provides that the
National Lottery Commission may only issue a licence under new section 5 if it
has complied with any regulations under new section 6A about inviting competing
applications for licences. In particular, new section 6A will make provision about
the publication of invitations and the timing of responses. The Department
considers that it is appropriate for these administrative details about the holding of
a competition to be set out in secondary legislation and subject to the negative
resolution procedure.

                                           7
Clause 7: National Lottery Distribution Fund: apportionment
24. Clause 7 provides that 50 per cent of all sums paid into the National Lottery
Distribution Fund must be allocated for prescribed expenditure that is charitable,
or connected with health, education or the environment. This effectively creates a
new good cause for the Big Lottery Fund, replacing the existing Community Fund
and New Opportunities Fund good causes. Subsection (3) inserts new section
22(3A) into the Act allowing the Secretary of State, following consultation with
the Big Lottery Fund, the devolved administrations and such other persons (if
any) she thinks appropriate, to set out by order what is “prescribed expenditure”.
It also inserts new section 22(3B) which allows such an order to prescribe
“devolved expenditure” in relation to England, Scotland, Wales, Northern Ireland,
the Isle of Man or the Channel Islands.
25. These powers are needed for two main reasons. First, because the new good
cause is extremely broad we consider it necessary to be able to set out - at the very
highest level - the types of expenditure in connection with which the Big Lottery
Fund should be able to distribute Lottery monies. Second, the ability to prescribe
devolved expenditure is central to the way in which the bill devolves power to
England, Scotland, Wales and Northern Ireland. The Big Lottery Fund’s
functions in relation to devolved expenditure will be exercised by country
committees set up under paragraph 7 of new Schedule 4A (inserted by Schedule 2
to the bill) and subject to policy directions issued by the relevant devolved
administration.
26. The Secretary of State plans to exercise these powers to prescribe the following
descriptions of devolved expenditure: expenditure on or connected with the
promotion of community learning; expenditure on or connected with the
promotion of community safety and cohesion; expenditure on or connected with
the promotion of physical and mental wellbeing; and expenditure on or connected
with small scale projects in local communities which involve people within those
communities. She also plans to exercise these powers to prescribe the following
type of non-devolved expenditure: expenditure on or connected with projects
which are intended to transform communities. An illustrative order is attached at
annex A. This order is similar to the current initiative orders applying to the New
Opportunities Fund 1 made under section 43B of the Act.
27. These powers will be used to prescribe expenditure for the Big Lottery Fund,
in effect limiting what it can fund. We would not expect to prescribe expenditure
very frequently but we need the flexibility to do so where necessary without the
need for further primary legislation. We may for example want to add new types of
prescribed expenditure to reflect changing circumstances and public priorities. In
any event it is very likely we will want to review the focus of funding every three to
five years.
28. Because these powers are fundamental to the way the Big Lottery Fund
operates, we believe it is right for them to be subject to the affirmative resolution
procedure.

Clause 8: Reallocation of funds
29. Clause 8 inserts new section 29A into the Act. New section 29A allows the
Secretary of State by order to reallocate sums held in the NDLF for distribution by


1   S.I. 2005/1102 and S.I. 2005/3235.

                                          8
a particular Lottery distributor to another body, but not from one good cause to
another.
30. This power is necessary to help ensure that Lottery money is spent more
quickly. The 2004 National Audit Office Report 2, and 2005 enquiry by the Public
Accounts Committee, confirmed the Government’s view that Lottery money only
delivers its intended benefit to the public once it is spent on projects. In practice,
the Secretary of State would only use this as a last resort in the event that a
distributor was considered to have failed, signally, to reduce its balance held in the
NLDF to a reasonable level and there were serious concerns about the ability or
willingness of a distributor to manage its NLDF balance to a reasonable level.
31. Lottery distributors vary widely in size and in the nature of the awards they
make. There is no simple formula for the amount that a Lottery distributor should
hold in the NLDF at any given time. The PAC concluded that eventually the
appropriate balance should be the amount a Lottery distributor needs ‘for cash
flow purposes, taking account of expected levels of income and expenditure.’
Future levels of income and expenditure are not fixed, and the on-going level of
awards, and the likely time that award recipients will take to draw on their
funding, are further complicating factors. This means that, in practice, it is not
possible to come up with a single formula for determining a reasonable balance
that could appear on the face of the bill.
32. Use of this power would be a serious matter that would require careful
consideration and full Parliamentary scrutiny, which is why the affirmative
resolution procedure was adopted before introduction after Government had
received representations about the issue. That is also why we have included under
new section 29A(3) the requirement for consultation with the Lottery bodies
affected, and the Devolved Administrations, before votes in both Houses under
the affirmative procedure.

Clause 13 and Schedule 2: Establishment of the Big Lottery Fund
33. Schedule 2, which inserts new Schedule 4A to the Act, sets out detailed
provisions on the Big Lottery Fund’s constitution, proceedings and money.
Paragraph 1 deals with the membership of the Big Lottery Fund. It provides that
there will be 12 members appointed by the Secretary of State. Sub-paragraph (5)
allows the Secretary of State to vary this number by order, following consultation
with the devolved administrations.
34. This power is necessary to ensure there is flexibility to respond to changing
circumstances, and vary the number of Big Lottery Fund Board members should
that prove necessary, without the need for further primary legislation.
35. The negative resolution procedure is in line with existing provision for other
public bodies, including the Community Fund, the Millennium Commission and
the New Opportunities Fund.

Clause 14: Functions of the Big Lottery Fund
36. Clause 14(2) inserts new section 36B into the Act, setting out the Big Lottery
Fund’s main power to distribute funds. New section 36B(3) gives the Secretary of
State power by order to limit the amounts that the Big Lottery Fund may
distribute on types of expenditure prescribed by order under new section 22(3A)


2   ‘Managing National Lottery Distribution Fund Balances’ HC 875 Session 2003-2004: 21 July 2004.

                                                     9
(inserted by clause 7 of the bill). In practice, these order making powers will be
exercised together.
37. New section 36B(4) provides that an order may in particular specify a
minimum amount that may be distributed for a particular type of prescribed
expenditure or a maximum amount that must be so distributed. New section
36B(5) provides that before making such an order the Secretary of State must
consult the Big Lottery Fund, the devolved administrations and such other
persons (if any) she thinks appropriate.
38. These powers are necessary to ensure that the Big Lottery Fund does not, as it
could in theory, spend all its money on one type of prescribed expenditure. The
Secretary of State plans to exercise these powers to specify the minimum amount
that may be distributed in relation to small grants, and the maximum amount that
may be distributed in relation to transformational grants. The illustrative order is
attached at annex A.
39. As with the power to prescribe expenditure in new section 22(3A) we would
not expect to amend such limits on the Big Lottery Fund’s expenditure very
frequently, but we need the flexibility to do so where necessary without the need
for further primary legislation. We may for example want to add new funding
limits in response to new areas of prescribed expenditure which reflect changing
circumstances and public priorities. We expect to review the focus of funding every
three to five years.
40. Because these powers are fundamental to the way the Big Lottery Fund
operates, we believe it is right for them to be subject to the affirmative resolution
procedure.

Clause 15: Dissolution
41. Clause 15 allows the Secretary of State by order to appoint a day or days on
which the Community Fund, the Millennium Commission and the New
Opportunities Fund will cease to exist. Such an order may include consequential,
incidental or transitional provision. The Big Lottery Fund will assume the
property, rights and liabilities of these bodies.
42. This is an administrative provision to ensure the seamless transfer from the old
Lottery distributors to the Big Lottery Fund and accordingly we consider that the
negative resolution procedure is appropriate. However, where such an order
contains consequential provision which amends other primary legislation the
affirmative resolution procedure will apply in line with the Committee’s
recommendation set out in its third report of the 2002–03 session 3.

Clause 21: Commencement
43. Clause 21 provides for the Secretary of State to bring the preceding provisions
of the bill into force by order. Consistent with the usual practice, commencement
orders under this clause are not subject to any Parliamentary procedure. This is
subject to the exception, set out in paragraphs 19 to 23 above, relating to the
commencement of Schedule 1.
Department for Culture, Media and Sport
12 January 2006


3   HL Paper 21.

                                         10
                     Company Law Reform Bill [HL]
          Memorandum by the Department of Trade and Industry
                         for the House of Lords
           Delegated Powers and Regulatory Reform Committee



Introduction
44. This memorandum identifies provisions for delegated powers in the Company
Law Reform Bill. The bill replaces approximately two thirds of the Companies Act
1985 (“the 1985 Act”) and amends, in various respects, that Act and other
legislation relating to companies, and other forms of business. The bill also
codifies elements of the common law, implements a number of EC Directives,
makes provision about a number of miscellaneous matters and restates a large
number of existing powers. Where a restated power is substantially different from
the existing power or is new this memorandum seeks to explain in full its purpose;
describe why the matter is to be dealt with in delegated legislation; and explain the
procedure proposed for the power and why it has been chosen. Where the bill
restates or amends an existing power without substantive alteration the
memorandum deals with it in less detail.
45. Most of the delegated powers are to be exercised by the Secretary of State by
statutory instrument. However, the bill also confers a range of powers on the
registrar of companies and a small number of further (but in some cases
significant) powers on other bodies such as the Takeover Panel. The powers for
the registrar of companies are primarily for making rules for companies
(“registrar’s rules”) associated with technical and administrative matters, such as
the delivery and filing of documents.
46. The bill contains roughly 130 substantive individual provisions for delegated
legislation of which approximately half are new powers, the rest amend, re-enact or
restate existing powers. Annex A provides a reference table of all the delegated
powers in the bill. It is noted that in addition to providing new powers the bill
repeals a number of significant existing powers.
47. For completeness, the narrative presented in this memorandum describes each
part of the bill. Where there are no legislative powers conferred on the Secretary of
State, the registrar, or other bodies under a particular Part of the bill, then that is
noted in the text.
48. For each power, or where appropriate group of powers, the memorandum
explains:
       • the purpose of the delegated power;
       • why matters are to be left to delegated legislation;
       • the way in which the power is expected to be used;
       • the procedure selected for each power and why it has been chosen.
49. The descriptions of the powers are normally arranged in the order that the
powers appear. Powers contained in Schedules to the bill will normally appear
alongside the description of the Part to which they relate. In some cases, where
powers are directly related, they are described together (with cross-references in
the text as appropriate).

                                          11
Previous consideration of the bill
50. In March 1998, the DTI commissioned a fundamental review of company law.
An independent Steering Group led the “Company Law Review” (CLR) and its
aim was to develop a simple, efficient and cost effective framework for British
business in the twenty-first century. After extensive consultation with stakeholders
the CLR presented its Final Report to the Secretary of State for Trade and
Industry on 26 July 2001. The Final Report contained a range of specific
recommendations for substantive changes to many areas of company law, and a set
of principles to guide the development of the law more generally, most notably
that it should be as simple and as accessible as possible for smaller firms and their
advisers, and should avoid imposing unnecessary burdens on the ways companies
operate.
51. The structure and underlying character of the Company Law Reform Bill
reflects the work of the CLR and the majority of provisions in the bill have been
developed in the light of specific CLR recommendations. The Government set out
and consulted on its intention to implement the recommendations of CLR
proposals in the White Papers “Modernising Company Law” (July 2002) and
“Company Law Reform” (March 2005). The 2005 White Paper included
approximately 300 draft clauses and described in detail the policy intention for a
range of other areas. Further clauses were made publicly available for comment in
July and September 2005.
52. The March 2005 White Paper presented the bill in terms of four key themes:
       • enhancing shareholder engagement and promoting a long term
           investment culture;
       • promoting better regulation and a “Think Small First” approach;
       • making it easier to set up and run a company; and
       • providing flexibility for the future.

The Delegation of Powers
53. In deciding whether subordinate legislation is the appropriate vehicle for any
particular provision DTI has been guided by the following criteria:
       • the desirability of not putting detailed technical provisions on the face of
           the bill;
       • the extent to which the registrar of companies is best placed to deal with
           the details of the rules associated with delivering and filing documents
           etc;
       • the need to ensure flexibility in responding to changing circumstances,
           especially technological advance and greater international mobility;
       • the precedent of existing Companies Acts.
54. Similar considerations apply to the powers in the miscellaneous provisions.
55. In addition to the powers associated with specific provisions the bill also
contains a “super affirmative” reform power that may be used to reform, restate or
codify, by a special form of secondary legislation, the law relating to companies,
subject to important constraints.



                                           12
Overview
56. The bill contains 37 Parts covering the substantive matters summarised in the
table below. Fuller descriptions of the relevant parts are given in the commentary
on delegated powers below, and also in the Explanatory Notes that accompany the
bill.


Part    Summary
1–7     The fundamentals of what a company is, how it can be formed and what it
        can be called
8–12    The members (shareholders) and officers (management) of a company
13–14 How companies may take decisions
15–16 The safeguards for ensuring that the officers of a company are accountable
      to its members
17–22 Raising share capital and takeovers
23–30 The regulatory framework
31      Company law reform power
32–33 Business names and statutory auditors
34–37 Miscellaneous


57. The committee’s attention is drawn particularly to the discussion of delegated
powers in Parts 15 (Accounts and Reports), 22 (Takeovers etc), 26 (The Registrar
of Companies) and 31 (Company Law Reform Power).

Part 1: General introductory provisions
58. The provisions in this Part replace equivalent provisions in the 1985 Act and
the Companies (Northern Ireland) Order 1986. This Part defines what is meant in
the bill by “company” and “existing company” and goes on to define “the
Companies Acts”, limited and unlimited companies, private and public
companies. It continues the prohibition on companies limited by guarantee having
share capital and makes provision for community interest companies. These
definitions do not make substantive changes to the current position, but reflect the
fact that the bill creates a single company law regime for the whole of the UK.
59. No delegated legislative powers are conferred under this Part.

Part 2: Company formation
60. This Part replaces provisions on company formation in the 1985 Act and the
Companies (Northern Ireland) Order 1986. It describes the formalities of forming
a company, sets out the requirements for registration and explains the effects of
registration of a company.

Clause 8: Memorandum of association
61. Clause 8(2) requires the memorandum to be in the prescribed form. The
reference to prescribed form here means in a form prescribed by statutory

                                        13
instrument made by the Secretary of State (by virtue of section 744 of the 1985
Act).
62. Currently, the form of the memorandum is prescribed in regulations made
under section 3 of the 1985 Act (see the Companies (Tables A to F) Regulations
1985, SI 1985/805, as amended). Regulations made under section 3 are subject to
the negative resolution procedure.
63. In future, it is proposed that regulations prescribing the form of the
memorandum will not be subject to any form of Parliamentary scrutiny. This is
because the memorandum of companies formed under the bill will look very
different to that of existing companies. In particular, it will contain only limited
information evidencing the intention of the founder members to form a company.
64. The reason for prescribing the form of the memorandum of companies formed
under the bill is to ensure that the memorandum is in a standard form.

Clauses 9–13: Requirements for registration
65. There are numerous occasions in the bill (and in certain provisions of the 1985
Act which are retained by the bill) where documents are to be sent to the registrar.
Part 2 contains the first examples of such instances. The requirements imposed by
the registrar as to the form and manner of delivery of these documents (“form and
manner requirements”) under any enactment are to be set out in the registrar’s rules
(see clauses 680 (registrar’s requirements as to form and manner of delivery) and
725 (registrar’s rules)). The power to make these rules is set out in full later in this
memorandum (see the relevant paragraphs of this memorandum on Part 26: The
registrar of Companies). The exercise of the power is not subject to any
Parliamentary procedure.
66. The power to impose form and manner requirements not only includes the
power to impose requirements as the form of a document (for example, hard copy
or electronic), its format (for example, a standard form) and the address to which
the document is to be sent, but also as to how and by whom a particular document
is to be authenticated.
67. Part 2 is the first instance in the bill where documents are to be delivered to
the Registrar. At Annex B we provide a table giving a description of the nature of
the documents that are required to be delivered to the registrar under the bill to
which the form and manner requirements may apply.
68. Otherwise in this memorandum we do not specifically identify documents to
which form and manner requirements may be applied.
69. In future particulars presently required to be set out in the memorandum of
association will be provided to the registrar in the application for registration itself
or in one of the “documents” that must accompany the application for
registration.
70. The contents of the application for registration are set out in clause 9. The
application for registration must state the company’s proposed name, where the
registered office is to be situated, whether the member’s liability is limited and if so
whether by shares or by guarantee and whether the company is to be a private or
public company. Where it is proposed that the company is to have a share capital
the application must contain a statement of initial shareholdings (clause 10) and a
statement of share capital (clause 11). Where it is proposed that the company is to
be limited by guarantee the application for registration must contain a statement of
guarantee (clause 12).

                                              14
71. The application must contain “a statement of the proposed officers” which
“must contain the required particulars” of the person(s) who is to be the first
director and in the case of a public company, the first secretary. Clause 13 refers to
clauses 149 and 256 of the bill which provide a delegated legislative power for the
Secretary of State to make regulations amending the particulars of directors and
secretaries to be registered. Any regulations under clauses 149 and 256 are to be
subject to the affirmative resolution procedure (see discussion of clauses 149 and
256). The application must also contain a statement of the intended address of the
company’s registered office and a copy of any proposed articles of association.
72. In all cases a statement of compliance must accompany the application for
registration (clause 14).
73. As mentioned above the form and manner of delivery of the application, the
statements to be given (under clauses 10–13) and the statement of compliance
(under clause 14) to be delivered to the registrar are all matters for the registrar’s
rules. The registrar’s rules will therefore make provision for both hard copy and
electronic delivery of these documents, and where and how they are to be sent to
the registrar. They may impose standard forms for the documents.
74. Similarly, the person or persons who may authenticate each of these
documents, and how this is to be done is also to be a matter for the registrar’s
rules by virtue of clauses 680(3) and 725. This includes the power to require the
document to be authenticated by a particular person or by a person of a particular
description (see clause 680(3)(a)). The registrar’s rules will therefore provide for
by whom these documents are to be authenticated (for example, this might be the
person who is to be the first director of the company or a person involved in
setting up the company (a lawyer for example)) and will make provision for how
this authentication is to be effected (for both hard copy and electronic delivery).

Clause 11: Statement of share capital
75. As mentioned above, where it is proposed that a company will have a share
capital on formation, the application for registration must contain a statement of
share capital. This statement is essentially a “snapshot” of the company’s share
capital at the point of registration. It must include the names and addresses of the
subscribers to the memorandum as well as information relating to the shares that
they have taken in the company.
76. Information pertaining to a company’s share capital must also be provided to
the registrar on certain other occasions during a company’s life, for example:
where a company re-registering under Part 7 of the bill is to acquire a share capital
on re-registration; where a company that is limited by shares allots new shares; and
(with limited exceptions) where a company makes an alteration to its share capital
(whether under the bill or under those provisions of the 1985 Act that deal with
alterations to a company’s share capital which are retained).
77. In all cases where a statement of capital is called for (on formation this
statement is referred to as a statement of share capital) the company must provide
details of: the total number of shares of the company; the aggregate nominal value
of those shares; for each class of shares: prescribed particulars of the rights attached
to those shares; the total number of shares of that class; and the aggregate nominal
value of shares of that class, and the amount paid up and the amount (if any)
unpaid on each share.
78. The reference to “prescribed” means prescribed by the Secretary of State by
statutory instrument by virtue of section 744 of the 1985 Act (which is retained by
                                          15
the bill). It is considered appropriate to make provision in this manner about
information which companies must provide regarding the rights attached to their
shares (rather than include this information on the face of the bill) as the
specifications will necessarily be detailed and technical in nature. In particular,
given the variety of different rights that may attach to a share or class of shares, it
may be necessary to specify, in part or in whole, the types and level of information
that a company is required to provide. For example, in relation to redeemable
shares the information required will extend to the terms, conditions and manner of
redemption of such shares. In view of the detailed technical nature of such
specifications it is considered that it is not appropriate for the bill to set out these
requirements.
79. The regulations to be made by the Secretary of State in this regard will not be
subject to any form of Parliamentary scrutiny. This is considered appropriate
because the power in this clause does not alter the rights of companies nor their
members. It is simply a power to prescribe the types of information (and level of
detail) that a company is required to provide in certain circumstances.
80. The Government continues to consider that it is appropriate for the exercise of
this power to be free from Parliamentary scrutiny but would welcome the
Committee’s views on whether this approach is appropriate.

Part 3: A company’s constitution
81. This Part deals with matters relating to a company’s constitution. It replaces
similar provisions in the 1985 Act and the Companies (Northern Ireland) Order
1986. It starts by giving a non-exhaustive definition of “a company’s constitution”
and then moves on to deal with key aspects of company constitutions such as
articles of association, resolutions and agreements affecting a company’s
constitution, statements of objects and the effect of constitutional provisions.

Clause 20: Power of Secretary of State to prescribe model articles

      Background
82. All UK companies are required to have articles of association (“articles”).
These are rules, chosen by a company’s members, which govern the company’s
internal affairs. The articles form a statutory contract between the company and its
members, and between each of the members, and are an integral part of a
company’s constitution.
83. Companies have been given flexibility to make their own rules about such
matters as the allocation of powers between the members and the directors since
the mid-19th century. However, since the Joint Stock Companies Act of 1856, it
has been recognised that whilst this flexibility may give some companies a
competitive advantage, others may see this freedom as an unwelcome burden and
prefer not to have to invent their own constitutional arrangements. The solution to
this problem, followed again by the bill, has been for legislation to prescribe model
articles of association for companies. The model articles prescribed for companies
limited by shares has been known as “Table A” since 1862.
84. The current forms of model articles (Tables A to F) are prescribed in
regulations made by the Secretary of State under section 8 of the 1985 Act (the
Companies (Tables A to F) Regulations 1985 (SI 1985/805)). Articles for other
types of companies, for example, commonhold, right to manage (“RTM”), and


                                             16
right to enfranchise (“RTE”) companies are prescribed by regulations made under
the Acts that created these types of company.

     Default application of Table A
85. In the case of a company limited by shares, where the company has not
registered articles (or if articles are registered, in so far as they do not exclude or
modify Table A), then Table A (so far as applicable and in force at the time of
registration) will constitute the company’s articles (that is, Table A will operate by
default to plug any gaps in a company’s articles). The policy rationale behind
Table A is that, for companies limited by shares, there should be a “safety net”
which enables the members and directors of such companies to take decisions in
circumstances where a company has failed to provide the appropriate authority in
its registered articles (or failed to register articles at all).
86. Whilst Table A operates as a “safety net” where a company has not made
provision of its own for a particular matter, the adoption of Table A is entirely a
matter for individual companies. Many companies find it convenient to use Table
A, but they are not obliged to. Table A, therefore, serves as a statutory precedent
which can be adopted, adapted or excluded by individual companies as they see
fit.
87. Table A applies to both public companies and private companies limited by
shares. This means that many of the rules in Table A are irrelevant to most of the
companies who are using Table A (that is, small privately owned companies).

     The clause
88. As recommended by the CLR, this clause enables the Secretary of State to
prescribe, by regulations, model articles for different descriptions of companies. By
virtue of clause 21, regulations made under clause 20 may prescribe that the model
articles for a particular description of company will apply “by default” to
companies of that description in the same way that Table A currently applies by
default to companies limited by shares.
89. Under the bill (in contrast to section 8), it will be possible for the Secretary of
State to prescribe “default articles” not only for all companies limited by shares,
but more specifically for public companies limited by shares and private companies
limited by shares. In addition, default articles will be prescribed for the first time
for companies limited by guarantee, potentially relieving many of them of the
burden of drafting their own articles for registration. This is the combined effect of
clauses 20 and 21.
90. The extension of the Secretary of State’s power to prescribe model articles by
allowing him to prescribe different sets of model articles which operate “by
default” for different types of companies was recommended by the CLR and is
essentially deregulatory. It also extends the “safety net” protection currently
afforded to companies limited by shares by Table A to companies limited by
guarantee.
91. Like those companies which are currently using Table A, companies formed
under the bill will be able to incorporate (with or without amendment) provisions
from the model articles into their own registered articles, and/or add to those
provisions, and/or specifically exclude such provisions as they see fit from their
registered articles. They will also be able to adopt the provisions of model articles
by reference, rather than copying them out in their registered articles.

                                          17
92. In future, any limited company (with the exception of certain very specific
types of company such as commonhold associations) will be able to rely on the
provisions of model articles rather than registering articles of its own devising. This
will ensure that any provisions applying to such companies by default are as closely
suited as possible to the different circumstances of different types of company. For
example, the model articles for private companies limited by shares will be drafted
with the needs of small companies chiefly in mind. While many companies will still
need to take professional advice in relation to at least some aspects of their articles,
it is hoped that this more nuanced prescription of default model articles will help
to reduce the legal costs of those who use them (including not only businesses, but
the many voluntary and community organisations who use the company limited by
guarantee form).
93. It is not proposed to go as far as prescribing default model articles for any kind
of unlimited company: unlimited companies are specialised corporate vehicles and
it is not thought possible to generalise about their needs to the extent required to
prescribe satisfactory default model articles for them. This does not, however,
exclude the possibility of prescribing non-default model articles for unlimited
companies (in the same way that the current Table E of the 1985 Regulations
prescribes illustrative model articles for unlimited companies with a share capital).
94. For existing companies, there will be no change. That is, unless an existing
company limited by shares chooses to adopt one of the new sets of model articles,
the version of the model articles that was in force at the time that it was registered
will continue to apply to it in the same way as now (that is, the relevant version of
Table A will continue to apply to an existing company limited by shares by default
where that company has not registered articles of its own or, where such a
company has registered articles, to the extent that it has not specifically excluded
Table A).
95. The nature of model articles is such that their contents are inherently
appropriate subject matter for delegated legislation. The provisions of model
articles are not mandatory for any company. Model articles apply to individual
companies only in so far as they either deliberately choose to adopt them, or do
not register articles which modify or exclude them. Although in some instances
they may provide the unwary with a useful safety net, they do nothing to restrict
the basic contractual freedoms which UK company law gives to companies and
their members.
96. Although it is true that, until the 1985 Act, model articles prescribed by
legislation were included in Schedules to the Companies Acts, there is precedent
for making provision about model articles by way of delegated legislation. Since
1856, the primary legislation has permitted the Board of Trade or the Secretary of
State to alter the prescribed model articles by order or regulations. The system
introduced by the 1985 Act and continued in the bill, of prescribing model articles
in regulations rather than in Schedules to an Act, is a natural evolution, rather
than a radical departure, from the precedents of the Companies Acts 1856 to
1948.
97. Use of the negative, rather than the affirmative resolution procedure is also
justified by precedent. Before the Companies Act 1948, the Board of Trade could
amend the model articles prescribed under successive Companies Acts by order
without Parliamentary procedure. The 1948 Act (section 454) required such
amendments to be made by statutory instrument subject to the negative resolution
procedure and regulations made under section 8 of the 1985 Act are subject to the


                                          18
same procedure. It is proposed that regulations made under clause 20 should be
subject to the same Parliamentary scrutiny.
98. Use of the negative resolution procedure is considered appropriate owing to
the fact that no company is obliged to adopt the model articles, and by the
extensive consultation to which the model articles prescribed in regulations made
under clause 20 will have been subject.
99. The Government published a draft of the proposed model articles for private
companies limited by shares in its March 2005 White Paper on Company Law
Reform, and that draft was the subject of informal consultations with small
business representatives before it was published.
100. It is intended that further drafts of the proposed “default” model articles for
private companies limited by shares, public companies limited by shares and
private companies limited by guarantee will be published during the bill’s passage
through Parliament.
101. There will be further consultation with relevant business and legal
stakeholders on all the proposed model articles before any regulations made under
clause 20 are finalised.

Part 4: A company’s capacity and related matters
102. This Part contains clauses which replace equivalent provisions in the 1985
Act and the Companies (Northern Ireland) Order 1986. This part deals with the
capacity of the company and the powers of the directors to bind it. It also deals
with the formalities of doing business under the law of England and Wales or
Northern Ireland and the formalities of doing business under the law of Scotland.
103. No delegated legislative powers are conferred under this Part.

Part 5: A company’s name
104. This Part deals with company names and trading disclosures. It replaces
Chapter 2 (“Company Names”) of Part 1 and much of Chapter 1 (“Company
Identification”) of Part 9 of the 1985 Act. The clauses implement the CLR
reforms relating to the names under which companies are registered and the
information companies must disclose in correspondence and at their premises.
The main purpose of most of these rules is to ensure that third parties are not
misled and know with whom they are dealing.
105. Over Summer 2005, stakeholders’ views were sought on the draft clauses
relating to company names. The proposals to delegate power did not attract
comment.

Clause 55: Names suggesting connection with government or public authority
106. Clause 55 retains the requirement in section 26(2)(a) of the 1985 Act for a
company to have approval before registering under a name that suggests a
connection with Her Majesty’s Government or a Local Authority. Clause 57 gives
power to specify whose view must be sought in connection with the application for
approval. Clauses 790 and 792 confer similar powers relating to business names.
107. Clause 55(1)(c) is new. It confers on the Secretary of State the power to
specify the public authorities–the impression of a connection to which triggers a
requirement for prior approval of a company’s name. The power in clause 55 is
new. It is sought as names giving the impression of connection to Parliament are

                                          19
unaffected by the current controls. Thus approval was not needed for the
following companies when they adopted their names: The Parliamentary Advisory
Council For Transport Safety; The Parliamentary Committee Against
Antisemitism; and House of Comms. Limited; nor would it currently be needed
for the adoption of a name such as House of Lords Ltd. In addition, the number
of public authorities and offices which are not strictly part of central government
or local authorities has increased in recent years. For example, there are the Welsh
Assembly, the Northern Ireland Assembly, the Mayor of London and the London
Assembly and regulators such as Ofcom and Ofgem.
108. The alternative to the power in Clause 55 would be to specify on the face of
the bill either:
the words that require prior approval for their inclusion in a company’s name; or
all the bodies we do not want company names to suggest a connection with in the
absence of prior approval.
109. The former was rejected as being insufficiently flexible to cover all names that
might give the impression of a connection. The latter was rejected as the list of
bodies that should be so protected are likely to need to be changed more
frequently than desirable for primary legislation.
110. The power to specify public authorities is likely to be used to prohibit names
that convey a connection with, for example, Parliament, the National Assembly for
Wales, the London Assembly and regulatory bodies such as Ofcom.
111. It is intended that there be a single set of Regulations under this power and
under the similar power relating to business names (see clause 790).
112. Regulations under this section would be subject to affirmative resolution
procedure. This is appropriate as the list will be of public authorities, rather than
merely words.

Clause 56: Other sensitive words or expressions
113. Clause 56 confers power on the Secretary of State to make regulations that
specify the words or expressions for which prior approval is required for their
inclusion in the name under which a company is registered. This is a restatement
of the existing powers under section 29(1)(a) of the 1985 Act. Clause 57 gives
power to specify whose view must be sought in connection with the application for
approval. Clauses 791 and 792 confer similar powers relating to business names.
114. The existing Regulations (The Company and Business Names Regulations
1981 SI 1981/1685 as amended by SI 1982/1653, SI 1992/1196, SI 1995/3022
and SI 2001/259) specify nearly 90 words and expressions that, when used in a
company name, may imply business pre-eminence, a particular status or a specific
function. They include chamber of commerce, charity, dental, duke, European,
friendly society, Her Majesty, international, national, nurse, police, royal, stock
exchange, trade union, and Wales. The aim is to ensure that use of the word is
justified so that the public is not misled by the name.
115. These regulations are a restriction on a company’s choice of name, and it is
therefore appropriate that Parliament should have the opportunity to debate them.
However, there might be occasions when an immediate amendment is necessary,
for example. The Government therefore considers it appropriate for these
regulations to be subject to approval after being made.


                                            20
Clause 57: Duty to seek comments of government department or other specified body
116. Clause 57 confers on the Secretary of State a power to make regulations that
specify whose views must be sought in connection with an application for a
company to adopt a name that requires prior approval. Clause 792 confers a
similar power relating to business names. The names that require prior approval
are those that:
       • in the opinion of the Secretary of State, would be likely to give the
           impression that the company is connected with Her Majesty’s
           Government, any part of the Scottish administration, a local authority
           or a public authority specified in other Regulations (see clause 55); or
       • include a word or expression specified in other Regulations (see clause
           56).
117. This power is to replace the power in Section 29(1)(b) of the 1985 Act which
relates only to prescribed words and expressions; insofar as it applies to names that
give the impression of a connection to government and public authorities. It is a
new power. The existing Regulations (The Company and Business Names
Regulations 1981) specify a relevant body or bodies for about a third of the
sensitive words or expressions, for example the General Dental Council for
“dental.”
118. The extension of the power is sought so it is possible to specify the body
whose views must be sought before approval is sought for a company adopting a
name that implies the specified connection. This power is needed to support the
power sought in Clause 55. For example, it would be possible to specify the House
Authorities for names likely to convey an impression of connection with any part
of Parliament.
119. It is intended that, as now, a single set of regulations specify both the words
and expressions for which prior approval is required and the body whose views
must be sought, therefore a separate Parliamentary procedure is not proposed for
this power. As already noted, the regulations specifying the words and expressions
for which prior approval is required (under clause 56) would continue to be
subject to approval after being made.

Clause 58: Permitted characters etc
120. Clause 58 confers on the Secretary of State power to make regulations which
both specify the characters that may be used in a company’s registered name and
which specify the format for registration.
121. This is a new power. There is currently no limitation on the characters which
can be used in company names or their formatting. There is no reason, on the face
of the statute, why names could not be registered in Russian or Mandarin scripts.
There are practical limitations on what scripts can be accepted. For example,
“Toys Я Us Ltd” and “π3 LLP” appear on the searchable index on the Companies
House website as “Toys R Us Ltd” and “Pi Cubed LLP”. There are also examples
of companies whose names contain no letters apart from the statutory indicator of
legal status, e.g. “* + Ltd”. The registrar expects that pressure to register names in
foreign scripts will increase. However, such names create practical problems both
for the compilation of the index of company and corporate names maintained by
Companies House (the registrar) and also for those searching for companies on
the public record.


                                          21
122. It is intended that, as regards the characters that may be used in a company’s
registered name, the regulations:
       • will specify all the letters in all the official languages of the European
           Community (and for the technology at Companies House to be
           brought in line with this intention) and many other characters and
           symbols in common use including “£”,”$”, and “@”; and
       • will require that the first character, after “the” if used, be a letter.
123. It is also intended that the regulations specify that the format of the name for
the purposes of registration be letters in upper case without variation in size or
horizontal position.
124. It was considered that the volume and complex details of the proposed
controls make it inappropriate for the face of the bill. In addition, it may be
desirable to add to the list to reflect changes in commercial practice.
125. The restriction on the characters and formatting of companies’ registered
names will not affect companies’ freedom to trade under names that do not
comply with this regulation. However, as now, companies will be required to
include their registered names in correspondence and on signs at business
premises under regulations made under clause 82.
126. The restriction on formatting for registration will not affect how companies’
names are formatted in business correspondence, signs, etc.
127. Regulations under this section are to be subject to the negative resolution
procedure as they relate to technical detail.

Clause 61: Exemption from requirement as to use of “limited”
128. Clause 61 confers power on the Secretary of State to make regulations that
exempt private companies from the requirement, imposed by clause 60, for every
private company’s name to conclude with “limited” or “ltd.” (or, for companies
that have chosen that their registered office is to be situated in Wales, the Welsh
equivalents). There are exemptions on the face of the bill for community interest
companies, charities and companies benefiting from an exemption under existing
legislation (until they change their name). The new rules on exemptions replace
those in section 30 of the 1985 Act.
129. This would be a new power. At present, Section 30 of the 1985 Act exempts
certain companies from the requirement for their names to conclude with
“limited”. The exemption is intended to relieve these companies of the
commercial connotations of “limited”. Those exempt are those with a licence
granted under section 19 of the Companies Act 1948 and companies limited by
guarantee that comply with the requirements for the exemption. Broadly, these
requirements are that the company is non-profit-making and its objects are the
promotion of commerce, art, science, education, religion, charity or any
profession. Nearly half of the 40,000+ companies limited by guarantee are
currently exempt.
130. It is intended to use the regulations to exempt incorporated regulatory
bodies. Regulators are currently only exempt from the requirement for their name
to conclude with “limited” if not incorporated under a Companies Act, for
example those formed under Royal Charter (e.g. Royal College of Surgeons), or if
there is special provision (e.g. the Financial Services Authority).


                                           22
131. It is not intended to use the regulations to exempt companies that meet the
section 30 criteria for exemption. This is because the Companies (Audit,
Investigations and Community Enterprise) Act 2004 makes provision for the
establishment of a new corporate vehicle, the “community interest company”,
intended to make it simpler and more convenient to establish a business whose
profits and assets are to be used for the benefit of the community. The name of
any private company incorporated as a “community interest company” will not
conclude with “limited.”
132. During the consultation, it was pointed out that many trade associations
benefit from the section 30 exemption; it was suggested that some might not meet
the criteria for community interest companies. A regulation-making power to
exempt further categories of company would provide power to meet this concern.
133. Regulations under this section would be subject to the negative resolution
procedure as they would be deregulatory.

Clause 66: Inappropriate use of indications of company type or legal form
134. Clause 66 confers on the Secretary of State power to make regulations
prohibiting the inclusion in a company’s name of specified words, expressions and
abbreviations. The only words etc that can be specified in the Regulations are
those associated with a particular type of company or form or organisation or those
confusingly similar to such words and expressions.
135. This is a new power. It will replace the prohibitions in section 26 (1) (a), (b),
(bb) and (bbb) of the 1985 Act which prohibit:
       • “limited”, “unlimited”, “public limited company”, their Welsh
           equivalents and their abbreviated forms anywhere other than the end of
           the name;
       • “investment company with variable capital”, “open-ended investment
           company”, “limited liability partnerships” and their Welsh equivalents;
       • “community interest public limited company” or “community interest
           company” (or abbreviations or Welsh equivalents) at the end of the
           name unless the company is a community interest company.
136. The power is needed to provide flexibility to deal with the development or
increased use of different corporate forms (including, perhaps, forms with their
origin in other Member States of the European Union or elsewhere). It is intended
to use this power to retain the current protections in section 26(1) and also to
preclude the use of all abbreviations of any relevant words or expressions. The
power may also be used to prohibit “not” immediately in front of the indicator of
legal form if there was seen to be a risk that third parties being misled by names
concluding “not limited”.
137. Regulations under this section would be subject to the negative resolution
procedure as they relate to technical matters.

Clause 67: Name not to be the same as another in the index
138. Clause 67 confers on the Secretary of State power to make regulations
supplementing this clause’s prohibition of a company being registered under a
name that is the same as one already taken. This prohibition, which replaces the
similar provision in section 26(1)(c) of the 1985 Act, is to ensure that third parties
are not confused by two companies having the same name. The regulations may

                                           23
make provision as to matters that are to be disregarded and as to words,
expressions, signs or symbols that are, or are not, to be regarded as the same in
determining whether one name is the same as another. The Regulations may also
provide for the acceptance of a name that would otherwise be prohibited.
139. The power to make regulations to supplement this clause would be a new
power. It would replace sub-section 26(3)(a)–(d) of the 1985 Act. These
subsections specify that in determining whether one name is the same as another
there should be disregarded “the” at the beginning of the name; specified words
and phrases indicating the company’s legal status at the end of the name, their
Welsh equivalents and their abbreviations; and the type and case of letters,
accents, spaces and punctuation marks. “And” and “&”are to be taken as the
same. For example, if the name ‘Hands Limited’ is already registered, then the
following would be rejected:
       • Hands Public Limited Company (or PLC);
       • H and S Limited (or Ltd);
       • H and S Public Limited Company (or PLC);
       • H & S Limited (or Ltd);
       • any of the above, with the addition of ‘Company’ (or ‘Co’)’ or ‘and (or
           ‘&’) Company’ (or ‘Co’).
140. The existing provisions are supported by a power to direct a company to
change its newly adopted name if that name is “too like” another’s (section 28(2)
to be replaced by section Clause 68). This ensures that third parties are not
confused by two companies having very similar names. Companies House
guidance advises that such a direction is likely if:
       • the difference amounts to only one or two letters, especially when these
           represent the plural of a word included in an otherwise identical name
           on the register;
       • the names differ by short words, particularly when these words are of a
           generic nature such as “GB” or “UK” or “.com”;
       • the names differ by slightly longer words when they have substantial or
           very distinctive elements in common;
       • the names differ only in the use of symbols.
141. Some 200–300 directions are made each year following objections to the
newly adopted name, usually from the existing company with a similar name.
142. It is intended to use the power to retain all the present disregards and the rule
that “and” and “&” be treated as the same. The purpose will be solely to ensure
that third parties are not confused by the simultaneous appearance on the index of
two very similar names. In view of the inconvenience to both the company that has
newly adopted the disputed name and the existing company with the very similar
name, it is also intended to use the power to reduce the number of instances where
companies are directed to change their newly adopted names. Accordingly, it is
intended that the power be used to provide that:
       • “s” be disregarded when it appears at the end of a word (as
           recommended by the Company Law Review);
       • “.com” be disregarded wherever it appears;

                                         24
       • “UK” and “GB” be disregarded when standing alone;
       • specified currency symbols and their English word equivalents be treated
           as the same;
       • “%” and “per cent” be treated as the same.
       • (depending on the views of stakeholders) certain Arabic and Roman
           numbers and their English word equivalents (say, 2, 3; II and III) be
           treated as the same;
       • “2”, “to” and “too” and “4” and “for” be taken as the same.
143. It is also intended to provide that the characters other than the first, say, 50
are disregarded. This is because differences become difficult to spot when they
appear late in very long names. It is hoped that this will deter companies from
registering with very long names. (The longest name on the index is:
       ALBIONHIGHLANDALLTARTANSBYMETREINWOOLSILK/OT
       HERTWEEDSVELVETSTOCK&BESPOKEKILTSTREWSCLOTH
       ESHIGHLANDDRESSJEWELLERYFURNISHINGPRESENTSEXP
       RESSMAILORDER&LONDONAPPT LTD
which has 160 characters.) If a name were to have more than 160 characters it
could not appear in full in on-line index of company names.
144. At present, there is no provision for circumstances in which a name might be
accepted that would otherwise be prohibited. The prohibition of a name that is
judged to be “the same as”, although not identical, applies regardless of whether
the company might be thought to be a member of, or associated with, a particular
company or group of companies. This even-handed approach attracts considerable
criticism. In practice, it is not even-handed as the decision whether or not to
instruct a company to change its newly adopted name is only taken following an
objection–and the objections are usually from the company with the very similar
name. Obviously associated companies do not object. Therefore, under section
16(4), the Regulation would provide for specified circumstances or specified
consent that would permit the registration of a name that would otherwise be
prohibited. It is intended to use this new power so that:
       • if the only difference between the proposed name and a name already on
            the index is “.com”, “UK”, and “GB” and punctuation marks;
       • and if the company with the name already on the index has given its
           written agreement,
then the name may be registered.
145. Over Summer 2005, stakeholders’ views were sought on the draft clauses
relating to company names, including the clause containing this power. But none
commented on the power.
146. Regulations under this section would be subject to the negative resolution
procedure as they relate to a technical matter.

Clause 68: Power to direct change of name in case of similarity to existing name
147. Clause 68 confers power on the Secretary of State to make regulations
supplementing his power to direct a company to change its name because it is the
same as or too like another that is, or should have been, on the index of company
names at the time it was registered. Clause 69 provides that the direction must be

                                            25
made within 12 months of the name being adopted and that the company be given
a set period in which to comply. Clause 68 replaces the similar provision in section
28(2) of the 1985 Act. The power to make regulations to supplement this clause
would be a new power replacing the detailed rules in sub-section 26(3)(a)–(d) of
the 1985 Act. The regulations would also provide for the acceptance of a name
that would otherwise be prohibited. This power is similar to that under clause 67
and the objective is the same: to prevent third parties being confused by there
being two companies with registered names that are virtually the same.
148. Regulations under this clause are to be subject to the negative resolution
procedure as they relate to technical matters.

Clause 72: Procedural rules
149. Clause 72 confers power on the Secretary of State to make rules about
proceedings before a company names adjudicator appointed under Clause 71 to
hear objections made to a company’s name under clause 70.
150. The intention is that the rules should cover the following:
       • Pleadings. The form and minimum content of applications and other
           documents (including defences and other pleadings) and deal with how
           they should be filed.
       • Fees. The application and other fees charged by the adjudicators should
           cover at least their marginal (as opposed to fixed) costs. The
           adjudicators should be able to charge different fees at different stages of
           the procedure. It is hoped that this will allow for a low initial
           application fee.
       • Service of documents and the consequences of failure to serve them.
       • Evidence. The rules should be able to cover the form and manner in
          which evidence is to be submitted to the adjudicators and to the other
          parties. It is envisaged that some proceedings may be disposed of on
          the basis of the papers alone (see below). Others may involve hearings
          and cross-examination of witnesses under oath. The rules should be
          able to require and regulate the translation of documents and the filing
          and authentication of any translation.
       • Written procedures. Noting that the adjudicators are supposed to be a
          low-cost alternative to the courts, an adjudicator should be able to
          proceed without a hearing where he agrees with the parties that this is
          appropriate.
       • Time limits and extensions. The rules should be able to set out time
           limits for anything required to be done in connection with an
           application to an adjudicator. They should allow for such time limits to
           be extended, even where the relevant time period has expired.
       • Costs. The adjudicators should be able to make orders that one party
          bear the costs of another (including the adjudicators’ fees). They
          should be able to tax or settle the amount of the costs or direct how the
          costs are to be taxed (cf. section 151, Copyright, Designs and Patents
          Act 1988 (1988 c. 48)). They should be able to require security for
          costs.



                                         26
       • Strike out. The adjudicators should have a power to strike out a
           statement of case where, even if it were true, the facts alleged would
           provide no legal basis for an application or defence. Similarly, if a party
           fails to file sufficient evidence in support of his case, there should be a
           power to strike out.
       • Publicity. The rules should provide for how proceedings are to be made
          public and that proceedings and evidence may remain private in
          exceptional circumstances.
151. This power would be subject to the negative resolution procedure as it would
be used to specify essentially procedural matters.

Clause 82: Trading disclosures
152. This clause confers power on the Secretary of State to make regulations as to
the information that companies must display in specified locations, include in
specified documents or communications, or provide on request to those they do
business with. Clause 666 confers a similar power as regards oversea companies
carrying on business in the UK.
153. At present there are three sets of trading disclosure rules that currently apply
to companies:
       • those in Part 11, Chapter 1 of the 1985 Act, which apply to companies
           formed and registered under that Act or its predecessors (and the
           Northern Ireland equivalent of those rules);
       • those in sections 4 and 5 of the Business Names Act 1985 to the extent
           they apply to companies;
       • those in section 693 of the 1985 Act, which apply to oversea companies.
154. The rules are not identical: the information required and which premises and
what documents are covered all vary. Also the different rules are backed by
different sanctions.
155. It is intended that there be a single set of regulations to replace all these rules.
It is also intended that the regulations provide for electronic forms of
communication. Clause 84 allows the regulations to impose criminal sanctions
(fines of up to level 3 on the standard scale and daily default fines)
156. This power would be subject to the affirmative resolution procedure as it is
important that Parliament should have the opportunity to debate regulations
where they involve burdens.

Part 6: A company’s registered office
157. This Part provides provisions related to companies’ registered offices and
how these may be changed.
158. No delegated legislative powers are conferred under this Part.

Part 7: re-registration as a means of altering a company’s status
159. This Part is about the re-registration of companies under the bill. It replaces
equivalent provisions in the 1985 on re-registration as a means of altering a
company’s status. It provides that a company may alter its status in the following
ways:

                                           27
       • from a private company to a public company;
       • from a public company to a private company;
       • from a private limited company to an unlimited company;
       • from an unlimited company to a private limited company;
       • from a public company to an unlimited private company.
160. There are comments below in respect of particular re-registration provisions
to which attention is drawn. In all other scenarios where the company makes an
application for re-registration it must produce and send to the registrar various
documents. For example, there is a standard requirement in Part 7 under each
“type” of re-registration for the company to provide the registrar with an
application containing a statement of the company’s name on re-registration and a
statement of compliance. The form of these documents is for the registrar to
provide for in registrar’s rules.

Clauses 102 to 104: Private limited company becoming unlimited
161. Clause 102 sets out the requirements for re-registration from private limited
to unlimited. It provides that a company may not be so re-registered unless all of
the members have given their assent to this. This assent must be in the prescribed
form (see clause 103). This means that the Secretary of State has the power to
provide for the form of the assent by regulations by virtue of section 744 of the
1985 Act. This power is to be taken here as we consider that where the company is
re-registering as unlimited this is a significant undertaking by the members and in
the light of this it is considered appropriate that the Secretary of State has the
power to provide for the form of this undertaking. Regulations under section 744
are not subject to any form of Parliamentary scrutiny.
162. The statement of compliance here exceptionally must include a statement
made by the directors confirming that they have taken steps to ascertain that all of
the company’s members assent to the company being re-registered as unlimited
confirming that:
       • the persons by whom or on whose behalf the form of assent to the
           proposed re-registration is subscribed constitute the whole membership
           of the company; and
       • if any of the members have not subscribed that form themselves, that the
            directors have taken all reasonable steps to satisfy themselves that each
            person who subscribed it on behalf of a member was lawfully
            empowered to do so.
163. It will be for the registrar to provide for the form and manner of the
statement made by the directors in registrar’s rules.
164. Where a company that is re-registering from private limited to unlimited
proposes to have a share capital on re-registration, the application for re-
registration must be accompanied by a statement of initial share holdings (see
below) and a statement of capital (see below). The form of these statements is
provided for by clause 111 (see below).

Clauses 105 to 107: Unlimited private company becoming limited
165. Where a company re-registering from unlimited to private limited proposes to
have a share capital on re-registration, the application for re-registration must be

                                         28
accompanied by a statement of initial share holdings and a statement of capital. If
the company is to be limited by guarantee on re-registration, the application for re-
registration must be accompanied by a statement of guarantee. The form of these
statements is provided for by clause 111 (see below).

Clauses 108 and 109: Public company becoming private and unlimited
166. Clause 108 is a new provision, which enables a public company to re-register
as private unlimited without first having to re-register as private limited. As is
required where a private limited company is re-registering as unlimited in clauses
102 to 104, this group of clauses similarly allows a public company to re-register as
unlimited. As above, where such a re-registration takes place all the members must
assent to the re-registration and exceptionally, the statement of compliance must
include a statement made by the directors confirming that they have taken steps to
ascertain that all of the company’s members assent to the company being so re-
registered. The form of the assent is the same as where a private company re-
registers as an unlimited company under the bill (see note on clauses 102 to 104).

Clause 111: Supplementary
167. This clause makes provision about the form of statements that are required
by clauses 103(2)(b) (where a company is re-registering from private limited to
unlimited and where it has not previously had a share capital it must provide a
statement of initial shareholdings and a statement of capital) and 106(2)(b) and
(c) (where a company is re-registering from unlimited to private limited it must
provide a statement of initial shareholdings and capital or, as the case may be, a
statement of guarantee).

Statement of share capital
168. A statement of capital on re-registration must contain the following
information:
       • the total number of shares of the company;
       • the aggregate nominal value of those shares;
       • for each class of shares prescribed particulars of the rights attached to
           those shares, the total number of shares of that class and the aggregate
           nominal value of shares of that class; and
       • the amount paid up and the amount (if any) unpaid on each share.
169. The reference to “prescribed particulars of the rights attached to the shares” in the
statement of capital on re-registration, refers to such particulars as may be
prescribed by the Secretary of State by statutory instrument.
PART 8: MEMBERS OF A COMPANY
170. This Part makes provisions related to companies’ registers of members and in
particular the format of, and access rights to, this information.

Clause 126: Overseas branch registers
171. Clause 126 relates to overseas branch registers. These are registers of
members resident in countries specified in schedule 14 of the 1985 Act. This
clause confers power on the Secretary of State to make regulations as to the
circumstances in which a company is to be regarded as keeping an oversea branch

                                           29
register in a particular territory and to modify for these registers the requirements
that generally apply to registers of members. This is a new power. It is needed so
that the requirements can be amended to reflect circumstances in which overseas
branch registers are maintained in electronic format.
172. Regulations under this power would be subject to negative resolution
procedure. This is considered appropriate, as any change will be technical.

Part 9: Exercise of members’ rights
173. The two clauses of this Part are new self-standing provisions that will
enhance the ability of indirect investors–those not holding legal title in the shares
of the company in which they invest–to play a fuller role in the governance of
companies in which they invest.

Clause 137: Power to make regulations about exercise of certain rights of members
174. Clause 137 confers on the Secretary of State a new power to make
regulations to compel companies to provide information to other persons
nominated by the registered member. Should the power be exercised, the intention
would be to require companies to provide information electronically or by website.
However, the power may be exercised to the extent of compelling companies to
provide information in hard copy if the Secretary of State is satisfied that the
benefits arising to the nominated persons would be significant and not impose
disproportionate costs on companies.
175. The CLR recommended that the Secretary of State should have a power to
make regulations to require companies to recognise a person other than the
registered member as being entitled to exercise specified rights. Such rules were to
be developed in close consultation with the interests involved. In light of
consultation on the Modernising Company Law White Paper of July 2002, the
clause was originally drafted to allow companies to opt, through their articles, to
send or supply information to those nominated by registered members
electronically only. The intention behind this drafting was to enhance the delivery
of information through chains of intermediaries and to avoid imposing undue cost
burdens on companies. However, further consultation through the Company Law
Reform White Paper of March 2005 exposed the concerns of investor groups that
those investing in shares through intermediaries should have parity of treatment in
information rights as those holding shares directly. The scope of the power has
therefore been extended slightly subject to the Secretary of State being satisfied of
the cost benefit case.
176. The Secretary of State’s power is intended to encourage the development of
voluntary measures to ensure that indirect investors have access to information
they require to engage in the governance of the companies that they invest in. The
power will only be used if it becomes clear that there are considerable difficulties
with communications between companies and their indirect investors and that the
market is not developing appropriate solutions.
177. Subsection (7) provides that regulations can be made under the proposed
power by affirmative resolution. This is appropriate given the interest expressed by
consultees in whether we choose to impose new obligations of this kind on
companies.




                                           30
Part 10: Company directors
178. This Part makes provision in relation to directors. It replaces Part 10
(enforcement of fair dealing by directors), the provisions relating to directors in
Part 9 and the provisions relating to confidentiality orders in Part 25 of the 1985
Act. It also introduces a statutory statement of directors’ general duties to the
company.

Clause 142: Power to provide for exceptions from minimum age requirement
179. Clause 142 confers on the Secretary of State power to make regulations
specifying circumstances in which someone under 16 may be the director of a
company.
180. As a company is an artificial person, it can only participate in legal relations
through individuals. Generally, it is the directors who are prosecuted for a range of
actions and omissions relating to the company. At present, there is no minimum
age for being a director but it is undesirable for companies to be able to have
directors who cannot be prosecuted because of their tender age (in early 2005,
there were over 200 under the age of 10). As a matter of policy, it is thought that
those appointed to the office of director should be old enough to understand the
nature of the office, the duties entailed, and to face the consequences of any
failure. Therefore the bill introduces a minimum, namely 16. However there may
be circumstances in which it is desirable that a younger person be a director
provided that there were safeguards for the public.
181. The power would enable circumstances and conditions to be prescribed for
the appointment of someone under 16 as a director. For example, the power might
be used to facilitate the participation of young people as directors in suitable
school projects or to allow a young person to act as a director of a company that is
a charity involved in youth work and which wants to involve young people in its
management. An example of a requirement that might be applied in such
circumstances is that a majority of directors of the company be adults. The power
to make different provision for different parts of the UK enable account to be
taken of the different circumstances that might apply.
182. Regulations under this section would be subject to negative resolution
procedure. This is considered to be appropriate in the circumstances that any
regulations made would be providing limited exceptions to the general prohibition.

Clause 149: Particulars of directors to be registered: power to make regulations
183. Clauses 147 and 148 provide that a company’s register of directors must
contain listed “particulars”. The particulars are on the face of the legislation to
ensure that they are readily accessible. Clause 149 confers power on the Secretary
of State to make regulations that add or remove items from the listed particulars.
184. Clause 146(3) requires that a company’s register of directors “must be open
to the inspection” of a member of the company or anyone else on the payment of a
prescribed fee (clause 744 provides power for setting this fee). Clause 692(4)
provides that “information contained in documents delivered to the registrar may
be recorded and kept in any form the registrar thinks fit, provided it is possible to
inspect it and produce a copy of it.” Clause 697(1) provides that “any person may
inspect the register”. Thus the effect of these clauses is that a company’s register of
directors is publicly available.



                                             31
185. This is a new power. The power would make it possible to amend the details
in the light of changing circumstances. For example, if the procedure for unique
identifiers (see clause 694) is effective in enabling researchers to distinguish
directors with similar names, it may be desirable to no longer require their date of
birth to be registered.
186. This power has not been the subject of consultation but which particulars of
directors should be registered was the subject of consultation in 1997 and 2000, by
the DTI and the Company Law Review respectively. The bill implements the
recommendations resulting from these consultations.
187. Regulations under this section would be subject to affirmative resolution
procedure as they will amend primary legislation.

Clause 220: Permitted use or disclosure by the registrar
188. Clause 220 confers two powers on the Secretary of State in relation to the
home addresses of directors when these are protected by a non-disclosure
certificate. The powers are:
       • to specify public authorities to whom the registrar may disclose a
           protected address;
       • to specify the conditions and fees for the disclosure of protected addresses
           by the registrar to a specified public authority or a credit reference
           agency.
189. These are new powers that are part of the bill’s provisions for directors’ home
addresses. They replace the power under section 723C(2) for regulations about
the inspection and copying of records protected under confidentiality orders.
These orders are only granted to directors at serious risk of violence or
intimidation. Under the bill, non-disclosure certificates will be available to all
directors.
190. It is intended to use the power to specify public authorities to reproduce the
list of “competent authorities” in Schedule 1 to The Companies (Particulars of
Usual Residential Address–Confidentiality Orders) Regulations 2002 (SI
2002/912). These are the enforcement bodies under various enactments. It may be
desirable to specify also bodies that have similar functions in other EEA States.
191. It is intended to use the power to specify the conditions and fees for the
disclosure of protected addresses to make provision about how protected addresses
should be kept and used. As regards credit reference agencies, the power might be
used to provide access only for purposes similar to those set out in Regulation 114
of The Representation of the People (England and Wales) Regulations 2001 (SI
2001/441 (in relation to access by such agencies to the full electoral register):
       • vetting applications for credit;
       • meeting obligations under the 1993 and 2001 Money Laundering
          Regulations (SI 1993/1933 and SI 2001/3461) and rules under the
          Financial Services and Markets Act 2002;
       • statistical analysis of credit risk.
192. Over the last 10 years, stakeholders’ views on access to directors’ details,
including their home addresses, have been sought on several occasions. Directors
and their representative organisations strongly favour protection for their home


                                             32
addresses but others, in particular enforcement bodies, credit reference agencies
and newspaper editors, are concerned about the consequences.
193. Regulations under this section would be subject to the negative resolution
procedure. This is appropriate because the principle of who can have access to the
protected address is established in the primary legislation and the secondary
legislation fills out the procedural detail.

Clause 237: Power to increase financial limits
194. Clause 237 confers on the Secretary of State a power, by order, to increase
the financial limits that appear in this Part of the bill. These are the sums of money
specified in clause 174 (meaning of substantial property transaction), clause 185
(loans, quasi-loans and credit transactions: exception for expenditure on company
business), clause 187 (loans, quasi-loans and credit transactions: exception for
minor and business transactions), clause 191 (loans, quasi-loans and credit
transactions: value of a transaction not capable of being expressed as a specific
sum of money) and clause 201 (payments for loss of office: exception for small
payments). The effect is to increase the value of the transactions that may take
place without the approval of the members being required under this Part of the
bill. The clause is a restatement of section 345 of the 1985 Act.
195. The power is necessary to ensure that the financial limits set in the bill can be
increased over time to reflect changes in the value of money. The order will be
made by statutory instrument and will be subject to the negative resolution
procedure. This is appropriate given the technical nature of the provision and the
limited scope of provision made in exercise of the power.

Part 11: Derivative claims and actions by members
196. Part 11 introduces a statutory procedure under which a derivative claim or
action may be brought by one or more members of a company to enforce a right
which is vested in the company. Chapter 1 makes provision in respect of derivative
claims in England and Wales or Northern Ireland; Chapter 2 makes provision in
respect of derivative actions in Scotland.

Clause 242: Whether permission to be given
197. Clause 242 confers on the Secretary of State a power to make regulations
with regard to the criteria to which the court in England and Wales or Northern
Ireland must have regard in determining whether to grant leave to continue a
derivative claim and where leave of the court must be refused. Before making any
such regulations, the Secretary of State must consult with such persons as he
considers appropriate. The power reflects a recommendation by the Law
Commission in its 1997 report on shareholder remedies in respect of analogous
shareholder actions in Scotland.
198. The regulations will be subject to the affirmative resolution procedure.

Clause 246: Granting of leave
199. Clause 246 confers on the Secretary of State a power to make regulations
with regard to the criteria to which the court in Scotland must have regard in
determining whether to grant leave to continue a derivative action and where leave
of the court must be refused. Before making any such regulations, the Secretary of
State must consult with such persons as he considers appropriate. The power

                                             33
reflects a recommendation by the Law Commission in its 1997 report on
shareholder remedies.
200. The regulations will be subject to the affirmative resolution procedure.

Part 12: Company secretaries
201. This Part implements the CLR recommendation to remove the requirement
on private companies to appoint a company secretary. In addition this Part restates
the requirement that public companies appoint a company secretary. It also
introduces an enforcement mechanism for the requirement, in accordance with the
CLR recommendation that for every rule the consequences of breach should be
made clear.
202. The clauses in this Part replace those in Part 9 of the 1985 Act that relate to
company secretaries.

Clause 256: Particulars of secretaries to be registered: power to make regulations
203. Clauses 254 and 255 provide that a company’s register of secretaries must
contain certain “particulars”. In the case of individual secretaries this includes
their name and address (which may be a service address). In the case of corporate
secretaries and firms this includes, inter alia, the corporate name or firm and its
registered or principal office. The particulars are on the face of the legislation to
ensure that they are readily accessible.
204. The particulars contained in the company’s register of secretaries must be
sent to the registrar. Clause 13(b) requires a public company to deliver to the
registrar on formation the particulars of its first secretary or joint secretaries.
Clause 95 provides that where a company is re-registering from private to public it
must provide a statement of its proposed secretary. Clause 253 provides that a
public company must notify the registrar of any changes in its secretary or the
particulars to be contained in its register of secretaries. Thus the effect of these
clauses is that the registrar will have an up to date record of the matters contained
in a public company’s register of secretaries.
205. Clause 252(3) requires that a public company’s register of secretaries “must
be open to the inspection” of a member of the company or anyone else on the
payment of a prescribed fee (clause 744 provides power for setting this fee).
Clause 692(4) provides that “information contained in documents delivered to the
registrar may be recorded and kept in any form the registrar thinks fit, provided it
is possible to inspect it and produce a copy of it”. Clause 697(1) provides that
“any person may inspect the register”. Thus the effect of these clauses is that a
public company’s register of secretaries is publicly available.
206. Clause 256 confers power on the Secretary of State to make regulations that
add or remove items from the lists in clauses 254 and 255 of secretaries’
particulars.
207. This is a new power. The power would make it possible to amend the details
in the light of changing circumstances.
208. This power has not been the subject of consultation. However particulars of
secretaries which should be registered was the subject of consultation by the
Company Law Review. The bill implements the recommendations resulting from
this consultation.



                                             34
209. Regulations under this section are subject to affirmative resolution procedure
as they will amend primary legislation to add or remove disclosure of certain
particulars.

Part 13: Resolutions and meetings
210. This Part replaces chapter 4 of Part 11 of the 1985 Act on meetings and
resolutions.
211. Chapter 5 implements two new policies relating to the AGMs of quoted
companies only: first, to require quoted companies to disclose on a website the
results of polls taken at general meetings; and second, to require quoted
companies to commission an independent report on any poll demanded by a
specified number of shareholders. The requisite number is the same as required
for requisitioning a resolution i.e. 5% of voting rights or 100 members holding
shares paid up on average to £100 each. The objective behind the policy is to
improve the effectiveness and integrity of the voting process in quoted companies.
These recommendations form part of the wider CLR objectives of promoting
transparency of decision-making through faster and more widely accessible
reporting and encouraging shareholder engagement, particularly in large public
companies.

Clause 318: Independence requirement
212. Clause 318 sets out when a person is too closely connected to the company to
act as an independent assessor to provide a report of polls taken at a general
meeting. Certain relationships are proscribed, and a power is conferred on the
Secretary of State to specify other connections between a person (and his
associates) and a company (and its associated undertakings) that will prevent his
acting as an independent assessor.
213. This power derives from the independence provision for the appointment of
auditors in section 27 of the Companies Act 1989 (now itself restated in clause
811), which contains a power in similar terms to this clause. The power conferred
by this clause is subject to negative resolution procedure because it is essentially
the elaboration of detailed rules in accordance with the principle set out in the
primary legislation.

Clause 328: Power to limit or extend the types of company to which provisions of this
chapter apply
214. Clause 328 confers on the Secretary of State a new power to make
regulations to limit the types of companies to which some or all of the provisions of
Chapter 5 apply or to extend some or all of the provisions to additional types of
companies. Subsection (4) envisages that the regulations may amend, repeal or re-
enact provisions relating to the website disclosure and independent reporting
requirements and deal with consequential, incidental and supplementary
provisions. Such a power is considered necessary in order to retain flexibility for
the future.
215. The provisions of Chapter 5 derive from the CLR which recommended that
quoted companies should be required to disclose on a website the results of polls
at general meetings and to commission an audit of all polls on shareholder-
requisitioned resolutions and any other poll where a qualified minority demands it.
The Modernising Company Law White Paper of July 2002 tested out the
proposition (including publication of draft clauses) that these requirements should

                                            35
apply to all companies. In light of stakeholder comments, the Government
proposes to restrict the new statutory provisions on website disclosure of poll
results and independent reporting on polls to quoted companies only. Revised
draft clauses were published on website on 20 September 2005.
216. A quoted company is essentially a company whose equity share capital is
officially listed here or elsewhere in the European Economic Area or is admitted to
dealing on the New York Stock Exchange or NASDAQ exchange. This definition
(which derives from the 1985 Act) appears at clause 358 of the bill for the purpose
of Part 15. It is applied at clause 334 for the purpose of Part 13. However, it may
be appropriate in the future to apply the provisions of this Chapter to a different
set of companies from the provisions on quoted company accounts and reports. It
is desirable to ensure that the requirements of this Chapter relating to polls will
only apply to as wide a grouping of companies as is necessary to achieve the broad
policy objectives–more effectiveness and integrity in the voting processes–
predominantly of public listed companies with significant shareholder bases. It is
possible however that the Government might in future wish to extend the
application of the requirements relating to polls to other companies with large
shareholder bases, both unlisted public and private.
217. As subsection (2) provides, regulations made under this clause extending the
application of any provision relating to website disclosure of poll results or
independent reporting of polls will be subject to the affirmative resolution
procedure. This is appropriate since such an extension will impose obligations on
wider grouping of companies than now. Any other regulations made under this
clause will be subject to negative resolution procedure. Again, this is appropriate
since any limiting of the current application will relieve companies of current
regulation.

Part 14: Control of political donations and expenditure
218. The Political Parties, Elections and Referendums Act 2000 (“the PPERA”)
introduced a regime for control of political donations and expenditure by
companies. This regime was set out in Schedule 19 to the PPERA and embodied
under section 139 as Part 10A of the 1985 Act.
219. Part 14 of the bill largely restates the provisions of Part 10A of the 1985 Act,
but it makes some substantive changes to the regime.

Clause 343: Liability of directors in case of unauthorised donation or expenditure
220. Clause 343(2)(a) provides that where a company has made an unauthorised
donation or expenditure, the responsible directors are liable to make good to the
company the amount of the unauthorised donation or expenditure “with interest”.
Subsection (6) confers on the Secretary of State a power to prescribe by
regulations the applicable rate of interest. This is appropriate given the technical
nature of the provision and the very limited scope of provision made in exercise of
the power.
221. Subsection (6) is a restatement of the power in section 347F(3) of the 1985
Act, and like that power imposes no requirements as to parliamentary procedure.

Clause 350: Political expenditure exempted by order
222. Clause 350 confers on the Secretary of State a power, by order, to exempt
certain categories of company or expenditure from the requirement for prior

                                            36
shareholder authorisation of political expenditure by a company. The clause is a
restatement of subsections 347B(8)–(11) of the 1985 Act.
223. The order will be subject to the affirmative resolution procedure. The power
was used in 2001 to exempt any company or subsidiary undertaking whose
ordinary course of business includes, or is proposed to include, the preparation,
publication or dissemination to the public of material relating (a) to news and
public and political affairs and events; and (b) to views, opinion and comment on
the news and on public and political affairs and events.

Part 15: Accounts and reports
224. The clauses in Part 15 are provisions replacing the equivalent provisions in
Part 7 of the 1985 Act relating to accounts and reports. Those provisions in Part 7
which relate to audit have been replaced by equivalent provisions in Part 16 of the
bill–Audit. Part 15 involves some substantive changes to current company law and
also an extensive reordering of Part 7. This reverses the present structure so as to
set out the rules for small companies before large, private companies before public,
and unquoted companies before quoted. The intention is that it should be clearer
which provisions apply generally and which apply only to a particular size or type
of company.
225. Because of the detailed and technical nature of its requirements, the 1985 Act
currently contains a wide power in section 257 for the Secretary of State to modify
any of the accounts, reports and audit provisions in Part 7 of the Act by
regulations. The power contained in section 257 has been exercised on a number
of occasions, for example to implement various EC Directives and to introduce
requirements for quoted companies to prepare a directors’ remuneration report.
226. The CLR recommended that the detailed rules on the form and content of
the annual financial statements and reports should be devolved to a new Standards
Board. The Government rejected the recommendation for a Standards Board to
perform this function. It accepted, however, that whilst it is appropriate for
primary legislation to specify the core requirements for financial reporting (e.g.
that a company keep proper accounting records, and the types of accounts and
reports that it should prepare, with appropriate sanctions for non-compliance), the
detailed form and content requirements for the financial statements and reports
are more appropriate for secondary legislation. This is because of the technical and
detailed nature of these requirements, and the fact that from time to time they
need to be changed in order to implement EC requirements and to adapt to
changes in accounting and reporting practices (both domestic and international).
227. The existing Schedules to the 1985 Act which specify the form and content of
the annual financial statements and reports are therefore replaced in Part 15 of the
bill by specific powers for the Secretary of State to specify that form and content.
These are targeted powers in contrast to the power conferred by section 257 of the
1985 Act (which is not to be re-enacted). They will also give more flexibility over
how the material currently in Schedules to Part 7 of the 1985 Act is structured to
make it easier to follow for different types of company. It is unnecessary and
undesirable to have parallel and duplicative regimes on the detail for different
types of company in the primary legislation, but this could be done in parallel sets
of regulations for different sizes and types of company e.g. small companies, banks
and insurance companies
228. The new powers conferred by Part 15 concerning the form and content of
accounts and reports are subject to the Parliamentary procedure specified in clause

                                        37
450 (which is similar to the procedure to which section 257 regulations are
subject) and to the general provisions on regulations in Part 36 (including the
power to make different provision for different cases). It is important that, as is the
case with section 257 regulations under the current Act, Parliament should have
the opportunity to debate regulations that impose new burdens on companies.
However where regulations have a neutral or deregulatory effect, it is considered
that the negative resolution procedure is sufficient. With the repeal of section 257
of the 1985 Act, the substantive provisions in Part 15 will only be capable of being
modified either by using the general reform power conferred by the bill, or, if the
modification is required by EC law, by using section 2(2) of the European
Communities Act 1972.

Clause 358: Quoted and unquoted companies
229. The definitions of quoted and unquoted company in this clause are
equivalent to the definition of “quoted company” in section 262 of the 1985 Act
(which currently can be amended by regulations under section 257 of the 1985
Act). A power is conferred similar to that in clause 328 to amend the definition of
“quoted company” by regulations. Such a power is considered necessary in order
to retain flexibility for the future. If the regulations extend the application of any
provisions of this Part of the bill that are expressed to apply to quoted companies,
then they will be subject to the affirmative resolution procedure as it is important
that Parliament should have the opportunity to debate regulations where they are
increasing burdens. Otherwise they are subject to the negative resolution
procedure.

Clause 369: Companies act individual accounts
230. This clause replaces section 226A of the 1985 Act. Subsection (3) gives the
Secretary of State a new power to make provision by regulations as to the form and
content of the balance sheet and profit and loss account of a company which
prepares its individual accounts under the bill (rather than under international
accounting standards), and as to additional information to be provided by way of
notes to those accounts. Although the current requirements are contained in
Schedules 4, 5, 6, 8, 8A, 9 and 9A to the 1985 Act, the Government believes that
it is appropriate that these requirements should be specified in regulations, as they
are detailed, technical and subject to change due to developments in accounting
practices. The Parliamentary procedure for such regulations is set out in clause
450. Under clause 450(3) regulations that increase burdens on companies will be
subject to the affirmative procedure. Otherwise, they will be subject to negative
procedure.

Clause 377: companies act group accounts
231. This clause replaces section 227A of the 1985 Act. It gives the Secretary of
State the new power to make provision by regulations as to the form and content
of the consolidated balance sheet and consolidated profit and loss account of a
company which prepares its group accounts under the bill (rather than under
international accounting standards), and as to additional information to be
provided by way of notes to those accounts. Although the current requirements are
contained in Schedule 4A to the 1985 Act, the Government believes, as in the case
of Companies Act individual accounts, that it is appropriate that these
requirements should be specified in regulations, as they are detailed, technical and
subject to change. The Parliamentary procedure for such regulations is set out in

                                           38
clause 450. Under clause 450(3) regulations that increase burdens on companies
will be subject to the affirmative procedure. Otherwise, they will be subject to
negative procedure.

Clause 382: Information about related undertakings
232. This clause replaces subsections (1) to (4) of section 231 of the 1985 Act. It
gives the Secretary of State a new power to make regulations requiring information
about related undertakings to be given in notes to a company’s annual accounts.
These regulations are subject to the Parliamentary procedure in clause 450. Under
clause 450(3) regulations that increase burdens on companies will be subject to
the affirmative procedure. Otherwise, they will be subject to negative procedure.
233. It is intended that the first regulations made under this section will replicate
the provisions in Schedule 5 to the 1985 Act. Subsection (3) replaces the existing
provision in section 231(3) enabling regulations under the clause to provide for the
omission of information in respect of undertakings established outside the UK, or
carrying on business outside the UK where the directors consider that disclosure
would be seriously prejudicial to the business of that undertaking, or to the
business of the company or any of its subsidiary undertakings. The Secretary of
State must agree to the omission.

Clause 385: Information about directors’ benefits: remuneration
234. This clause–along with clause 386–a replaces section 232 of the 1985 Act.
Under section 232, information on directors’ remuneration specified in Part 1 of
Schedule 6 must be given in notes to a company’s annual accounts. This clause
gives the Secretary of State a new power to make provision by regulations
requiring information about directors’ remuneration to be given in notes to a
company’s annual accounts. Regulations under this section are subject to the
Parliamentary procedure in clause 450. Under clause 450(3) regulations that
increase burdens on companies will be subject to the affirmative procedure.
Otherwise, they will be subject to negative procedure.
235. It is intended that the first regulations made under this section will restate the
provisions currently in Part 1 of Schedule 6 to the 1985 Act without substantive
amendment.

Clause 389: Contents of directors’ report: general
236. This clause replaces section 234ZZA of the 1985 Act. Subsection (5) gives
the Secretary of State a new power to make provision by regulations about matters
that must be disclosed in the directors’ report in addition to the requirements of
clauses 388 to 391. These matters are currently set out in Schedule 7 to the 1985
Act It is intended that the first regulations made under this provision will replicate
the provisions in Schedule 7 to the 1985 Act. These regulations are subject to the
Parliamentary procedure in clause 450. Under clause 450(3) regulations that
increase burdens on companies will be subject to the affirmative procedure.
Otherwise, they will be subject to negative procedure.

[Clause 394: Objective and contents of operating and financial review
237. Note (28 November 2005): The Government is reconsidering its position on
the operating and financial review.



                                             39
238. This clause replaces section 234AA of the 1985 Act. It gives the Secretary of
State a new power to make provision by regulations as to the objective and
contents of the operating and financial review. These matters are currently set out
in Schedule 7ZA to the 1985 Act. These regulations are subject to the
Parliamentary procedure in clause 450. Under clause 450(3) regulations that
increase burdens on companies will be subject to the affirmative procedure.
Otherwise, they will be subject to negative procedure.]

Clause 397: Contents of directors’ remuneration report
239. This clause replaces section 234B of the 1985 Act. It gives the Secretary of
State a new power to make provision by regulations as to the information that
must be contained in a directors’ remuneration report and how it should be set
out. These matters are currently set out in Schedule 7A to the 1985 Act, and it is
intended that the first set of regulations made under this section will replace the
provisions in Schedule 7A without substantive amendment. Regulations under this
section are subject to the Parliamentary procedure in clause 450. Under clause
450(3) regulations that increase burdens on companies will be subject to the
affirmative procedure. Otherwise, they will be subject to negative procedure.

Clauses 402, 403, and 404: Option to provide summary financial statement
240. These clauses restate section 251 of the 1985 Act. All companies have the
option under clause 402 to provide summary financial statements instead of copies
of the full accounts and reports. This clause reproduces the existing power
conferred by section 251(1) and (2) of the 1985 Act for the Secretary of State to
make provision by regulations:
       • as to the circumstances in which a company may send out summary
           financial statements; and
       • as to the manner in which it is to be ascertained whether a person wishes
           to receive a copy of the (full) accounts and reports.
241. The current regulations are the Companies (Summary Financial Statement)
Regulations 1995 (SI 1995/2092), as amended.
242. Clause 403 sets out the form and content of summary financial statements
prepared by unquoted companies, whilst clause 404 sets out the form and content
of summary financial statements prepared by quoted companies. In both cases, the
Secretary of State may make regulations as to the form and content of summary
financial statements, restating the provision currently in section 251(3) of the 1985
Act. It is considered appropriate that this level of detail be left to subordinate
legislation. There is a new power for the regulations to provide that specified
material be sent separately at the same time as the summary financial statements,
instead of being included in it (clauses 403(5) and 404(5)). This is to cover the
requirements of the Takeovers Directive (2004/25/EC) as to necessary explanatory
material (see clause 649). As in the 1985 Act (section 251(5)), these powers are
subject to the negative resolution procedure.

Clauses 422 and 423: Filing obligations of companies subject to small companies regime
and of medium-sized companies
243. Clauses 422 and 423 concern the filing obligations of small and medium-
sized companies i.e. the documents they must deliver to the registrar of companies
for disclosure on the public register. They restate provisions in section 246(1), (5)

                                           40
and (6) and 246A(1) and (3) of the 1985 Act. Clause 422 concerns the filing
obligations of companies subject to the small companies regime. Currently under
section 246 of, and Schedule 8A to, the 1985 Act, such companies may file
abbreviated accounts with the registrar of companies. This clause gives the
Secretary of State the new power to make regulations concerning abbreviated
accounts for such companies (422(4)). It is considered appropriate that such
detailed technical provisions be left to regulations. Clause 423–filing obligations of
medium sized companies–again allows such companies to file abbreviated
accounts (reflecting section 246A of the 1985 Act), and gives the Secretary of
State the new power to make regulations concerning abbreviated accounts for such
companies (423(3)). Regulations under this section are subject to the
Parliamentary procedure in clause 450. Under clause 450(3) regulations that
increase burdens on companies will be subject to the affirmative procedure.
Otherwise, they will be subject to negative procedure.

Clause 431: Civil penalty for failure to file accounts and reports
244. This clause provides for the Secretary of State to make regulations regarding
civil penalties where companies fail to file accounts and reports with the registrar
of companies within the statutory deadlines. The clause restates section 242A of
the 1985 Act with one change. Rather than setting out the table of penalties in the
legislation, subsection (2) provides for the Secretary of State to make regulations
specifying both the relevant periods and the amounts of the penalties. Subsection
(5) provides that the regulations are subject to the negative resolution procedure
unless they have the effect of increasing the penalty payable in any case when they
will be subject to affirmative resolution procedure. The effect of this provision is
the same as that under the 1985 Act whereby section 242A (like any other
provision of Part 7 of that Act) can be amended by regulations under section 257.
245. It is intended that the first regulations made under this section will replicate
the table of penalties at 242A (2), and so should be subject to negative resolution.

Clause 432: Voluntary revision of accounts etc
246. This clause provides for the voluntary revision of defective accounts and
reports. It replicates the existing power under section 245(3) and (4) of the 1985
Act for the Secretary of State to make provision in regulations as to the application
of the provisions of this Act to revised annual accounts and reports. Regulations
under this section are subject to the negative resolution procedure, which is
consistent with the existing powers (section 245(5) of the 1985 Act). The current
regulations are the Companies (Revision of Defective Accounts and Report)
Regulations 1990 (SI 2570), as amended.

Clause 435: Other persons authorised to apply to the court
247. Clauses 434 and 435 concern applications to the court in respect of defective
accounts or reports. They re-enact sections 245B and 245C of the 1985 Act.
Clause 435 gives the Secretary of State the power to authorise a person for the
purposes of the previous clause to apply to the courts to require the directors of
companies to prepare revised accounts and reports where the original accounts or
reports were defective. Authorisation is subject to the negative resolution
procedure, which corresponds to the existing provision in section 245C(4) of the
1985 Act. The body known as the Financial Reporting Review Panel (the FRRP)
is the only authorised person under this provision to date (the Companies


                                             41
(Defective Accounts) (Authorised Person) Order 2005: SI 2005/699). It is not
envisaged that any other person or body is likely to be authorised or appointed.

Clause 440: Power to amend categories of permitted disclosure
248. Under clause 437 (re-enacting section 245F of the 1985 Act), the FRRP (as
the person authorised under clause 435) has a statutory power to require a
company and its officers, employees and auditors to provide documents and
information.
249. Information obtained by the FRRP under that power is subject to restrictions
on onward disclosure (clauses 438 and 439 re-enacting section 245G of, and
Schedule 7B to, the 1985 Act). Clause 440 re-enacts the provision in section
245G(4) conferring power on the Secretary of State by order to amend the list of
exceptions to the restriction on onward disclosure now contained in section 439
(3), (4) and (5). This flexibility is necessary to allow for changes to be made to the
allowable onward disclosures through secondary legislation e.g. to take account of
changes to the bodies or functions listed in those subsections. As under the 1985
Act (section 245G(6)) the order is subject to the negative resolution procedure.
No regulations have been made to date under this provision.

Clause 441: Accounting standards
250. This clause restates the power in section 256 of the 1985 Act for the
Secretary of State to make regulations prescribing the body or bodies which may
issue accounting standards. The Accounting Standards Board has been prescribed
for this purpose (the Accounting Standards (Prescribed Body) Regulations 2005:
SI 2005/697). This is not subject to any Parliamentary procedure, reflecting the
current position. Because the system of issuing accounting standards was long
established when section 256 was enacted by the Companies Act 1989, it was not
considered necessary for there to be a Parliamentary procedure for the regulations
specifying the body to issue such standards. The Government considers that this
should continue to be the case.

[Clause 442: Reporting standards
251. Note (28 November 2005): The Government is reconsidering its position on
the operating and financial review.
252. This clause re-enacts sections 256A and 257(4A) and (4B) of the 1985 Act.
They confer on the Secretary of State the power to specify a body or bodies for the
purpose of issuing reporting standards in respect of operating and financial reviews
(clauses 393 to 395). The Accounting Standards Board has been so specified (the
Reporting Standards (Specified Body) Order 2005: SI 2005/692). An order under
this clause is subject to negative resolution, reflecting the current position. Because
the Operating and Financial Review was a new statutory report with a wide scope,
the Government considered it appropriate that the order specifying the body to
issue the standard to support the report should be subject to the negative
resolution procedure. The Government believes that this continues to be the case.]

Clause 447: Power to apply provisions to banking partnerships
253. This clause gives the Secretary of State the power to make regulations
concerning banking partnerships. It re-enacts section 255D of the 1985 Act. The
regulations will be subject to the affirmative resolution procedure, which
corresponds to the existing provision.

                                           42
Clause 450: Parliamentary procedure for certain regulations under this part
254. This clause specifies the Parliamentary procedure that must be followed in
respect of regulations issued under the specified sections in this Part which will
replace the requirements as to the form and content of accounts and reports
currently contained in Schedules to Part 7 of the 1985 Act. The current power
under section 257 of the 1985 Act requires the affirmative resolution procedure for
regulations which add to the documents required to be prepared by companies,
restrict the exemptions available to particular classes or types of company, add to
the information to be included in any particular document under Part 7, or
otherwise make the requirements of Part 7 of the 1985 Act more onerous.
Otherwise regulations under section 257 are subject to the negative resolution
procedure. The Government believes that this approach remains appropriate for
the more specific powers to make regulations concerning the form and content of
accounts and reports. The Government is considering whether the drafting
properly reflects the intention that regulations under clause 450 should be subject
to negative Parliamentary Procedure where they do not make more onerous
provisions than those contained in the Schedules to the 1985 Act immediately
before the commencement of the bill.

Part 16: Audit
255. This part brings together various provisions on auditing companies and
restates them clearly in one place. It also introduces changes to the law on auditing
in relation to the ability of an auditor to limit his liability by contract, a new
criminal offence for auditors, and some improvements in transparency.

Clause 462: The accountant’s report
256. This clause defines the accountant’s report that a medium-sized charity that
is a company can have instead of an audit report. It replaces section 249C of the
1985 Act. Because this is a more limited report than an audit, among the matters
that the report must include is the reporting accountant’s opinion that the
company’s accounts have been drawn up in accordance with specified provisions
on the content of the accounts rather than all such provisions in the 1985 Act.
257. This clause confers a power on the Secretary of State to define by statutory
instrument which provisions are to be included in this list. Most of the provisions
currently specified in section 249C of the 1985 Act appeared in Schedules to that
Act, but will in future be specified by regulations to be made under Part 15 of the
bill. It will now be necessary for the Secretary of State to specify the references by
regulations, since not all of them will be provisions in the bill or in existing
legislation.
258. As the secondary legislation will be filling in the details of the basic
requirement agreed by Parliament in this clause, it is appropriate that it should be
subject to negative resolution procedure.

Clause 465: Independence requirement
259. This clause restates the prohibition in section 249D(4) of the 1985 Act on a
person too closely related to a charitable company from acting as its reporting
accountant. Certain relationships are proscribed, and a power is conferred on the
Secretary of State to specify other connections between a person (and his
associates) and a company (and its associated undertakings) that will prevent his
acting as reporting accountant.

                                           43
260. Section 249D(4) referred to the independence provision in section 27 of the
Companies Act 1989, which contained a power in similar terms to this clause.
Section 27 is itself restated in clause 811 of the bill, which thus contains a power
in the same terms as in this clause. Thus there is nothing new in the power in this
clause. The power conferred by this clause is subject to negative resolution
procedure because it is essentially the elaboration of detailed rules in accordance
with the principle set out in the primary legislation.

Clause 469: Scottish public sector companies: audit by Auditor General for Scotland
261. This clause confers on Scottish Ministers the power to provide that a Non-
Departmental Public Body (NDPB) formed as a company should be subject to
public sector audit by the Auditor General for Scotland. It defines the ways in
which a company must qualify as public sector and as Scottish, for the power to be
applicable.
262. New public sector companies will arise from time to time, and some may
cease to be eligible. It is therefore appropriate for individual companies to be
designated by order rather than by primary legislation. This power in respect of
Scottish companies complements existing powers in respect of other companies
enjoyed by the Treasury under the Government Resource Accounting Act 2000,
which is subject to affirmative resolution. There are similar powers in respect of
certain companies in Northern Ireland and Wales.
263. The power conferred by this clause is subject to affirmative resolution
procedure in the Scottish Parliament. The Scottish Executive will be putting a
Sewel motion covering this provision to the Scottish Parliament.

Clause 480: Disclosure of terms of audit appointment
264. This clause confers on the Secretary of State a power to make regulations
specifying the way in which a company should disclose the terms on which it has
engaged its auditor.
265. Subsection (2) provides that the regulations can cover written and unwritten
terms, and can specify the timing and location of disclosure.
266. The details of disclosure are best contained in regulations rather than primary
legislation as they may change over time, as best practice develops, particularly in
relation to the timing and method of disclosure.
267. The powers conferred by this clause are subject to negative resolution
procedure because they are essentially the implementation of detailed technical
rules in accordance with the principle set out in the primary legislation.

Clause 481: Disclosure of services provided by auditor or associates and related
remuneration
268. This clause restates section 390B of the 1985 Act, which was inserted by
section 7 of the Companies (Audit, Investigations, and Community Enterprises)
(“C(AICE)”) Act 2004. It enables the Secretary of State to make regulations
specifying the way in which an auditor is to disclose the types and costs of services
that companies and their associates have purchased from their auditors or
associates. Minor changes from the C(AICE) Act are purely stylistic.
269. As in the C(AICE) Act, the powers conferred by this clause are subject to
negative resolution procedure because they are essentially the implementation of

                                            44
detailed technical rules in accordance with the principle set out in the primary
legislation.

Clause 492: Senior statutory auditor
270. This clause is one of a group of clauses on “Signature of auditor’s report”,
which in part anticipates the recently agreed (but not yet formally adopted) EU
Audit Directive. The clause confers upon the Secretary of State a power to appoint
by order a body that can issue non-legislative guidance about the identification of
which individuals can be a “senior statutory auditor”.
271. The clause as a whole sets out rules for the identification of the “senior
statutory auditor” for the purposes of clause 491, which requires such a person to
sign the report of any audit where the auditor itself is not an individual. The
European Commission plans to issue standards under the Audit Directive that will
provide more guidance as to who should be named as “senior statutory auditor”,
and these standards will supersede the guidance issued by the Secretary of State or
his delegate once they are issued.
272. The new power will enable the Secretary of State to delegate the task of
issuing guidance to an appropriate body. This would be likely to be to an existing
regulatory body, such as the Financial Reporting Council, or to one or more of the
supervisory bodies. As the most appropriate body may change over time, as the
expertise and roles of the bodies evolve, the statute gives the Secretary of State a
power to delegate by order subject to the negative resolution procedure.

Clause 521: Disclosure of auditor’s liability limitation agreement by company
273. Chapter 6 of this Part restates the general voidness of provisions purporting
to limit an auditor’s liability to a company e.g. for negligence or breach of duty,
then introduces the ability for company and auditor to agree by contract a
limitation, subject to authorisation by the shareholders, and with the ability for the
court to override such a limitation if it finds that it is not “fair and reasonable.”
274. This clause confers a power on the Secretary of State to make regulations
setting out the way in which a company must disclose details of any liability
limitation agreement it makes with an auditor.
275. It is envisaged that such regulations would specify the minimum details about
an agreement that would need to be disclosed, as well as the timing and location of
disclosure required. Subsection (2) provides that the regulations may require
disclosure of a liability limitation agreement in a company’s annual accounts or in
its directors’ report.
276. Chapter 6 allows company and auditor freedom to contract to limit liability
in any way they wish. The regulations will seek to define details that must be
disclosed so that those with an interest know what liability limitation agreements
are made between companies and their auditors. As practice evolves, it may be
necessary to refine the definition of such details to correspond better to contracts
that are actually used.
277. It is therefore more appropriate to specify the details in regulations than in
primary legislation.
278. The principle of permitting liability limitation agreements subject to certain
constraints, and the principle that any such agreement must be disclosed are set
out in the primary legislation here. The powers conferred by this clause are subject


                                           45
to negative resolution procedure because they are simply the detailed rules
covering disclosure.

Part 17: Private and public companies
279. This Part of the bill contains provisions relating to public and private
companies. Chapter 1 deals with the prohibition of public offers by private
companies. Chapter 2 deals with the requirement for public companies to have a
minimum share capital and the procedure for obtaining a ‘trading certificate’ from
the registrar. There are no powers within this Part. The power to vary the
authorised minimum contained in current section 118 of the 1985 Act will not be
retained.

Part 18: Allotment of shares
280. This Part of the bill is about the allotment of shares in companies that have a
share capital. It contains self-standing clauses, which replace equivalent provisions
in the 1985 Act and the Companies (Northern Ireland) Order 1986. It starts by
setting out the powers of the directors to allot shares and the notice requirements
as to such allotments (that is, the return of allotments that must be made to the
registrar), includes special rules relating to public companies where the issue is not
fully subscribed and goes on to deal with pre-emption rights and the payment of
commission by a company.

Clause 539: Return of allotment by limited company
281. This clause replaces section 88 of the 1985 Act. As now, within one month of
an allotment of new shares in a limited company, the company is required to make
a return of allotments to the registrar. This return must be accompanied by a
statement of capital (see note on Part 2, in particular the note on clause 11).
282. It will be for the registrar to provide for the form and manner of the return of
allotments and also the statement of capital (see note on Part 2, in particular the
note on clauses 9 to 13).
283. Currently, under section 88(2), the information to be stated in the return of
allotments covers the information which will in future be stated in the statement of
capital and the names and addresses of the allottees. Where shares are allotted as
paid up otherwise than for cash, there is also a requirement to register with the
registrar the contract relating to the allotment of such shares or, where there is no
written contract, the “prescribed particulars” of the contract.
284. Under the bill, there will no longer be a requirement for companies to file
contracts with the registrar where they make an allotment of shares for a non-cash
consideration (which companies had criticised on the grounds that it meant that
commercially sensitive information may have to be disclosed). This is a
deregulatory measure but it will still be important for companies to provide
information to the registrar pertaining to the shares allotted. Hence in clause
539(3) it is provided that the return must contain “prescribed information”
relating to the allotment. In this context “prescribed” means prescribed by
statutory instrument made by the Secretary of State (see section 744 of the 1985
Act and the note below).
285. It is anticipated that such information will include a description of the
consideration for the allotment and the extent to which shares are to be treated as
paid up by such consideration. Due to the technical nature of such information
and the need to ensure that the requirement is framed in such a way as to capture
                                         46
the different forms which such agreements may take (for example, contracts of
sale, contracts for services or contracts for other consideration) it is considered
that it is preferable for such requirements not to appear in the bill but for the
Secretary of State to be able to prescribe the information required by statutory
instrument.

Clause 540: Return of allotment by unlimited company
286. This is a new provision that requires unlimited companies to make a return of
allotments to the registrar where the directors allot a new class of shares (that is, a
class of shares with rights that are not in all respect uniform with shares previously
allotted). It replaces a similar requirement in section 128(1) and (2) of the 1985
Act, which deals with the registration of particulars of shares with special rights.
287. It will be for the registrar to provide for the form and manner of the return of
allotments (see note on Part 2, in particular the note on clauses 9 to 13).
288. This return must contain “prescribed particulars of those rights” and
“prescribed” here means prescribed by statutory instrument made by the Secretary
of State (see section 744 of the 1985 Act and the note below).
289. As mentioned above, the reference to “prescribed” in clauses 539 and 540
means prescribed by the Secretary of State by statutory instrument by virtue of
section 744 of the 1985 Act (which is retained by the bill). It is considered
appropriate to make provision in this manner for information which companies
must provide regarding the rights attached to their shares (rather than prescribe
this information on the face of the bill) as the specifications will necessarily be
detailed and technical in nature. In particular, given the variety of different rights
that may attach to a share or class of shares, it may be necessary to give examples
of the types and level of information that a company is required to provide, for
example, in relation to redeemable shares the information required will extend to
the terms, conditions and manner of redemption of such shares. In view of the
technical nature of such specifications it is considered that it is not appropriate for
the bill to specify these requirements.
290. The statutory instrument to be made by the Secretary of State in this regard
will not be subject to any form of Parliamentary scrutiny. This is considered
appropriate because the power in this clause does not alter the rights of companies
nor their members. It is simply a power to prescribe the types of information (and
level of detail) that a company is required to provide in certain circumstances.
Consequently, the regulations will be technical in nature.
291. The Government continues to consider that it is appropriate for the exercise
of this power to continue to be free from Parliamentary scrutiny but would
welcome the Committee’s views on whether this approach continues to be
appropriate

Clause 542: Time for acceptance of pre-emption offers
292. Subject to certain exceptions, under section 89(1) of the 1985 Act, a
company that is proposing to allot equity securities for cash must offer these
securities to existing members first (that is, on a pre-emptive basis). This is
frequently referred to as a “rights issue”.
293. The terms of an offer to existing members must be the same or more
favourable than those on which the company would allot the shares in question to
a third party. “Equity securities” is defined in section 94 of the 1985 Act.

                                           47
294. The basic principle, which is enshrined in the provisions of the 1985 Act,
(and which is retained in the bill) is that a shareholder should be able to protect his
proportion of the total equity of a company by having the opportunity to subscribe
for any new issue of equity securities.
295. Section 90 of the 1985 Act sets out the requirements as to communication of
pre-emption offers to shareholders. Subsection 6 of this section provides that a
pre-emptive offer “must state a period of not less than 21 days during which it may
be accepted; and the offer shall not be withdrawn before the end of that period.”
In line with the CLR’s recommendations, and as supported by the Paul Myner’s
review of pre-emption rights, the bill retains the present statutory minimum period
of 21 days for acceptance of rights offers, but takes a power to vary this period
(upwards as well as down but to no less than 14 days). This power is contained in
clause 542 which amends section 90 of the 1985 Act.
296. Where the existing members do not want, or are unable, to subscribe for
further shares in a company, the statutory minimum period for the acceptance of
rights offers may hinder a company’s ability to raise capital quickly. This power
will enable the Secretary of State to respond to calls for a reduction in the statutory
minimum period in circumstances where he is persuaded that the business need
for this outweighs the interests of individual shareholders or where he is satisfied
that individual shareholders would not be disadvantaged by such a change (for
example, if there was wide spread use of electronic communication and the
members of the vast majority of companies had elected to communicate with their
company and with each other by electronic means).
297. The power conferred on the Secretary of State under new section 90(6A)
(inserted into the 1985 Act by this clause) is subject to the affirmative resolution
procedure. The Government considers that this level of scrutiny is appropriate, as
any change to the current statutory minimum period for the acceptance of rights
offers would clearly affect the rights of individual shareholders.

Part 19: Share capital
298. This Part of the bill is about share capital and how it may be altered. The
clauses in this part are made up of a mixture of new provisions (for example, the
clauses on redenomination of share capital) and provisions which replace or
amend corresponding provisions in the 1985 Act and the Companies (Northern
Ireland) Order 1986.
299. As now, where a company makes an alteration to its share capital under the
bill (or under the remaining provisions in the 1985 Act which deal with alterations
to a company’s share capital) it must give notice to the registrar. In future, with
limited exceptions (in particular, where there has been a variation of class rights
which does not affect the company’s aggregate subscribed capital) this notice must
be accompanied by a statement of capital.
300. A statement of capital is essentially a “snapshot” of the company’s share
capital at a particular point in time. It must include details of: the total number of
shares of the company; the aggregate nominal value of those shares; for each class
of shares: prescribed particulars of the rights attached to those shares; the total
number of shares of that class; and the aggregate nominal value of shares of that
class, and the amount paid up and the amount (if any) unpaid on each share.
There is a requirement for a statement of capital in each of the following clauses in
this Part:
       • Clause 552: Notice to registrar of sub-division or consolidation;
                                          48
       • Clause 553: Re-conversion of stock into shares;
       • Clause 554: Notice to registrar of alteration of share capital;
       • Clause 562: Reduction of capital supported by solvency statement (see
          new section 135C);
       • Clause 563: Registration of court order for reduction of capital;
       • Clause 569: Statement of capital on disclosure by company of purchase
          etc of own shares (see new sections 169(1AB) and 169A(2B));
       • Clause 571: Power of private companies to redeem or purchase own
          shares out of capital (see new section 177A);
       • Clause 581: Notice to registrar of redenomination;
       • Clause 583: Notice to registrar of reduction of capital in connection with
          redenomination.
301. The reference to prescribed in the statement of capital means prescribed by
the Secretary of State by statutory instrument by virtue of section 744 of the 1985
Act (which is retained by the bill) (see note on Part 2 and in particular the note on
clause 11).

Part 20: Transfer of securities
302. Under section 207 of the Companies Act 1989, the Secretary of State is able
to make regulations, using the affirmative procedure, “for enabling title to
securities to be evidenced and transferred without a written instrument”. This is a
broad power which can be used either to modify or exclude company law
provisions or to make provision for sub-delegation and the detailed operation of
new transfer systems and procedures.
303. The Government has welcomed the work of an industry working group which
has been looking at options for greater use of paper free holding and transfer of
shares. The responses to the Company Law Reform White Paper of March 2005
showed strong support for this initiative, but it is also clear that more information
is needed on the costs and benefits of a paper free approach. The Government
does not wish to rule out any option at this stage, and has therefore decided to
extend the existing power relating to transfer of securities under section 207 of the
Companies Act 1989 so that it could be used to require, as well as to permit, the
paper free holding and transfer of quoted company shares.

Clause 585: Transfer of securities: power to make regulations
304. This clause provides that the power to make regulations under section 207 of
the 1989 Act should be exercisable by the Secretary of State or by Treasury
Ministers. Responsibility for section 207 of the 1989 Act and the Uncertificated
Securities Regulations passed from DTI to HM Treasury by virtue of article 2(1)
of the Transfer of Functions (Financial Services) Order 1992 as part of a general
transfer of responsibility for financial services matters. Dual DTI/Treasury
ownership is however appropriate for the making of regulations under the
extended power as the extension of paperless holding and transfer to new classes of
shares or other securities would involve matters which are part of company law.




                                            49
Clause 586: Transfer of securities: extension of powers
305. This clause extends the existing power relating to transfer of securities under
section 207 of the 1989 Act so that it could be used to require, as well as to
permit, the paper free holding and transfer of quoted company shares. Exercise of
the power will, as now, continue to be subject to the affirmative procedure. In
addition, Ministers will be under a statutory requirement to consult before any
future section 207 regulations are made (see clause 587(1)).
306. The effect of subsections (1) and (2) is that regulations made under section
207 could:
       • enable the members of companies generally, or of designated classes of
           company, by ordinary resolution, to adopt a new form of paperless
           holding and transfer of shares and abandon paper-based forms of
           holding and transfer in relation to all existing and new securities of that
           company, or to specified types of securities, without affecting any other
           company’s ability to continue to use paper-based holding and transfer
           of its securities; or
       • make the adoption of a form of paperless transfer and the abandonment
          of paper-based forms of transfer mandatory for all securities, or
          specified types of securities, issued by companies generally or by
          designated classes of company.
307. It is expected that most designation of companies to which the regulations are
to apply will be done in regulations, and so will be subject, like the other
provisions of regulations under section 207, to approval by both Houses of
Parliament. However, in order to give some additional flexibility as regards the
designation process in particular cases, it is proposed under subsection (3) that
Ministers should also be able to make designations by order. It is not proposed
that such orders should be subject to any Parliamentary procedure, but Ministers
will be obliged to carry out consultation before making any such order, so as to
ensure that the views of those who may be affected by any such potential
designation are taken into account before an order is made (see clause 587(1)).
308. Subsection (4) protects the right of investors to hold their shares directly
rather than holding them through a nominee, and any existing rights they have to
give instructions in relation to their shares directly (for example, by instructing the
company’s registrar to register a transfer of their shares to another person).
309. Subsection (5) provides that the regulations will be able to:
       • prohibit the issue of share certificates by relevant companies.
           Shareholders in such companies would lose the option of continuing to
           hold certificates and transfer their shares by paper-based methods;
       • ensure that such shareholders are sent periodic statements of their
           shareholdings;
       • deprive existing share certificates of any evidential status.
310. Such steps may be expected to reduce the risk of any confusion between the
old, paper-based holding and transfer systems and the new regime, without
imposing unnecessary burdens on companies or shareholders. (They would, for
example, ensure that there was no need to collect in all old share certificates before
or immediately after switching to the new arrangements.)



                                             50
Clause 587: Transfer of securities: supplementary provisions
311. Ministers will be obliged under subsection (1) to consult such persons as they
consider appropriate before making regulations or designating a class of companies
by order under the new power. This obligation reflects the breadth of the proposed
new power, as well as the highly technical nature of some of the regulations which
could be made under it.

Part 21: Information about interests in company’s shares
312. This Part concerns a public company’s right to investigate who has an
interest in its shares. It replaces equivalent provisions in Part 6, sections 212 to
220, of the 1985 Act and leaves the ability of public companies to investigate who
has an interest in their shares broadly in its current form. These are purely
domestic provisions, and are not required by European Law. The automatic
disclosure obligations formerly contained in sections 198 to 211 of Part 6 are to be
repealed and replaced by regulations under the Financial Services and Markets Act
2000 as amended by clause 861, in implementation of the Transparency
Obligations Directive.

Clause 616: Power to make further provision by regulation
313. This clause re-enacts section 210A of the 1985 Act. It confers power on the
Secretary of State to make regulations to amend the definition of shares to which
this Part applies, (subsection (1) (a) re-enacting section 210A(1)(a)). Power is also
conferred to amend the provisions in clause 590 as to notice by a company
requiring information about interests in its shares, (subsection (1)(b) re-enacting
section 210A(1)(e)), and the provisions as to what is to be taken to be an interest
in shares, (subsection (1)(c) re-enacting section 210A(1)(d)). Subsection (2)
specifies that such regulations may amend, repeal or replace the provisions in
clauses 589, 590, 608 and 609, and may make other consequential amendments or
repeals in this Part.
314. These powers are needed to allow the provisions of this Part to be amended
in the light of market developments. Two sets of regulations have been made
under the existing powers–the Disclosure of Interests in Shares (Amendment)
Regulations of 1993 (SI 1993/1819) and 1996 (SI 1996/1560). The bill powers
are required to ensure that the provisions of this Part do not become outdated.
Financial markets are very sophisticated and new forms of financial instruments
are frequently developed. The bill powers might be exercised to cover holders of
these new types of financial instruments. They are also required to ensure that the
provisions under this Part are consistent with any future regulations made under
the Financial Services and Markets Act 2000, as amended by clause 861, in
implementation of the Transparency Obligations Directive.
315. If the provisions of this Part are amended by regulations, it is important that
Parliament should have the opportunity to debate them. For this reason,
regulations made under this clause, as currently under section 210A of the 1985
Act, are subject to the affirmative resolution procedure.

Part 22: Takeovers, etc
316. This Part implements the EU Takeovers Directive (2004/25/EC). The
Takeovers Directive, laying down minimum standards for takeover regulation
across the EU, was subject to extensive enquiry by the House of Lords Committee
on the European Union during the course of negotiations. The Committee

                                            51
reported substantively on the Directive on two occasions, “Takeover Bids” (13th
Report, 1995–96, HL Paper) and, “If At First You Don’t Succeed…Takeover
Bids Again” (28th Report, 2002–03, HL Paper 128). Both those Reports
commented upon the unique role and standing of the Panel on Takeovers and
Mergers (“the Panel”) in the development and oversight of takeover regulation in
the UK and the issues arising from the Directive for the domestic system of
takeover regulation. The 2002–2003 Report (paragraph 1) described the issues in
these terms:
       Takeovers of public companies in the UK have since 1968 been subject
       to an extra-statutory system of control by the Takeover Panel which has
       formulated, interpreted and enforced a body of rules, the City Code.
       Those rules have sought to secure the fair treatment of all shareholders
       in the target company and the orderly conduct of takeover bids on the
       securities markets. In particular the Panel will police any hostilities
       between the companies where the bid is not agreed and is a hostile
       one…The UK system is generally considered to have operated most
       effectively notwithstanding that it has no “visible means of legal
       support.”
317. The Report went on to say (paragraph 6):
       The UK has a sophisticated and highly effective system of control of
       takeovers and a directive would inevitably change the fundamental
       nature of the control regime, bringing with it an increased risk of
       disruptive tactical litigation.
318. In implementing the Takeovers Directive, the bill provisions seek to both
recognise the new legal environment imposed by the Directive (and the need to
underpin UK takeover regulation by appropriate statutory provision) whilst at the
same time preserving the benefits of the existing regulatory system overseen by the
Panel; notably the flexibility, certainty and speed of its decision-making processes
and the intrinsic involvement of business and City interests in the activities of the
Panel.
319. The bill provisions, therefore, place the regulation of the process of takeovers
in the UK (as opposed to assessment of their merits) within a complete and
coherent statutory framework for the first time. The Part contains minimal
constitutional provisions in relation to the Takeover Panel, confers upon the Panel
statutory rule-making powers and has provisions related to matters such as
enforcement of Panel decisions, information gathering and sanctions for breach of
the Panel’s rules.
320. Effect is also given to provisions of the EU Takeovers Directive related to
barriers to takeovers of companies. There are additional provisions related to
disclosures by companies traded on a regulated market and amending Part 13A of
the 1985 Act concerning the problems of, and for, residual minority shareholders
following a successful takeover bid (so-called “squeeze-out” and “sell-out” rights).
321. As substantive primary legislation is being made for the first time in the
majority of the field related to takeovers, all but one of the proposed powers are
new. It is intended under the bill that the Takeover Panel retain substantial
constitutional and regulatory independence and the powers are framed to reflect
that intent. The proposed powers may be summarised as follows:
       • a duty for the Takeover Panel to make rules giving effect to specified
           provisions of the Takeovers Directive and a power enabling the Panel

                                         52
           to make other rules concerning takeover bids, mergers, other types of
           corporate control transactions and associated matters (clause 618);
       • a power to change, by order, Schedule 2 to the bill. Clause 623 contains a
           general prohibition on the disclosure of information provided to the
           Takeover Panel in connection with the exercise of its functions.
           Schedule 2 sets out the allowable disclosures, in respect of persons,
           functions and overseas bodies, of information (clause 623);
       • a power to impose a levy, by regulations, on certain classes of persons or
           bodies and transactions in securities on financial markets to fund
           expenses of the Takeover Panel (clause 633);
       • power to extend the provisions of Part 22, Chapter 1 to the Isle of Man
           or any of the Channel Islands by Order in Council (clause 640);
       • power to extend the provisions of Part 22, Chapter 2 to the Isle of Man
           or any of the Channel Islands by Order in Council (clause 648);
       • power to extend the exclusion from clause 641 (which enables companies
           to “opt in” to a regime whereby special rights or restrictions in the
           company’s articles of association or in contractual agreements which
           impede their being taken over cease to apply in certain circumstances
           connected with a takeover) of companies in respect of which special
           rights are held, so that the exclusion may cover companies in respect of
           which such rights are held by persons or bodies exercising functions of
           a public nature specified by order as well as companies in respect of
           which such rights are held by a Minister (clause 641); and
       • power to prescribe the manner in which an offeror must give notice,
           where applicable, to any shareholder who has not accepted the offer of
           compulsory “sell-out” rights that are exercisable (clause 650, Schedule
           3, paragraph 4, amending section 430A(3) of the 1985 Act).

Consultation on the proposed powers under Part 22
322. A full public consultation exercise was carried out between January and April
2005 on the proposals to implement the Takeovers Directive. This included
detailed consideration of the policy underlying the proposed rule-making powers
to be granted to the Takeover Panel and the proposed levy power to be afforded to
the Secretary of State in connection with the expenses of the Panel. The
Government response and the summary of responses to this consultation was
published in July 2005 together with draft legislative provisions containing the first
five of these new proposed powers.

Clause 618: Rules
323. There are two important new powers in clause 618 for the Panel to make
rules. The first is a duty requiring the Panel to make rules to give effect to specified
articles of the Takeovers Directive. The Panel’s rule making power in this respect
will be constrained by the Directive requirements. The second power enables the
Panel to make further rules in relation to types of transactions (takeovers, mergers,
etc.) related to a change in control of companies and for related matters. Clause
618 is supplemented by further specific provisions relating to the rules made by
the Panel (clause 619 (further provisions about rules)); and there is further
provision for rules under clause 618 to provide for the giving of directions (clause
621), hearings and appeals (clause 626), the imposition of sanctions (clause 627),
                                          53
the designation of rules as giving effect to provisions in the Takeovers Directive
about offer and response documents for the purpose of the offences of failing to
comply with those rules (clause 628), the ordering of the payment of
compensation (clause 629), and the imposition of fees and charges (clause 632).
324. Whilst these powers are new, they reflect the existing position whereby the
existing non-statutory “City Code on Takeovers and Mergers and The Rules
Governing Substantial Acquisitions of Shares” is maintained and amended by the
Takeover Panel. The Code is presently recognised by statute under section 143 of
the Financial Services and Markets Act 2000, which enables the Financial Services
Authority to make rules endorsing the Code. (This endorsement provision is
repealed by the bill.) The authority of the Code has also been explicitly recognised
by the courts (R v Panel on Take-overs, ex parte Datafin plc [1987] QB 815).
325. The Panel published on 18 November 2005 a consultation paper (“The
Implementation of the Takeovers Directive–Proposals Relating to Amendments to
be Made to the Takeover Code”) setting out proposals for the changes that will be
made to the existing Code to give effect to the new legislative regime created by
the Directive and the bill in making their rules. Comments on the consultation
paper may be made until 10 February 2006. The Panel’s consultation paper is
available on the website of the Panel at: www.thetakeoverpanel.org.uk/new.
326. With particular regard to the proposed power to be extended to the Panel
under clause 627 to impose sanctions, the current position is that the Panel’s
sanctions regime, which is set out in the Introduction to the “City Code on
Takeovers and Mergers and Rules Governing Substantial Acquisition of Shares”
and which it is envisaged will remain in place under the bill, provides for private
and public statements of censure of persons in breach of the Code and removal of
special “exempt” status afforded by the Panel. Particularly flagrant breaches may
lead to the Panel publishing a statement indicating that the offender is someone
who is not likely to comply. The rules of the Financial Services Authority and
certain professional bodies oblige their members, in certain circumstances, not to
act for such persons in a transaction subject to the Code, including dealing in
relevant securities requiring disclosure under rule 8 of the Code (so-called “cold-
shouldering”), and this may continue in respect of transactions subject to Panel
rules after the bill comes into force. The Panel will also be able to pass information
concerning breaches of the rules to other regulatory authorities and professional
bodies by virtue of the statutory “gateways” set out at clause 623 and Schedule 2.
327. The power at clause 629 enabling the Panel to require compensation to be
paid has intentionally been narrowly drawn and relates only to circumstances in
which a Panel rule is breached which requires “the payment of money” (for
instance, the payment by the bidder to shareholders of any difference between the
price actually paid and any higher price for shares that the bidder should have paid
under the rules) together with interest.
328. The relevant draft provisions in the revised “Introduction” to the proposed
Panel rules in relation to compensation and sanctions are set out respectively at
pages 97 (paragraph 10(c) (compensation rulings)) and pages 97 and 98
(paragraph 11 (disciplinary powers)) of the consultation document published by
the Panel on 18 November.
329. The rules must be made by a committee of the Panel, except for those rules
relating to fees and charges which may be made by the full Panel (clause 618(4)
and (5)). The rules must provide that no person who is a member of the
committee of the Panel responsible for making rules may also participate in the

                                         54
appellate functions of the Panel (as a member of the Hearings Committee or
Takeover Appeal Board or representing the Panel in such proceedings) (clause
626(5)).
330. In respect of the power to impose fees and charges under clause 632, it is
current practice for the Finance Committee of the Panel to make
recommendations to the full Panel which will take decisions as to the level of fees
to be set (rather than the level of fees being determined by a committee of the
Panel), and it is intended to permit the level of such fees to continue to be laid
down in this way. Accordingly, the general requirement that rules be made by a
committee of the Panel is dispensed with in relation to the power of the Panel to
impose fees and charges under clause 632.

Clause 623: Restrictions on disclosure
331. There is a delegated power in respect of the disclosure provisions relating to
information provided to the Takeover Panel. Schedule 2 (introduced by clause
623) sets out “gateways” for onward disclosure of that information, that is to say
the persons or bodies to whom the information may be passed and the conditions
that must be met for passing the information to overseas regulatory bodies. The
Secretary of State may by order amend Schedule 2 (clause 623(4)). While a power
to change primary legislation, this is narrowly designed for the purpose of addition
to or amendment or reduction of the gateways. It is possible that the bodies or
their functions listed in the Schedule will change over time. In addition, the
situation internationally is in a particular state of flux at present. It is therefore
sensible to have the ability to make changes to the allowable onward disclosures
through secondary legislation. The power is subject to the negative resolution
procedure and the Government considers this appropriate in view of the nature of
the Schedule which can be amended under the power.
332. This power is closely modelled upon the power conferred upon the Secretary
of State in respect of the disclosure gateways extended to the Financial Reporting
Review Panel Limited by section 245G(4) of the 1985 Act (inserted by section 12
of the Companies (Audit, Investigations and Community Enterprise) Act 2004).
That provision was subject to consideration by the Select Committee on Delegated
Powers and Regulatory Reform (Fourth Report of Session 2003–04 (HL 21))
which concluded (paragraph 7), in that case, that such a power was “appropriate
so long as the power to add categories of person or disclosure were limited to
public or other authorities and the purpose of facilitating the exercise of public
functions”. The present clause (subsection (5)) precludes the prescription of any
person or description of disclosure unless the person exercises functions of a public
nature or facilitates the exercise of a function of a public nature.

Clause 633: Levy
333. This clause empowers the Secretary of State to impose a levy, by regulations,
on certain classes of persons or bodies and transactions in securities on financial
markets to fund expenses of the Takeover Panel. Persons or bodies upon whom
the levy may be imposed are limited to those capable of being directly affected by
the exercise of any of the Panel’s functions or having a substantial interest in the
exercise of those functions. The power is complementary to the power given to the
Takeover Panel by clauses 618 and 632 to require the payment of fees and
charges. These provisions are designed to replicate under the legislative regime the
existing non-statutory basis on which the Panel’s operations are funded, i.e. largely
through “document charges” on individual takeover transactions and a levy on

                                         55
contract notes collected by member firms of the London Stock Exchange. The
levy power is designed so as to preserve the Takeover Panel’s independence by
ensuring security of funding for the Panel so that it cannot be unduly influenced
by its funders. It is hoped, however, that funders will continue to contribute on a
voluntary basis and that it will not therefore be necessary to use the levy.
334. If a levy does have to be imposed, the level at which it is set is likely to have to
be adjusted from time to time. For this reason, it is considered that the levy should
be set by means of secondary legislation. Since the first use (if any) of the levy
could be several years in the future, it would be appropriate for Parliament to have
the opportunity to debate, under the affirmative procedure, the level at which the
levy should be set and the classes of body that should be required to pay it. The
Government considers that subsequent regulations varying the amount of the levy
should be subject to negative resolution. However, if second or subsequent
regulations should change the bodies or persons who will be required to pay, the
Government considers that the affirmative procedure would be appropriate.
335. This power is closely modelled upon the power for the Secretary of State to
impose a levy on certain classes of body to fund the costs of a body concerned with
accounting standards (inserted by section 17 of the Companies (Audit,
Investigations and Community Enterprise) Act 2004). That power was considered
by the Select Committee on Delegated Powers and Regulatory Reform (Fourth
Report of Session 2003–04 (HL 21)) and was considered to be appropriate and
subject to an appropriate level of Parliamentary Scrutiny.

Clauses 640 and 648: Power to extend to Isle of Man and Channel Islands
336. Her Majesty will have power by Order in Council to extend provisions of
Chapter 1 (The Takeover Panel) and Chapter 2 (Impediments to Takeovers) to
the Isle of Man and the Channel Islands. The jurisdiction of the Takeover Panel
and the Code presently extends to the Isle of Man and the Channel Islands. The
Isle of Man and the Channel Islands would be consulted before the power was
used. The power to extend financial services related legislation in this manner to
the Isle of Man and the Channel Islands has parallels with section 430 of the
Financial Services and Markets Act 2000 to similarly extend provisions of that
Act. The power is considered appropriate and necessary to ensure that changes
made by the present bill can be reflected throughout the jurisdiction to which the
Panel’s rules and authority currently apply.

Clause 641: Power to extend categories of companies excluded from opt-in procedure where
special rights are held by the member state
337. There is a delegated power for extending the scope of the provision which
excludes companies in which ministers hold special rights (“Golden Shares”) from
the “opt-in” provisions. The opt-in provisions (clauses 641 to 644) enable
companies whose shares are traded on a regulated market to elect (by resolution of
the company) to be subject to a regime whereby special rights or restrictions in the
company’s articles of association or in contractual agreements cease to apply in
certain circumstances connected with a takeover. The opt-in procedure
(implementing Articles 11 (“breakthrough”) and 12 (“optional arrangements”) of
the Takeovers Directive) is designed to increase the openness of takeover markets
by allowing companies to voluntarily agree to the removal of certain barriers to
takeovers. However, the Directive provides that the removal of those barriers–
”breakthrough”–”shall not apply either where Member States hold securities in the
offeree company which confer special rights on the Member States which are

                                           56
compatible with the Treaty, or to special rights provided for in national law which
are compatible with the Treaty…” (Article 11.7). The intention behind this
provision was that it should not be possible for rights of Member States
compatible with the Treaty in companies to be overridden by means of the
breakthrough procedure.
338. Clause 641(4) gives effect to the provisions of Article 11.7 of the Takeovers
Directive by making it a condition before a company is able to “opt-in” that the
company does not have shares conferring special rights held by a Minister
(including a nominee of a Minister and Scottish and Northern Ireland Ministers)
and that such rights are not exercisable under any enactment. This provision is
designed to capture “Golden Share” rights held by or on behalf of the
Government. However, such rights might also be held by a person other than a
Minister, such as by a local authority or other public body. The power is,
therefore, provided to ensure that any future such special rights might be similarly
excluded from the opt-in procedure. The exercise of the power is constrained by
the provisions of the Directive itself, as no special rights could be excluded which
were not compatible with the Treaty. It is, therefore, considered that any such
extension of the provisions of clause 641(4) should be subject to the negative
resolution procedure.

Clause 650, Schedule 3, paragraph 4: Manner of notice to shareholder of sell-out rights
339. Clause 650 introduces Schedule 3 to the bill which makes amendments to
Part 13A (Takeover Offers) of the 1985 Act in order both to implement the
Takeovers Directive and to make changes arising from recommendations of the
CLR. Consequential amendments are made by paragraph 4 of Schedule 3 to
section 430A(3) of the 1985 Act which requires the offeror to give notice to any
shareholder who has not accepted the offer where “sell-out” rights have arisen
(that is the right, in certain circumstances, for a residual minority shareholder to
require that the offeror purchase their shares). Both in the existing Companies Act
1985 provision and the amended provision in Schedule 3, it is required that the
notice be given by the offeror in “the prescribed manner.”
340. The reference to “prescribed” means prescribed by the Secretary of State by
statutory instrument by virtue of section 744 of the 1985 Act (which is retained by
the bill). The regulations to be made by the Secretary of State in this regard will
not be subject to any form of Parliamentary scrutiny.
341. The power to prescribe the manner in which such a notice is given in relation
to sell-out rights mirrors the provision under section 429(4) concerning the
manner in which the offeror must give notice of his intention to exercise “squeeze-
out” rights (rights of the offeror to compulsorily purchase the shares of minority
shareholders in certain circumstances following a takeover). This provision is not
amended by the bill. In relation to the provisions at both section 429(4) and
section 430A(3), the relevant manner in which notice must be given is currently
set out in the Companies (Forms) Amendment Regulations 1987 (SI 1987/752).
342. In view of the fact that the matters to be prescribed will be narrowly confined,
relating to the form and means by which “sell-out” notices are given in accordance
with the legislation, and will mirror the position with regard to “squeeze-out”
notices, the Government considers that it is appropriate for the exercise of this
power to be free from Parliamentary scrutiny.




                                            57
Part 23: Company investigations
343. This part inserts new sections 446A to E, make consequential changes to
other sections within Part 14 and extends the Company Directors Disqualification
Act 1986 by extending the definition of investigative material.
344. The underlying policy is that the Secretary of State, who appoints inspectors,
should also have powers to bring to an end any investigation when it is no longer
in the public interest to continue with it. In addition, he should have powers to
revoke the appointment of any inspector and issue directions that, broadly
speaking, give him an element of control over the scope of an investigation, its
duration and/or certain other matters.
345. There has been concern as to the time some investigations have taken and
these clauses give the Secretary of State powers to take appropriate action to
ensure the public interest in such investigations is properly served. The clauses
also provide for situations not currently explicitly provided for, such as the
resignation or death of inspectors, and the ability to appoint replacement
inspectors.
346. No delegated legislative powers are conferred under this Part.

Part 24: UK companies not formed under the Companies Acts
347. This Part deals with companies not formed under the Companies Acts.
Chapter 1 deals with companies not formed but authorised to register under the
Companies Acts. At present, certain companies incorporated within Great Britain,
but not formed under the Companies Acts (or other earlier Companies Acts), may
apply to register under the 1985 Act. Chapter 1 of this Part enables regulations to
be made for and in connection with the registration of such companies under the
Companies Acts, and as to the application of the Companies Acts to companies so
registered. Chapter 2 of this Part enables regulations to be made applying
provisions of the Companies Acts to certain unregistered companies.

Clause 657: Power to make provision by regulations
348. Clause 655 enables certain companies not formed under the Companies Acts
to register under the Companies Acts. This is a voluntary process. Clause 657
confers on the Secretary of State a new power to make regulations for and in
connection with this registration and as to the application of the provisions of the
Companies Acts to companies so registered (including by virtue of clause 658
companies registered under equivalent procedures in earlier Companies Acts).
The regulations will cover the procedural requirements for registration, the
conditions to be satisfied before registration and the documents to be supplied on
an application for registration. The regulations will also set out the consequences
of registration, including the status of the company following registration, its
constitution and capital structure following registration, the vesting of property,
savings for existing liabilities, continuation of existing actions and other matters
connected with registration as a Companies Act company.
349. At present, certain companies incorporated within Great Britain, but not
formed under the Companies Acts (or other earlier Companies Acts), may apply
to register under the 1985 Act. The matters concerning the registration, including
its procedure, conditions and consequences, are currently contained in sections
681 to 690 as well as Schedule 21 to the 1985 Act. Regulations under this clause
will take the place of those provisions, and may make provision corresponding to
them.
                                          58
350. These provisions are considered to be suitable for secondary legislation. The
registration procedure is likely to be used by a relatively small number of
companies. It would be inconsistent with the general objective to increase the
accessibility of company legislation to include in the bill specialised procedures
which will not be relevant to the vast majority of companies. The regulations will
be detailed and largely technical in nature, such as in setting out the procedure for
registration; provision of this kind is better suited to secondary legislation.
351. The regulations will be subject to the negative resolution procedure. This is
considered appropriate as they will contain technical detail and specialised
procedures and the subject itself is not regarded as contentious.

Clause 659: Unregistered companies
352. Clause 659 confers on the Secretary of State a power to make regulations to
apply provisions of the Companies Acts to unregistered companies. These are
companies not formed or registered under the Companies Acts or under any other
public general Act of Parliament. Examples include companies formed under
private Acts of Parliament, royal charter and letters patent.
353. The regulations may only apply to unregistered companies incorporated in
the UK and having their principal place of business in the UK. Not-for-profit
companies and open-ended investment companies are also exempted. Subsection
(1) confers on the Secretary of State a power to make directions exempting other
bodies from the application of the regulations.
354. Regulations made by the Secretary of State under this clause may specify
provisions of the Companies Acts applying to all or specified descriptions of these
unregistered companies. The regulations may also adapt and modify provisions of
the Companies Acts in their application to unregistered companies. The
regulations may impose limitations on the application of the provisions of the
Companies Acts to unregistered companies.
355. The powers in this clause replace powers in section 718 of the 1985 Act and
the provision made in Schedule 22 to that Act. The Secretary of State’s power to
exempt unregistered companies by direction is the same as the power to make
directions in section 718(2)(c) of the 1985 Act.
356. The power in subsection (2) to specify the provisions of the Companies Acts
applying to all or specified descriptions of unregistered company is new. Currently
Schedule 22 to the 1985 Act specifies the provisions of the 1985 Act applying to
unregistered companies. Regulations will take the place of Schedule 22.
357. The power in subsection (3) to adopt and modify the application of the
provisions of the Companies Acts to unregistered companies is derived from a
similar power in section 718(1). The power to impose limitations on the
application of the provisions of the Companies Acts to unregistered companies is
partly new. Currently, some limitations are mentioned in Schedule 22, but in
some cases Schedule 22 provided for the limitations to be imposed by regulations
under section 718(3).
358. Currently, section 718 of the 1985 Act uses a combination of provisions set
out in Schedule 22 and regulations (currently the Companies (Unregistered
Companies) Regulations 1985). It is considered appropriate to replace this with
regulations so that the requirements applying to unregistered companies may be
set out in one place. The requirements will only apply to a relatively small number
of companies, they will not apply to companies formed or registered under the

                                         59
Companies Acts. It would be inconsistent with the general objective to increase
the accessibility of company legislation to include in the bill specialised provisions
which will be of no relevance to the vast majority of companies. The regulations
will be technical; provision of this kind is considered better suited to secondary
legislation.
359. The ability to update the regulations is important. The regulations will be
able to ensure that unregistered companies are regulated in a similar manner to
companies formed under the Companies Acts, but that appropriate modifications
may be made to reflect the fact that the companies are not formed under the
Companies Acts. As company law and business practices develop, it may be
necessary to reflect those developments in the way in which, or the extent to
which, the Companies Acts are applied to unregistered companies. For example,
the Company Law Review recommended that those areas of company law which
presently apply to unregistered companies should continue to apply, and that
certain additional provisions should apply as far as practicable.
360. Unregistered companies may be formed under private Acts of Parliament,
royal charter and letters patent, so they may be quite diverse in their form and
structure. Therefore, it is necessary for the regulations to be able to make varying
provision, and for the Secretary of State to be able to direct that particular
unregistered companies may be exempted completely.
361. The regulations will be subject to the negative resolution procedure. This is
appropriate as the same procedure applies to regulations under section 718 of the
1985 Act, which is replaced by this clause. Also, the exercise of the power is
unlikely to be contentious. Directions of the Secretary of State under subsection
(1) exempting bodies from regulations under this clause will not be made by
statutory instrument, and will not be subject to any parliamentary procedure. This
is currently the case with the equivalent provision in section 718(2)(c) of the 1985
Act.

Part 25: Oversea companies
362. This Part of the bill relates to oversea companies and it will, together with the
regulations to be made under it, replace the provisions made by Part 23 and
Schedules 21A–D of the 1985 Act. The regulations will enable registration,
reporting and disclosure requirements to be imposed on oversea companies and
will take into account CLR recommendations and the requirements of European
law.
363. Attention is drawn to the powers in this Part. These important powers will
determine registration, reporting and disclosure requirements imposed by
company law on oversea companies, including the range of companies to which
the requirements apply and offences for their breach. Regulations replace the
current provisions of the 1985 Act as developing European case law suggests that a
rethink may be necessary as to the regulatory requirements that may be imposed
on oversea companies.

Clause 661: Duty to register particulars
364. This clause confers on the Secretary of State a new power to make
regulations to require oversea companies to register particulars with the registrar of
companies. The regulations will continue to implement the requirements of
articles 1, 2, 4, 5, 7 and 8 of Directive 89/666/EEC (Eleventh Company Law
Directive of 21 December 1989 (disclosures by branches of companies

                                           60
incorporated outside the relevant member state)), which means that an oversea
company must register any branches that it has in the United Kingdom.
365. The regulations may require oversea companies to register particulars with
the registrar of companies not only when they set up branches in the United
Kingdom, but also in such other circumstances as may be specified in the
regulations.
366. The regulations will specify the information to be included in the registration
and any documents that are to be sent to the registrar. This must include details of
the name under which the company wishes to be registered (clause 662(1)) and
details of one or more persons resident in the United Kingdom who are authorised
to accept service of documents on the oversea company’s behalf (clause 669).
367. If the regulations require an oversea company to register particulars of an
individual’s usual residential address, then the regulations must also enable the
individual to apply for a non-disclosure certificate in respect of his or her usual
residential address (clause 668).
368. In such a case, clause 668 extends the Secretary of State’s power to make
regulations under this clause by requiring the regulations to include provision
corresponding to that made by chapter 8 of Part 10 (directors’ residential
addresses: non-disclosure certificates).
369. Regulations under this clause may be used in conjunction with clause 694 to
specify positions held in a registered oversea company in respect of which
provision for unique identifiers may be made. Unique identifiers are reference
numbers to identify persons registered on the register. In the case of oversea
companies, such positions may, for example, include directors and permanent
representatives.
370. Regulations under this clause may also be used in conjunction with clause
747 to specify positions held in a registered oversea company so that documents
may be served on the registered address of any person holding any such position.
371. The regulations under this clause may also require the oversea company to
inform the registrar of any changes in the particulars or documents it has
registered. The regulations may impose deadlines for sending the information to
the registrar and may specify the registrar to which the information is to be sent.
372. In addition to the general power in clause 878 to make different provision for
different cases, the regulations may make different provision according to the place
where the company is incorporated and the activities carried on by it.
373. The regulations will replace the current registration regimes for oversea
companies in Part 23 and Schedules 21A–B to the 1985 Act.
374. The CLR made a number of recommendations in respect of oversea
companies and proposed that the place of business and branch regimes should be
aligned. This proposal was reviewed following recent ECJ cases (Centros,
Uberseering, Inspire Art) which may have implications for the regulatory
requirements which can be applied to European companies operating in the UK.
375. In the view of the CLR, the rules on oversea companies form a largely self
contained topic that might more usefully be included in a separate set of largely
free-standing provisions. The CLR also described oversea companies as a
specialist field not encountered by most users of the 1985 Act. The draft clauses
produced by the CLR relied heavily on secondary legislation for the detailed
requirements.

                                        61
376. The regulations will be detailed and largely technical in nature; provision of
this kind is better suited to secondary legislation.
377. It may be necessary to update the regulations over time, to respond to
changing business practices and business need, as to the information that should
be made available on the public register in respect of oversea companies.
378. Regulations made under this clause will be subject to the affirmative
resolution procedure. This procedure has been chosen as it is not currently clear as
to the extent to which it is desirable to go beyond the requirements of the Eleventh
Company Law Directive in the regulation of oversea companies. There is likely to
be a number of options that could be put into place and Parliament will have an
interest in the course adopted.

Clause 664: Accounts and reports: general
379. This clause confers on the Secretary of State a power to make regulations
requiring a registered oversea company to prepare the like accounts and directors’
reports, and to cause to be prepared such an auditor’s report, as would be required
if the company were formed and registered under the bill. Regulations may require
the oversea company to deliver copies of these accounts and reports to the
registrar, or alternatively the regulations may require the oversea company to
deliver to the registrar a copy of the accounts and reports that it was required by its
parent law to prepare and have audited. The regulations may apply any of the
provisions of Part 15 and Part 16 which concern the accounts and reports of
companies formed and registered under the bill, and their audit. The regulations
may modify those provisions in their application to oversea companies.
380. Regulations under this clause will continue to implement articles 3 and 9 of
Directive 89/666/EEC (Eleventh Company Law Directive of 21 December 1989
(disclosures by branches of companies incorporated outside the relevant member
state)). These articles impose accounting disclosure requirements on companies
that set up branches in a Member State other than their State of incorporation.
These articles are currently implemented by section 699AA and Schedule 21D to
the 1985 Act.
381. Those oversea companies that are not subject to the branch disclosure
regime, but which have established a place of business in the United Kingdom, are
subject to the accounting disclosure requirements contained in sections 700–703
of the 1985 Act. Section 700 of the 1985 Act currently allows the Secretary of
State by order to modify the accounting disclosure requirements imposed on such
companies. The Oversea Companies (Accounts) (Modifications and Exemptions)
Order 1990 was made under this power. The powers conferred on the Secretary of
State by this clause are based on the power in section 700 of the 1985 Act, but
extends it, so that regulations may apply and modify the accounting disclosure
requirements for all registered oversea companies.
382. This matter is considered suitable for regulations because it consists of
detailed and technical disclosure requirements. The flexibility conferred by
regulations will enable the requirements imposed on oversea companies to keep up
with changes in the accounting, reporting and audit requirements imposed on
companies formed under the bill. For example, the current disclosure
requirements imposed under section 700 of the 1985 Act were criticised by the
CLR as having been superseded and bearing little resemblance to the present
accounting requirements for UK and other EC companies.


                                            62
383. Regulations made by this clause will be subject to the negative resolution
procedure. This is consistent with the procedure currently applying to regulations
under section 700 of the 1985 Act, from which this clause is partly derived. Also,
the regulations are limited by subsection (1) so that they may only impose
requirements that are like those imposed by the bill on companies formed under
the bill.

Clause 665: Accounts and reports: credit or financial institutions
384. This clause confers on the Secretary of State a power to make regulations
requiring credit or financial institutions incorporated or otherwise formed outside
the United Kingdom and Gibraltar, whose head office is outside the United
Kingdom and Gibraltar and having a branch in the United Kingdom, to prepare
the like accounts and directors’ report, and to cause to be prepared such an
auditor’s report, as would be required if the credit or financial institution were a
company formed and registered under the bill. The power to make regulations
under this clause takes the same pattern as under clause 664.
385. Regulations may require the oversea credit or financial institution to deliver
to the registrar copies of the accounts and reports prepared in accordance with the
regulations, or alternatively the oversea company may be required to deliver to the
registrar a copy of the accounts and reports that it is required by its parent law to
prepare and have audited. The regulations may apply any of the provisions of Part
15 and Part 16 which concern the accounts and reports of companies formed and
registered under the bill, and their audit. The regulations may modify those
provisions in their application to oversea credit or financial institutions.
386. Regulations under this clause will continue to implement the Bank Branches
Directive (Council Directive 89/117/EEC of 13 February 1989). This directive is
currently implemented by section 699A and Schedule 21C to the 1985 Act.
387. This matter is considered suitable for regulations because it consists of
detailed and technical disclosure requirements. The regulations will not be
relevant to the vast majority of companies, as they will only apply to oversea credit
and financial institutions.
388. Regulations under this clause will be subject to the negative resolution
procedure. This is the same as the procedure applying to the similar power in
clause 664. The regulations are limited by subsection (3) so that they may only
impose requirements that are like those imposed by the bill on companies formed
under the bill.

Clause 666: Trading disclosures
389. Clause 666 confers on the Secretary of State a power to make regulations as
to the information that oversea companies must display in specified locations,
include in specified documents or communications, or provide to those who make
a request in the course of business. This is a new power. Regulations made under
this clause will replace the provision made by section 693. This clause
complements the similar power under clause 82 to make regulations imposing
trading disclosure obligations on companies formed and registered under the
Companies Acts.
390. Regulations under this clause may require every oversea company carrying on
business in the UK:



                                             63
       • to display a sign with specified information, e.g. its name, at specified
           locations;
       • to     include specified information       in   specified   documents     and
              communications; and
       • to provide specified information to those who request it in the course of
           business.
391. They may also make provision corresponding to that made in clauses 83 and
84 in respect of a failure by a company formed and registered under the
Companies Acts to comply with the trading disclosure requirements imposed on
them by regulations under clause 82.
392. Regulations under this clause will be subject to the affirmative resolution
procedure (as is the case under clause 82).

Clause 667: offences
393. This clause enables regulations under this Part of the bill to create criminal
offences. But the offences must relate to matters falling within this Part of the bill.
394. Regulations made under this Part of the bill may specify requirements of the
regulations which are to give rise to a criminal offence if breached. The regulations
may also make provision for defences and for what is not to be a defence. The
regulations may set different maximum penalties for breaches of different
requirements under the regulations. This will enable the offences to reflect the
importance of the requirement. The maximum criminal liability that the
regulations may impose for an offence is an unlimited fine on indictment, or on
summary conviction, a fine not exceeding level 5 on the standard scale (currently
£5,000) or a daily default fine not exceeding one-tenth of that.
395. Clause 667 enables regulations made under this Part of the bill in respect of
oversea companies and oversea credit or financial institutions to specify the
persons responsible for complying with the regulations (or any specified part of
them). For example, Part 23 of the 1985 Act places most disclosure obligations on
the oversea company, but in some cases the obligation is placed on another
specified person, such as a liquidator (section 703P(3) of the 1985 Act).
Regulations made under this Part will be able to make such provision.
396. The regulations may specify on whom the criminal penalty is to fall. This
flexibility is necessary given that the person held liable varies depending on the
disclosure requirement. For example, under section 703P(1) of the 1985 Act,
liquidators are held liable for a failure to deliver a return to the registrar when the
company begins winding-up, while under section 703Q(1) of the 1985 Act it is the
directors who are guilty of an offence if they fail to deliver a return when the
company becomes subject to insolvency proceedings.
397. This will allow regulations under this Part to reflect the general approach
taken elsewhere in the bill, that where the company is a victim rather than the
perpetrator, the company should not be treated as being guilty of an offence.
398. The Parliamentary procedure is either the negative resolution procedure or
the affirmative resolution procedure depending on the power under which the
regulations are made under this Part. So the affirmative resolution procedure will
apply to regulations creating offences for breach of requirements imposed by
regulations under clause 661 and clause 666. The negative resolution procedure
will apply in the case of regulations under clauses 664 and 665.

                                          64
Part 26: The registrar of companies
399. This Part largely replaces Part 24 of the 1985 Act, and sets out the basic
functions of the registrar of companies (i.e. for most purposes Companies House).
The new clauses implement a number of CLR recommendations the policy
intention of which is broadly to ensure that the system for companies to file
information with the registrar (Companies House) is kept as efficient and
business-friendly as possible. Several of the new provisions therefore focus, for
example, on encouraging and exploiting new forms of e-communication.
400. The new clauses contain a number of delegated powers, as follows.

Clause 674: Fees payable to the registrar
401. This clause gives the Secretary of State a power to set fees by regulation in
relation to any function of the registrar and in relation to the provision of services
and facilities incidental to her functions. It replaces section 708 of the 1985
Companies Act, but provides more information (subsections (2) and (3)) on the
types of issue which may be covered within the regulations, although these lists are
not exhaustive.
402. It is intended that, as now, fees relating to the normal statutory obligations of
companies under companies legislation will be set out in these regulations made by
the Secretary of State. However, on occasions it is also necessary to enable fees to
be charged for (for example) ad-hoc and bespoke discretionary services which the
Registrar wishes to provide for business. The existing Companies Act (section 708
(5)) makes clear that the registrar can herself determine fees for services for which
there is no direct legal obligation. The new subsection (5) replaces this with a
more general ability for the registrar to determine fees where no fee has been set in
regulations by the Secretary of State. Such fees might relate for example to the
rapid introduction of new services (e.g. those made possible by new technologies)
which could not have been anticipated when the Secretary of State last made fees
regulations; or for services such as seminars and road shows which the Registrar
arranges.
403. At the moment, under the 1985 Companies Act, regulations are subject to
the negative resolution procedure where they maintain, reduce or remove fees, and
affirmative procedure where they increase or introduce new fees. Once made they
cease to have effect after a period of 28 days unless during that period the
regulations have been approved by resolution of both Houses of Parliament. It is
now considered by the Government that the requirement for Parliamentary
debates and votes on each occasion that fees regulations are made which introduce
new fees or increase present fees is unnecessarily onerous for regulations of this
nature. On most occasions, regulations provide for an increase of fees because of
revalorisation; and it should be noted that Companies House is a trading fund,
operating on a cost-recovery basis. Overall, fees charged by the registrar must
therefore balance the costs of providing the service, and this in itself provides an
effective protection against the introduction of excessive or anomalous fees. For
this reason the Government considers that the Parliamentary scrutiny provided by
a requirement to have the regulations confirmed by a resolution of both Houses is
not appropriate in these circumstances, and it is therefore proposed that
regulations made by the Secretary of State under this clause will be subject to the
negative resolution procedure.




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Clause 679: Prescribed forms etc
404. This clause provides that a reference in any enactment to prescribing, in
relation to the form of a document to be delivered to the Registrar, or the manner
of certifying the correctness of a translation or copy to be delivered to the registrar,
means prescribed by the registrar. This means prescribed in “registrar’s rules”
under clause 725. Presently, regulations of this nature are made by the Secretary
of State under sections referring to prescribed forms, read with section 744 of the
1985 Act (see for example the Companies (Forms) Regulations 1985). These
regulations are not subject to any Parliamentary procedure.
405. Under the bill it is expected that most forms to be “prescribed” by the
registrar will be so prescribed under clause 680. However, there are some express
references to forms being prescribed in respect of documents sent to the registrar.
This clause provides that such references are to be read as forms prescribed by the
registrar under her rules.
406. It not considered that the requirement for Secretary of State to make the
regulations adds value to the process of prescribing forms. It is therefore
appropriate that these requirements in future should be set under registrar’s rules.
These rules will not be subject to Parliamentary scrutiny or procedures (thus
mirroring what happens at present in respect of regulations of this nature made
under the present powers, which are not subject to Parliamentary procedures).
407. It is of course in everyone’s interest to ensure that forms are properly
publicised and clause 725(3) makes appropriate provision. The registrar in
practice expects to ensure in all cases that new or amended forms will be tested
with user representatives before introduction, and published in advance (for
example on the website)

Clause 680: Registrar’s requirements as to form and manner of delivery
408. This clause provides that the registrar can impose requirements as to the
form and manner in which documents are to be delivered to the registrar. Such
requirements will generally be matters for registrar’s rules under clause 725.
However, it is considered that the registrar should be able to make purely practical
arrangements (for example designing a website for submitting data) without giving
details in the rules.
409. For this reason clause 725(1) provides that the power to make rules is
without prejudice to the making of provision or the imposing of such requirements
by other means.
410. Subsection (2) amplifies what is meant by “form and manner”. This includes
hard copy or electronic form, the means of communicating the document (for
example by post or electronic means), format (for example, that it is to be in a
standard form), the address to which the document is sent, and in the case of
electronic means, the hardware and software to be used and any technical
specifications required.
411. These matters are all things that are presently capable of being prescribed in
regulations under section 706, 707B or 744 of the 1985 Act (or are of a similar
nature to such provisions, taking account of developments in technology and the
provisions in the bill facilitating electronic communication and filing). As with
prescribed forms, it is appropriate that requirements relating to these essentially
practical matters of delivery should be exercised by the registrar who is best placed
to understand the logistic issues involved and gather feedback on proposals.

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412. Under subsection (3) the registrar may also:
       • require a document to be authenticated by a particular person or a
           particular description of persons (for example a lawyer engaged in the
           formation of the company);
       • specify the means of authenticating information which an enactment or
           registrar requires to be authenticated; and
       • require a document to contain or be accompanied by the registered
           number of the company to which it relates, and impose requirements
           so that a document can be scanned or copied.
413. The power to require documents to be authenticated by particular persons or
a class of persons is new. It generally replaces specific requirements which
currently exist in primary legislation as to who must authenticate documents or
classes of person who may do so and it is intended to provide flexibility for the
future, without setting such requirements out on the face of the legislation. It
means for example that the registrar’s rules may make provision for not only the
form of an application to form a company, but also as to who is to authenticate the
application form. Similarly they may make provision for the form of any
statements (including the statement of compliance) to accompany the application
form, and provide for who is to authenticate these statements.
414. Subsection (4) prevents requirements imposed under the clause being
inconsistent with or additional to requirements imposed by or under provisions of
the bill requiring or authorising delivery of documents to the registrar. This
prevents the registrar adding substantive requirements to what the bill already
requires.
415. Subsection (6) prevents the registrar requiring documents to be delivered by
electronic means but subsection (5) requires that the registrar must permit
documents to be delivered electronically from 1 January 2007, where they are
subject to disclosure requirements under European law requirements. This
provision, in part, implements elements of the amendments to the European First
Company Law Directive under Directive 2003/58/EC, which states that member
states must by 1 January 2007 permit companies to file all the “documents and
particulars” listed in Article 2 by “electronic means” (as defined in Article 3.8–and
set out in clause 690 of the bill).
416. Annex B provides a table showing which documents under the bill may be
subject to rules on the form and manner of delivery set by the registrar under the
power in this clause.

Clause 681: Power to require delivery by electronic means
417. This clause provides that the Secretary of State (not the registrar) will have a
new power to provide for electronic-only delivery of classes of document. Before
such requirements can become effective the registrar must have published rules
with respect to the detailed requirements of such electronic delivery (in other
words where it is clear precisely what the mechanism for the electronic
communication should be).
418. This power is not expected to be used in the short term. In making an order
under this power, the Secretary of State would necessarily be precluding the
possibility of more traditional communications between companies and the
registrar, which could potentially cause difficulties for some users unless and until
electronic communications have become a standard means of communication for
                                           67
all companies. For this reason, the power rests with the Secretary of State (rather
than being left as a matter for the registrar’ rules), and is to be subject to
affirmative procedure, thereby providing Parliament with the opportunity to
debate any proposed regulations of this nature.

Clause 683: Document not delivered until received
419. Clause 683(2) enables the registrar (by virtue of registrar’s rules under clause
725) to provide when a document sent to her is to be regarded as “received”. It
logically relates to her ability (under clause 680) to prescribe requirements as to
the delivery of documents. Examples of the sort of matter which might be
prescribed include stating that a document is formally received when it is opened
and recorded onto Companies House systems.

Clause 685: Informal correction of document
420. The clause sets out a process for the registrar to make informal corrections to
documents which she has received, where the originally-received document
appears to her to be incomplete or inconsistent. Such correction is only possible
on the instructions of the company concerned, and it is important that the registrar
should be able to satisfy herself that the instructions are “proper”. The registrar
may not act on any instructions unless they meet any requirements in the rules as
to the form and manner in which they are to be given and as to authentication.
These requirements would be created by registrar’s rules (clause 725).

Clause 686: Voluntary replacement of document previously delivered
421. This clause contains no delegated powers in itself, but provides that the
power contained in clause 680 (Registrar’s requirements as to form and manner of
delivery) includes the ability as necessary to make rules enabling a replacement
document to be readily associated with the original which it is replacing.

Clause 690: Documents subject to directive disclosure requirements
422. This clause lists the documents delivered to the registrar that are subject to
the disclosure requirements of Article 3 of the First Company Law Directive. The
effect of listing a document as subject to the Directive disclosure requirements is
to impose various obligations on the registrar, for example, to give public notice of
the receipt of the document.
423. As the disclosure requirements applying to oversea companies will be
imposed by regulations made under Part 25 (oversea companies) this clause
cannot list, in advance of those regulations, the precise documents that an oversea
company will be required to deliver to the registrar under those regulations.
424. It is also possible, that not all the documents that an oversea company
delivers to the registrar will require disclosure under Article 3 of the First
Company Law Directive (as amended, extended and applied). Therefore,
clause690 (3) confers a power on the Secretary of State to specify by regulations
which particulars, returns or other documents delivered by an oversea company,
should be subject to the Directive disclosure requirements.
425. The regulations will be subject to the negative resolution procedure, as they
are limited in nature, merely applying the directive requirements to oversea
companies, when the arrangements for oversea companies have been set out in the
regulations.

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Clause 693: Annotation of the register
426. The policy objective behind this clause is to ensure that the register is as
useful and transparent a source of information as possible for users. Hence, the
clause sets out certain circumstances in which the registrar is obliged to annotate
the information on the register to provide supplementary information. These
circumstances are set out in subsection (1). They include the date on which a
document is received by the registrar, the nature and date of corrections to
documents, the fact that a document has been replaced and the date of
replacement and where material has been removed, what has been removed, under
what power and the date on which this was done.
427. Subsection (2) provides the Secretary of State with a power to make
regulations authorising or requiring the registrar to annotate the register in other
circumstances as may be specified in the regulations, and also to make provision
for the contents of such annotations.
428. The power is intended to be used if it becomes clear that additional types of
annotation will be both practicable and useful to those who use or rely on the
register Since these regulations will in effect only be adding further detailed
matters to the existing list of circumstances in which the registrar must or may
annotate the registrar, and since the regulations only impose responsibilities on the
registrar herself, not companies, the negative resolution procedure is considered
appropriate.

Clauses 694: Allocation of unique identifiers
429. This clause provides for unique identifiers to identify certain persons, in
particular directors, whose details are on the public record. It confers power on the
Secretary of State to make regulations as to the form of the unique identifiers, their
allocation and the documents in which they are included.
430. This provision will complement the provision for non-disclosure certificates.
They will support the system whereby every director may have his home address
protected. They will also make it easier for researchers to check links between
individuals and the various companies of which they are, or have been, directors.
431. Regulations under this section will be subject to the affirmative resolution
procedure as Parliament should have the opportunity to debate rules relating to
how information about individuals is protected.

Clause 700: Form of application for inspection or copy
432. Clause 700(1) provides that the registrar may specify the form and manner in
which an application must be made for inspection of the register (under clause
697) or for a copy of material held on the register (under clause 698), just as
clause 680 allows the registrar to specify the form and manner of delivery of
documents to be delivered to her. As with the clause 680 power, these
requirements will be established by registrar’s rules under clause 725 and not be
subject to any Parliamentary procedures.
433. However subsection (2) makes clear that the as from 1st January 2007,
applications under those clauses may be submitted to the registrar in either hard
copy or electronic form in respect of documents subject to directive disclosure
requirements. However, this requirement though is not to affect the registrar’s
powers under subsection (2) to impose requirements in respect of other matters.


                                            69
Clause 701: Form and manner in which copies to be provided
434. This clause contains no substantive power in itself, but specifies (subsection
(4)) that, consistent with clause 680, the registrar has power to determine the form
and manner in which copy documents are to be provided, but subject to the other
provisions of the clause.

Clause 702: Certification of copies as accurate
435. This clause relates to the provision of copies of documents filed with the
registrar and held on the register. Copies provided in hard copy form must be
certified by the registrar unless the applicant dispenses with such certification (see
subsection (1)). Copies provided in electronic form, must not be so certified unless
the applicant expressly requests this (see subsection (2)). Such copies, where
certified by the registrar, may have important legal effect in proceedings.
436. Subsection (5) sets out the requirements for certification in hard copy except
where Directive disclosure requirements apply (in writing or by the use of the
registrar’s official seal).
437. Subsection (4) provides a power for the Secretary of State to make provision
in regulations as to the manner in which electronic documents are to be certified.
438. The use of electronic copies is of more recent date and the methods of
ensuring that an electronic copy is a true copy are developing rapidly. Any
provision made as to this may need to change to take account of such
developments and for this reason detailed provisions have not been placed on the
face of the bill. Instead a power has been taken for this purpose. This will allow the
Secretary of State to make the necessary provision and taking account of
developing law and to change those provisions in the light of future developments.
439. The power in this section relates essentially to matters of technical detail, and
no Parliamentary procedure is considered necessary. The requirements will
however be set out in regulations by the Secretary of State – rather than registrar’s
rules – since the certification of electronic documents may raise issues of general
administrative interest, with linkages to areas beyond the specific functions of the
registrar herself.

Clause 707: Registrar’s index of company names
440. This clause replaces section 714 of the 1985 Act. It specifies the content of
the registrar’s index of company names. This is the set of names with which a
proposed name is compared for the purpose of clause 67 (name not to be the same
as another in the index). The list is split into two parts. Subsection (2) includes
different types of companies to which the Companies Acts apply. Subsection (3)
lists other bodies which are to being included for example limited liability
partnerships and Industrial and Provident Societies. Subsection (4) confers on the
Secretary of State the power, by order, to add or remove from the list in subsection
(3). It is equivalent to the power in section 714(2) of the 1985 Act.
441. It is proposed that the power (like that in section 714(2) of the existing Act)
be subject to negative resolution procedure.

Clause 709: Power to amend enactments relating to bodies other than companies
442. This clause confers on the Secretary of State a new power, by regulations, to
amend the legislation relating to any of the bodies listed in clause 707(3) for two
purposes.
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443. The first purpose is to require the registrar to be informed of the name of any
body whose name should be on the registrar’s index of company names. This is
necessary to ensure that the index is kept up-to-date, noting that omissions and
delays make it more difficult to avoid duplication.
444. The second purpose is so that the rules to ensure that names are not
duplicated may be applied to the non-company entities whose names appear on
the index of company names. Clearly rules to prevent non-duplication should
apply equally to all bodies whose names are on the index. At present, some bodies
are subject to more discretionary controls on names, typically blocking undesirable
names. This is appropriate for their own formation processes and small numbers.
But these processes may change or the number of entities involved increase so that
may becomes sensible for non-discretionary rules regarding the duplication of
names to apply to these entities as they do to companies.
445. Any such order is subject to affirmative resolution procedure.

Clause 710: Application of language requirements
446. Several clauses in the bill set out language requirements, e.g. as to when a
document must be delivered in English (clause 711), and when it may be delivered
in Welsh (712), documents that may be drawn up and delivered in other languages
(clause 713) and about certified translations (clause 715). These provisions apply
automatically to documents required under the Companies Act and Insolvency
Acts; but there are other pieces of legislation which may require companies in
certain circumstances to supply material to the registrar. Depending on the nature
of the particular requirement and its origin (for example, whether it responds to
European law), it may or may not be appropriate to apply the language provisions
of this bill unchanged to such material. Subsection (2) therefore enables the
Secretary of State to make regulations, by the negative resolution procedure,
applying all or any of these requirements, with or without modification, to non-
Companies Act requirements.

Clause 712: Documents relating to welsh companies
447. This clause replaces section 710B of the 1985 Act. It establishes that
documents relating to a Welsh company may be drawn up and delivered in Welsh,
and that they must with two exceptions be accompanied by a certified translation
in English. The exceptions are where the document is in a form prescribed by
virtue of section 26 of the Welsh Language Act 1993or where the document is of a
description exempted from the requirement by regulations made by the Secretary
of State. This power for the Secretary of State to make regulations making
exemptions from the duty to provide a translation is in practical terms identical to
that currently contained in section 710B(3)(a) of the 1985 Act. As with that
equivalent existing power, no Parliamentary procedure is considered necessary.

Clause 713: Documents that may be drawn up and delivered in other languages
448. This clause sets out certain documents which may be drawn up and filed in
languages other than English (while making clear that they must be accompanied
by a certified translation into English). The documents are listed in subsection (2),
namely agreements affecting the company’s constitution; documents relating to
group accounts for companies in a group; and instruments relating to company
charges. For some companies, documents of these sorts may well originate in
languages other than English, and there may be an interest in ensuring that the

                                          71
original version is registered with the registrar. Given the current and projected
increase in registrations by oversea companies (and by companies with large
overseas shareholdings as UK companies), it is possible that the availability of
further types of documents in their original language will become increasingly
useful to, and expected by, users of the register. Subsection (2)(d) therefore allows
the Secretary of State to extend the categories of documents to which this clause
applies by regulations.
449. The regulations are subject to the negative procedure. This is appropriate as
the power does not enable the Secretary of State to place requirements on
companies, but rather it can be used to extend the list of documents which
companies may, if they so wish, provide in their original language.

Clause 714: Voluntary filing of translations
450. This clause provides that companies may send the registrar certified
translations of documents relating to the company, and subsection (2) enables the
Secretary of State to set out in regulations those languages and documents in
relation to which this facility is available. Subsection (3) provides that these
regulations must as a minimum specify the official languages of the EU, and the
documents covered by the amended first directive (see clause 690) to ensure
compliance with that directive. However, the power will enable other languages
(and categories of document) to be included as and when developments in
international business make it clear that it will be practicable and helpful to
companies users to extend this facility to other more or less common international
business languages.
451. Given the possibility of relatively frequent amendments (perhaps as
Companies House’s technology develops to accommodate non-Roman
characters), and the fact that the power can be used to extend the list of
circumstances in which companies may provide translations (rather than being
required to), the power is exercisable by negative resolution.
452. Subsection (4) also makes clear that the registrar’s power to specify “form
and manner” (clause 680) includes the ability to make rules enabling a translation
to be readily associated with the original of which it is a translation.

Clause 715: Certified translations
453. This clause provides that a “certified translation” is one which has been
certified in the prescribed manner. “Prescribed” in this case means prescribed by
the registrar under clause 679 (discussed earlier).

Clause 716: Transliteration of names and addresses: permitted characters
454. Clause 716(1) provides that names and addresses in documents delivered to
the registrar must include only letters, characters and symbols that are permitted.
Overseas (and other) companies may register documents with Companies House
which include names and addresses (for example of their directors) which originate
in languages which use a different character set from that used in English–for
example Greek or Japanese characters may be used. Subsection (2) therefore
enables the Secretary of State to make regulations specifying which particular
character sets may be permitted, or permitting or requiring delivery of documents
in which names and addresses have not been transliterated into a prescribed form.
The power is being taken as it is likely that developments in international
business–and in the technical capabilities of electronic communications systems–

                                               72
may relatively rapidly make a difference to the alphabets the registrar can be
expected to deal with. The power provides this flexibility.
455. The power is exercisable by the negative resolution because the matters
concerned are essentially technical matters of detail, which may change rapidly
over time.

Clause 717: Transliteration of names and addresses: voluntary transliteration into roman
characters
456. This clause contains no delegated powers in itself, but provides that the
power contained in clause 680 includes power to make such rules as are necessary
to ensure the identification of the original document and the delivery of the
transliteration in a form and manner so that it can be associated with the original.

Clause 718: Transliteration of names and addresses: certification
457. This clause confers power on the Secretary of State to make regulations
requiring the certification of transliterations and as to the form of that certification.
The provisions on transliterations in the bill are new and do not correspond to
anything in the 1985 Act. It is therefore difficult to say in advance how
“comfortable” those who make use of transliterations when inspecting the register
will be with relying on the transliterations provided. Different provision may be
made for compulsory and voluntary transliterations. This is because transliteration
is compulsory under clause 716 if the original is in characters that are not
permitted, while transliterations of names in permitted characters (for example,
Greek) would be voluntary.
458. The regulations are subject to the negative resolution procedure because they
are essentially technical and complement the power under section 716.
459. It has not been decided whether any such regulations will need to be made,
but in the event that user feedback suggests confusion or uncertainty is arising in
the register, this power would ensure that a degree of visible quality control can be
introduced to the process.

Clause 723: Supplementary provision s relating to electronic communications
460. This clause (which replaces section 710A of the 1985 Act) allows the registrar
to require those who choose to file electronically to accept electronic
communications from the registrar. It also provides that, where a document is
required to be “signed” by the registrar, or authenticated by her seal, she may
determine in her rules how it is to be authenticated when it is sent by electronic
means in her rules (under clause 725).

Clause 724: Alternative to publication in the gazette
461. The registrar is currently required to publish certain statutory notices in the
Gazette (that is, the London, Edinburgh or Belfast Gazette, as appropriate). The
intention is to ensure that such notices are well publicised and made available to
all those who might wish to take notice of them.
462. The Gazette is a long-established and well-understood mechanism for
ensuring such publicity. However, it is possible that developments, in particular in
electronic publishing, will mean over time that alternative mechanisms become
equally or more appropriate as ways of meeting the underlying policy objective.
This clause therefore provides a power for the Secretary of State to specify

                                            73
alternative means which the registrar may then approve for use. To ensure that any
such change is itself well-publicised in advance, subsection (5) provides that the
change must itself be announced in the Gazette.
463. For the present, the registrar does not expect to want to abandon use of the
Gazette unless and until it became clear that alternative mechanisms provided a
superior means of publicity. More likely is that (as subsection (6) makes clear)
some other mechanism may be added in addition to the continuing use of the
Gazette.
464. Given that there is therefore scant possibility of existing users being in any
way disadvantaged by changes made under these regulations; and the fact that it
may be sensible to add new mechanisms as and when they become available, it is
felt that the negative resolution procedure is appropriate.

Clause 725: Registrar’s rules
465. Clause 725 provides the means by which the registrar may make provision, or
impose requirements, as to any matters under Part 26.
466. Clauses 679 (prescribed forms etc), 680 (registrar’s requirements as to form
an manner of delivery), 681 (power to require delivery by electronic means–where
the Secretary of State’s power to require this has been exercised), 683 (document
not delivered until received), 700 (form of application for inspection), 685
(informal correction of documents) 701 (form and manner in which copies to be
provided), 717 (transliteration of names and addresses: voluntary transliteration
into Roman characters) and 723 (supplementary provisions relating to electronic
communications) make such provision.
467. The details of these provisions and requirements have been discussed above.
468. The clause also provides that the registrar may make different provision for
different cases, and may modify or disapply the rules. This is to ensure that the
rules are relevant and can be changes to meet new or different circumstances.
469. There is no Parliamentary procedure for these rules. The registrar must
however publish the rules in a manner designed to bring them to the attention of
those affected by them and make copies of the rules available in both hard copy
and electronic form. (which might in practice, for example, be by using the
Companies House website).
470. The facility for the registrar to make rules on these matters generally replaces
the present arrangements for the Secretary of State to make such provision by
means of regulations under sections referring to “prescribed forms” read with
section 744 of the 1985 Act (see for example the Companies (Forms) Regulations
1985). Regulations by the Secretary of State of this nature are not subject to any
Parliamentary procedure.
471. The areas where it is now proposed that any requirements should be
established by registrar’s rules, rather than by regulations from the Secretary of
State, are generally those which relate to practical or administrative matters (e.g.
the form and manner in which documents must be delivered) rather than the
substantive requirements as to nature and content. The registrar maintains close
contact with users of her services, for example operating a number of user groups,
and receives frequent feedback on the design of forms, the mechanisms for
information exchange with companies, and other administrative matters. The
registrar is therefore in principle better placed than the Secretary of State to
establish detailed requirements which reflect the needs and capabilities both of her

                                         74
own systems, and of the companies who use them. In line with the current
arrangements under section 744 of the existing Act, no Parliamentary procedure is
considered necessary, as it is not believed that Parliament will wish to involve itself
in essentially practical details of the sort which will be covered in registrar’s rules.

Part 27: Offences under the Companies Acts
472. This Part makes a number of changes to the existing framework of offences
and sanctions in the 1985 Act, and in particular it introduces a new and clearer
regime for attributing liability for offences resulting from breaches of company law
requirements.
473. No delegated legislative powers are conferred under this Part.

Part 28: Companies: supplementary provisions

Clause 744: Regulations about inspection of records and provision of copies
474. Various provisions allow access to company records (registers, minute books
etc.) whether by way of inspection or provision of a copy. Clause 744 confers
power on the Secretary of State to make regulations regarding the company’s
provision of access to its records. The regulations may make provision to set the
prescribed fees that the company may charge (under clauses 116, 146, 207, 215,
252, 332, 575, 598, and 602). This power replaces that in section 723A of the
1985 Act. The Companies (Inspection and Copying of Registers, Indices and
Documents) Regulations 1991, SI 1991/1998 were made under this power. It is
intended to retain the existing regulations (or at least their substance).
475. Regulations made under this provision will be subject to the negative
resolution procedure. Regulations made under section 723A of the 1985 Act are
currently subject to the negative resolution procedure.

Clause 748: Service addresses
476. Clause 748 confers a power on the Secretary of State to specify the conditions
with which a service address must comply. This replaces the existing power (under
section 723C(7) of the 1985 Act as amended by the Criminal Justice and Police
Act 2001, section 45) to prescribe the conditions with which an address for the
public record must comply under the “Confidentiality Order” regime. The bill
replaces this regime with a system whereby every director may apply for a “non-
disclosure” certificate so that his/her home address is kept off the public record.
Unlike the present regime, under the new system, a different service addressed
may be used for each directorship held.
477. This power might be used to require the service address to be in the same
jurisdiction as the company’s registered office. This would benefit any third party
wishing to serve a document on the director.
478. Regulations under this power would be subject to negative resolution
procedure

Part 29: Companies: interpretation
479. This Part provides definitions of various expressions used in the bill.
480. No delegated legislative powers are conferred under this Part.


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Part 30: Companies: minor amendments

Clause 773: Access to constitutional documents of rte and rtm companies
481. Clause 773 enables Ministers to make an order amending certain provisions
of the Commonhold and Leasehold Reform Act 2002, the Leasehold Reform,
Housing and Urban Development Act 1993 and certain delegated legislation made
under the 2002 Act so as to make it easier to ascertain the contents of the
memoranda and articles of Right To Manage (“RTM”) and Right to Enfranchise
(“RTE”) companies (two new types of company provided for in the 2002 Act–in
the case of RTE companies, by amendment to the 1993 Act).
482. Under the 2002 Act and the 1993 Act as amended by it, the Secretary of
State may make regulations prescribing model articles of association for RTM and
RTE companies, and the provisions of the model articles so prescribed may have
effect notwithstanding contrary provision in the articles of such companies as
registered at Companies House. It has become apparent that there is a difficulty
with this, which is that it is possible that, as the legislation stands currently, a
person consulting the Companies House record of a RTM or RTE company’s
articles may not be aware of the company’s RTM or RTE status, and therefore
may also be unaware that its registered articles have to be read in the light of any
relevant regulations prescribing model articles for RTM or RTE companies. Given
the effect which model articles prescribed for RTM and RTE companies can have,
this is important.
483. The result to be achieved by the exercise of this proposed power is clear: that
the status of all RTM and RTE companies should be clear from the face of the
documents available on the Companies House register. However, further
consideration needs to be given to the exact form of amendments to be made to
the relevant legislation in order to achieve this result in the context of the ongoing
implementation of the Office of the Deputy Prime Minister’s policy on RTM and
RTE companies.
484. No action on the part of existing RTM companies and RTE companies will
be required as a result of the exercise of this power. Given the limited scope of the
changes to be made to the RTM and RTE legislation, and the fact that this is a
new and somewhat technical area of law which is currently very little used (RTM
companies are as yet in their infancy, and the secondary legislation on RTE
companies has yet to be made), the Government takes the view that should be
made by delegated legislation subject to the negative resolution procedure.

Part 31: Company law reform power
485. This new Part introduces a new power to reform, restate and codify
provisions in company law. This power has been proposed in order to ensure that
company law can remain flexible for the future and accessible to those who use it,
particularly smaller firms.
486. The CLR looked extensively at questions of the balance between primary and
secondary legislation. They concluded by suggesting that many areas of company
law, particularly those where provisions were most likely to require updating over
time, should be moved from primary into secondary legislation. However, it is not
in practice easy to establish a clear dividing line between core provisions (which
could remain in primary legislation) and detail (which could sit in regulations).
There is also a danger that introducing such a distinction risks separating one


                                           76
subject into two places in a way which can be arbitrary and artificial, to the
detriment of the accessibility of the resulting law.
487. The Government’s intention behind these clauses is therefore that
appropriate changes to company law in future should be able to be made by a
special form of secondary legislation (rather than by primary legislation), to
produce reform, restatement and codification. The power could be used to make
such provision as might otherwise be made by an Act of Parliament, but this
would be subject to limitations set out in clauses 776–782 placing restrictions in
respect of, for example, taxation, criminal offences, the delegation of legislative
functions and so on.
488. Company law, unlike many other forms of regulation, is the provision of a
legal form which is to some extent mobile over time, and which can only work if it
successfully balances various potentially conflicting interests, since otherwise
people will use an alternative business vehicle (or the company form from a
different jurisdiction). It is in a sense self-regulating, and reform by secondary
legislation is therefore likely to be more appropriate than for some other areas of
law.
489. The Government believes that the introduction of a new power on this basis
will further the fundamental objectives which the CLR identified, by helping
company law remain flexible, up-to-date and accessible. This is particularly
important given European and global developments, which mean that increasingly
companies can choose between different jurisdictions in which to incorporate, as
well as between alternative business vehicles.
490. It is also important that company law continues to “Think Small First” as the
CLR intended. The bill includes a restatement of much of the 1985 Act to make it
easier for small firms and their advisers in particular to understand what the law
provides. Further restatement is likely to be desirable in the future, in order to
keep the law as accessible as possible.
491. The law relating to companies is set out in a mixture of primary and
secondary legislation as well as common law. The 1985 Act already provides for
the use of regulations to amend the primary legislation in certain specific areas–for
example disclosure of interests in shares, (section 210A) and contents of reports
and accounts (section 257). Such existing powers can only generally be exercised
in the relevant Part. The Company Law Reform bill retains many of these existing
powers, and in some areas introduces new ones. These are discussed elsewhere in
this memorandum.
492. Regulatory Reform Orders (RROs) also now provide a route for amending
primary legislation without the use of new primary legislation, but these are
essentially directed at proposals to reduce regulatory burdens, whereas parts of
company law may not be regulatory as such, but are addressed rather at
establishing where the balance should be drawn between various different interests
(for example, the directors, the shareholders, creditors, etc).
493. Amendments to companies legislation required by developments in European
law can also generally effected through regulations made under section 2(2) of the
European Communities Act 1972 (ECA), which will of course remain available.
Although this power is wide, and can be used to make additional changes (in
appropriate circumstances), the extent to which it can be used to include changes
which go beyond what is required, is limited. There are times where the European
company “map” does not reflect perfectly onto our domestic version (for example,
a Directive may only apply to companies traded on a regulated market but there

                                         77
may be a case for making similar changes for those which are not so traded).
Reforms of this sort, which may be necessary to maintain a cohesive system of
domestic legislation in the light of related European changes, could not generally
be made under the ECA.

How will the powers operate?
494. It is recognised that powers on this basis are relatively novel and wide-ranging
in scope. They are much wider than any existing individual powers in the company
law area, or indeed most other areas of law. Below we consider the type of measure
for which the power is intended to be used; the safeguards and constraints
provided for the use of power; and the provisions for Parliamentary debate and
scrutiny arrangements.




                                         78
 OVERVIEW OF COMPANY LAW REFORM POWER PROCESS

          BASIS FOR THE PROPOSED ORDER                            The document must:
Amend the law relating to companies; or restate enactments        • explain the basis for the
relating to companies; or codify rules of law relating to           proposed order;
companies.                                                        • explain which enactments it
                                                                    restates (if any);
                                                                  • identify any new powers to
                                                                    make subordinate legislation.
                       CONSULTATION
                                                                  The document must explain how
Mandatory prior consultation with representatives of all those    the proposed order would:
likely to be affected by the proposed order.                      • remove inconsistencies or
                                                                    anomalies in the existing law;
                                                                  • make companies a more
                                                                    effective vehicle for conducting
            DOCUMENT FOR PARLIAMENT                                 business; or
                                                                  • increase the effectiveness of the
                                                                    system of regulating companies
                                                                    in the UK.
           SCRUTINY BY THE COMMITTEE
For Parliament to determine but process could include:
                                                                  If the poposed order makes
 • independent and non-whipped scrutiny committees;
                                                                  provisions implementing or
 • examination of adequacy of prior consultation;
                                                                  responding to recommendations of
 • consideration of appropriateness;
                                                                  the Law Commissions, the
 • suggestion of amendments;
                                                                  document must;
 • taking of evidence, consideration of representations and
                                                                  • identify the relevant
   appointment of specialist advisers;
                                                                    recommendations and related
 • reporting adversely on draft proposal, either in whole or in
                                                                    report;
   part;
                                                                  • identify the manner in which
 • comment by any MP or Peer on the proposed order to the
                                                                    the order will implement or
   Committees or in debate on the floor of the House.
                                                                  respond to the
                                                                    recommendations, and;
                                                                  • Set out any differences between
                                                                    the recommendations and the
               MINISTERIAL STATEMENT                                proposed order.
In light of committees’ reports Minister amends order and may
need to re-consult. The Minister must explain the changes in a
new document to Parliament.




        15 DAY PARLIAMENTARY SCRUTINY
                  Reconsideration by committees




             PARLIAMENTARY APPROVAL
For Parliament to determine but process may include:
• Right for a Peer to table an amendable motion for debate
  on a draft order so that amendments to the order can be
  considered;
• Government undertaking not to proceed to lay draft order
  for affirmation in the event of an adverse vote on the motion

   Both Houses must approve draft order in plenary session




                                                       79
495. The power would allow either reform or restatement (ie changes of language
or ordering which do not affect the substance), but the Secretary of State will need
to explain his reasons for making the order including, in the case of restatement of
the law or codification of case law, how he considers the order would make the law
more accessible or more easily understood by those it affects, which would thus
make clear which elements were reform and which restatement or codification.
This should help minimise any risk that an order brought forward under this
power may be taken inadvertently to have amended the substance.
496. Company law reform orders could only be used to affect the law “in relation
to companies”, by which is meant law relating to the creation, operation,
regulation or dissolution of companies. In other words, it is broadly intended to
relate to the law which affects companies qua companies, and not (for example)
other areas of law which happen to apply to companies but whose purpose is
essentially different. Clause 776 makes explicit, for the avoidance of doubt, that
the orders cannot be used for purposes of imposing or increasing taxation.
497. The power may be used to amend or restate legislation, but only legislation
containing the law relating to companies. Clause 775(5) expressly prevents the
power being used to amend the provisions relating to the power itself (Part 31)
which would otherwise be within its scope. The bill contains some non-company
law provisions which the power cannot be used to amend or restate (because these
do not contain the law relating to companies). Parts 32 (Business names) and 33
(Statutory Auditors), and some parts of Part 34 (Miscellaneous provisions),
therefore fall outside the scope of the power.
498. Orders will be able to operate across the entire field of law, that is to say both
statutory provisions (i.e. explicit provision in primary legislation) and case law. It is
recognised that extending the power to cover codification of common law needs
particular justification. In the field of company law, there is a fundamental and
inescapable interconnection of statute and case law in the existing body of
company law. Much of company law developed originally through case law, and
although a considerable amount has been brought into statute much remains as
common law, or continues to develop through it. In many, but not necessarily all,
cases, codifying of the common law will be likely to follow a Law Commission
report (as has been done in the bill on procedures for derivative actions for
example). In the Government’s view, it would not however always be necessary to
make a formal reference to the Law Commission before proposing orders which
affect the common law.
499. The power is subject to important constraints. If it is to be used to reform
provisions, clause 786 provides that the Secretary of State has to explain the
reasons for making the order including the ways which the order would:
       • remove inconsistencies or anomalies in the existing law;
       • make companies (or particular types of company) a more effective vehicle
          for conducting business; or
       • increase the effectiveness of the system of regulating companies in the
           United Kingdom.
500. In the case of restatement or of codification of rules of law, the Secretary of
State would need to explain how the order would make the law more accessible or
more easily understood.
501. These provisions are designed to ensure that criteria are established against
which orders can be judged during the Parliamentary scrutiny process.
                                           80
502. Before bringing forward an order, the Secretary of State will have to consult
interested parties. If he is to be able properly to present his proposals to
Parliament, this will require him similarly to explain in detail the nature of his
proposals and his reasons for making them as well as (and in accordance with
Government better regulation principles) providing an assessment of the
regulatory impact. He will then provide to Parliament a summary of the views
expressed and what account has been taken of them.
503. Where the proposal results from proposals from the Law Commissions, the
Secretary of State has to take account of what consultation has already been done
in deciding what more is needed.
504. Amendments to existing law might require the provision of new sanctions
against those who do not comply or modification of existing sanctions and
enforcement provisions. For example, if the system for registration of interests in
company charges was to be modified, new sanctions might need to be created.
The Government recognises that Parliament is rightly concerned when new
criminal offences are created by delegated legislation. The bill provides limitations
on the new criminal penalties and enforcement powers that can be created under
the order-making power. If a new offence is created by an order made under the
power, the maximum penalty which the order can provide would be, on summary
conviction, six months in prison or a fine at level 5 on the standard scale and, on
indictment, two years in prison or an unlimited fine. Where the offence is triable
either way, the maximum fine is the statutory maximum. The one exception to
these limits is when the new offence is replacing an existing offence carrying higher
penalties than these. In this case the limit would be the level of the existing
penalties. Orders under the power can be used to change the level of criminal
penalties for offences, but not to increase them beyond the maxima mentioned
above.
505. The Government also does not believe it is appropriate for orders made
under the power to provide new powers of forcible entry, search and seizure, or
powers to compel people to give evidence. The power can be used to restate or
codify such provisions, or extend present enactments for like purposes.
506. Clause 779 provides restrictions on the extent to which orders can themselves
create new order-making powers. This will only be possible where the new order-
making power relates to fees and charges, to procedural or administrative matters,
or to technical matters. An example of where the creation of new powers might be
appropriate would be developments in technology, where it could become clear
over time that provision needs to be made rapidly to cater for new
communications possibilities, but where the specific provisions themselves would
be at a level of detail, or would be likely to be subject to change sufficiently
frequently, for it to be appropriate to set them out in secondary legislation of more
standard form, subject to affirmative or negative resolution as the case may be.
507. Clause 781 provides that, if companies legislation confers a function on a
particular person or body (an example might be the Financial Reporting Council)
an order cannot be used to enable that body or person to delegate the function
elsewhere, unless a delegated function may already be further delegated, in which
case they may be extended to additional circumstances of a like nature.
508. Clause 782 ensures that orders cannot have retrospective effect.
509. Another safeguard to ensure the appropriate use of the order-making power is
the requirement to consult representatives of those who are likely to be affected by
an order made under the power. Informed judgement on whether a proposal

                                         81
would remove anomalies, inconsistencies or would make companies a more
effective vehicle or increase the effectiveness of the system of regulating
companies, needs to take into account the effects on particular parties. Clauses
787 provides that individual responses from consultees may remain confidential, if
to disclose the response would be a breach of confidence which was actionable; or
alternatively, if they can, they may be presented in an anonymised form, where
appropriate.
510. One use of the orders may be to implement recommendations of the Law
Commission. In these circumstances, the Commission will normally already have
conducted a public consultation, and subsection (5) allows the Secretary of State
to have regard to that consultation when it comes to considering the need for and
scope for and extent of any additional Government consultation. The intention is
that the consultation process should have been at least as full as for orders in
which the Law Commission is not involved but that a consultation should not
unnecessarily be repeated.
511. Following the consultation exercise the results will be made available to
Parliament. The Secretary of State must lay before Parliament the draft of the
proposed order and a document detailing: how the order would amend or restate
the law or codify common law, including where there is restatement, what
provisions are restated; the reasons for making the order including, where
appropriate, how it would remove inconsistencies or anomalies, make companies a
more effective vehicle or increase the effectiveness of the system of regulating
companies; the consultation which has been undertaken; the representations which
have been received; and any changes made to the proposal in light of the
consultation. The Government believes that this detailed document will provide
information to facilitate the work of Parliamentary committees which scrutinise
company law reform proposals. In any event it will ensure that Parliament is fully
aware of the views of those who will be affected as well as the Minister’s thinking
behind the proposals for delegated legislation. Every order would be subject to the
affirmative resolution procedure.
512. The Government recognises that the company law reform power will allow an
exceptional type of secondary legislation for which, in addition to the safeguards
and constraints already mentioned, additional Parliamentary scrutiny
arrangements are appropriate. In addition to the affirmative resolution procedure,
a period of time is provided for scrutiny after the explanatory document has been
laid before Parliament and before a draft order can be laid for affirmative
resolution.
513. The Government believes that Parliament should decide how best to use this
time. The Government will look to the Procedure Committees in both Houses to
advise on how the scrutiny should be carried out. The Government would suggest
that a committee in each House should scrutinise proposals for use of the power. It
envisaged that, if the committees so wished, they would be able to examine
witnesses and seek information in addition to that provided in the explanatory
document submitted to Parliament. The Government would suggest that the
committee in the Commons should have all the usual powers of select committees
for the taking of evidence etc and allowing other members to participate as
necessary. The Government suggests that the committees should have the power
to take whatever evidence they say fit.
514. The Government will take steps to ensure that the committees are not asked
to consider too many proposals at any time. As the bill itself implements the
Government’s current proposals for company law reform and restatement, we do
                                        82
not expect to need to make significant early use of the power. There are, however,
three areas where it is expected that use might be made within, say, 2–3 years after
Royal Assent. These areas are:
       • capital maintenance, that is how far a company can distribute its assets
           and what freedom it has to adjust its legal capital. It is recognised that
           the existing provisions of the 1985 Act are unduly complex and may be
           unnecessarily inhibiting in their economic effect. The bill itself
           introduces some changes for private companies. Reform for public
           companies is constrained by EC provisions in which the UK is pressing
           for reform. Some interested parties are pressing for changes in advance
           of further reform at the EC level;
       • company charges, that is provision of security for repayment of a
           company’s debts. The Law Commission has recently reported on
           company charges and those aspects which relate to company law could,
           subject to the outcome of consultation which is still continuing, be
           implemented under a company law reform order. Some aspects relate
           to property law and these could not be the subject of such an order;
           and
       • jurisdictional migration of companies. An EC Directive is expected in
           respect of transfer of registered offices between jurisdictions. We may
           wish to make wider provision to permit jurisdictional migration,
           depending on the terms of the Directive.
515. Developments in information technology, or in the globalisation of business
practices, may be further areas which could lead unexpectedly and relatively
rapidly to the need for changes to UK company law.
516. As is the case for regulatory reform orders, the Government would envisage
that if either Committee reported that a draft order should not be approved, a
debate on an amendable motion to disagree with the Committee’s report should
be held. Only if the House disagreed with the Committee’s report would the
motion be moved to approve the draft order. In the House of Lords, any Lord
would be able to table a motion in respect of the report of the committee on the
draft order. Such a motion should be placed on the Notice Paper immediately
before the Minister’s motion to approve the draft order and would be amendable;
the two motions should be debated together. If the outcome were a resolution of
the House to the effect that the draft order should not be approved, the motion to
approve the draft order should not be moved, though without prejudice to the
right of the Minister to bring the proposals back before the House in the form of a
bill. Such a procedure should avoid the need for the House to feel it necessary to
depart from their usual convention of not voting on statutory instruments. The
Government would take an adverse recommendation from a committee of either
House extremely seriously and, in normal circumstances, would expect to submit a
revised proposal or to withdraw the proposal altogether in such cases.
517. Following the period for Parliamentary scrutiny, the Minister would be
required to take account of the outcome of the scrutiny and any other
representations received before laying a draft order for approval under the
affirmative resolution procedure. At this stage the Minister would be required to
report to Parliament any changes made to the proposal as a result of
representations made or resolutions or reports of either House or their
Committees during the scrutiny period. In all cases where the text of this draft
order differs from the original proposal we would envisage that the committees

                                         83
would have a further opportunity to consider the final version before the motion to
approve the draft order was moved.

Consultation
518. It is recognised that the proposed powers are relatively novel, and potentially
very wide in scope. The Government has therefore wanted to ensure that there has
been full, public consultation on the proposals.
519. An initial consultation document, “Flexibility and Accessibility”, was
published in May 2004, setting out the Government’s proposals as envisaged at
that stage.
520. This consultation exercise revealed substantial support for the proposals. A
summary of responses, including some of the detailed comments received, was
published on the DTI website in March 2005.
521. The Trade and Industry Committee also published a separate report on the
Government’s proposals (Ninth Report of Session 2003–4, HC 1041) which
concluded that:
       “We welcome the Government’s proposal for introducing a new
       procedure for amending company law that avoids the delay and
       complexity of the current system, but which would provide for rigorous
       pre-legislative scrutiny by both interested parties and Parliament….”
522. In the light of these responses, the proposals were developed further and
clauses drafted, which appeared in the White Paper “Company Law Reform” in
March 2005, and were subject to a further formal consultation. Relatively few
comments were received to this second round of consultation on the proposals,
but those who commented generally confirmed their strong support.
523. In conclusion, the Government considers that the company law reform order-
making power, which it recognises will provide an exceptional form of secondary
legislation, is essential to allow for the continuous process of keeping company law
up to date which will bring real benefits to the economy. The Government
considers that the safeguards and constraints on the use of the power, and the
special arrangements for Parliamentary scrutiny, which have been described in this
memorandum, properly address the exceptional nature of the provisions.

Part 32: Business names
524. This Part applies not only to companies but to every person carrying on
business in the UK excluding only sole traders using their own names and
individuals in partnerships using their partners’ names. It provides for controls
over the names used in the course of business. In general, these controls follow the
same structure as those over companies’ registered names (see Part 5).

Clause 790: Names suggesting connection with government or public authority
525. Clause 790 confers power on the Secretary of State to specify public
authorities the impression of a connection to which triggers a requirement for prior
approval of a name used in the course of business. This is a new power, equivalent
to that sought under clause 55 in respect of company names. It is sought as names
giving the impression of connection to Parliament are unaffected by the current
controls. In addition, the number of public authorities and offices which are not
strictly part of central government or local authorities has increased in recent
years. For example, there are the Welsh Assembly, the Northern Ireland Assembly,
                                          84
the Mayor of London and the London Assembly and regulators such as Ofcom
and Ofgem.
526. It is intended to use this power to specify Parliament, the National Assembly
for Wales, the London Assembly and regulatory bodies such as Ofcom. It is
intended that the Regulations also be under the similar power relating to company
names (see clause 55).
527. There will be a single set of regulations under this power and under the
similar power relating to companies’ registered names (see clause 55). Regulations
made under this clause would be subject to affirmative resolution procedure. This
is appropriate as the list will be of authorities, rather than merely words.

Clause 791: Other sensitive words or expressions
528. Clause 791 confers power on the Secretary of State to make regulations that
specify the words or expressions for which prior approval is required for their
inclusion in name used in the course of business.
529. This is a restatement of the existing powers under sections 2(1)(b) and
3(1)(a) of the Business Names Act 1985. Clause 792 gives power to specify whose
view must be sought in connection with the application for approval. Clauses 56
and 57 confer similar powers relating to company names.
530. The existing Regulations (The Company and Business Names Regulations
1981 SI 1981/1685 as amended by SI 1982/1653, SI 1992/1196, SI 1995/3022
and SI 2001/259) specify nearly 90 words and expressions that, when used in a
company name, may imply business pre-eminence, a particular status or a specific
function. They include chamber of commerce, charity, dental, duke, European,
friendly society, Her Majesty, international, national, nurse, police, royal, stock
exchange, trade union, and Wales. The aim is to ensure that use of the word is
justified so that the public is not misled by the name.
531. These regulations are a restriction on choice and it is therefore appropriate
that Parliament have the opportunity to debate them. However, there might be
occasions when an immediate amendment is necessary. The Government
therefore considers it appropriate that these regulations be subject to approval after
being made.

Clause 792: Requirement to seek comments of Government department or other relevant
body
532. Clause 792 confers on the Secretary of State a power to make regulations that
specify whose views must be sought in connection with an application by a person
to use in the course of business a name that requires prior approval. Clause 57
confers a similar power relating to company names. The names that require prior
approval are those that:
       • in the opinion of the Secretary of State, would be likely to give the
           impression that the business is connected with Her Majesty’s
           Government, any part of the Scottish administration, a local authority
           or a public authority specified in other Regulations (see Clause 790); or
       • include a word or expression specified in other Regulations (see Clause
           791).
533. This power would replace the power under Section 3(1) of the Business
Names Act 1985. However it is new insofar as it applies to names that give the

                                           85
impression of connection to government or other public authorities. The extension
of the power is sought so it is possible to specify the body whose views must be
requested before approval is sought for a company adopting a name that implies
the specified connection. This power is needed to support the power sought in
Clause 790. For example, it would be possible to specify the House Authorities for
names likely to convey an impression of connection with any part of Parliament.
534. The existing Regulations (The Company and Business Names Regulations
1981) specify a relevant body or bodies for about a third of the sensitive words or
expressions, for example the General Dental Council for “dental”, the Charity
Commission or the Scottish Ministers.
535. It is intended that, as now, a single set of regulations specify both the words
and expressions for which prior approval is required (under clause 790, which are
subject to approval after being made) and the body whose views must be sought.
Therefore a separate Parliamentary procedure is not specified.
536. Over Summer 2005, stakeholders’ views were sought on the draft clauses
relating to company names, including the clause containing this power. This
particular proposal did not attract comment.

Clause 794: Name containing inappropriate indication of company type or legal form
537. Clause 794 confers on the Secretary of State power to make regulations
prohibiting a person from carrying on business in the UK under a name that
includes specified words, expressions or other indications. The only words etc.
that can be specified in the regulations are those associated with a particular type
of company or organisation or those confusingly similar to such words or
expressions or indications.
538. This is a new power. It replaces the prohibitions in:
       • section 33 preventing the use of “public limited company” or its Welsh
           equivalent or their abbreviations by any person which is not a public
           limited company.
       • section 34 that preventing the use of “limited” or its Welsh equivalent or
           their abbreviations by any person which is not incorporated with
           limited liability.
       • section 34A making equivalent provision dealing with “community
           interest company” and related designations.
539. It is intended to use this power to make regulations that also protect
“unlimited”, “investment company with variable capital”, “open-ended
investment company”, “limited liability partnerships”, ‘community interest public
limited company’ ‘community interest company’”, their Welsh equivalents and
their abbreviated forms; and in all instances, prevent these indicators of legal status
being used except as part of the registered name of a person with that status.
540. Regulations under this clause would be subject to negative resolution
procedure as they relate to what is primarily a technical matter.

Clause 799: Disclosure required: business documents etc
541. Clause 799 confers power on the Secretary of State to make regulations
specifying the form of a notice to be given by a sole trader or partnership in the
circumstances specified in this clause. This replaces the power in section 4(5) of
the Business Names Act insofar as it applies to notices which must be given
                                           86
(Clause 801 replaces it insofar as it applies to notices which must be displayed).
Regulations under this clause would be subject to negative resolution procedure
(as under the existing legislation).
542. No regulations have been made under the existing power, nor is it intended
to use this power in the immediate future. But it might be used to extend to sole
traders and partnerships any requirement imposed on companies to provide
information if requested by their customers and suppliers.

Clause 801: Disclosure required: business premises
543. Clause 801 confers power on the Secretary of State to make regulations
specifying the form of a notice to be displayed by a sole trader or partnership at
premises where it carries on business and to which its suppliers or customers have
access. This replaces the power in section 4(5) of the Business Names Act insofar
as it applies to signs (Clause 799 replaces it insofar as it applies to notices which
must be given).
544. No regulations have been made under the existing power, nor is it intended
to use this power in the immediate future.
545. Regulations under this power would be subject to negative resolution
procedure (as under the current legislation).

Part 33: Statutory auditors

Clause 807: Meaning of “statutory auditor”
546. This clause deals with the meaning of the term “statutory auditor.” The
references contained in subsection (1) (a) to (g) allow the United Kingdom to
meet its community obligation in this respect (as contained within the Audit
Directive). Subsection (1) (h) deals with all other persons who may be prescribed
as a statutory auditor. In conjunction with subsection (3) it gives the Secretary of
State the power to prescribe, by order, those persons. There are currently other
entities that are required to have a statutory audit under other legislation, for
example certain Charities, that are required to have statutory audits. However,
these do not fall within our community obligations. We, therefore, do not expect
that the requirements contained within this clause will increase the regulatory
burden. As the list of those entities requiring a statutory audit may, over time,
require amendment and delegating the power to the Secretary of State will allow
flexibility to achieve this aim. As the Secretary of State is only appointing those
persons who are eligible to be appointed as a statutory auditor as a result of other
legislation an order made under this clause will be subject to the negative
resolution procedure. The provisions of this clause have been published in draft on
the DTI web site.

Clause 811: Independence requirement
547. This clause states that a person may not act as a statutory auditor if one or
more sub sections apply that could result in the independence of the auditor being
compromised and is a restatement of section 27 of the CA 1989. Subsection 4
allows the Secretary of State to specify any connection between the statutory
auditor or an associate and the audited person or an associated undertaking that
could also result in the independence of the auditor being compromised. As this
area will require on going review and the guidance modified, delegating the power
to the Secretary of State allows flexibility. The consideration of other connections

                                            87
that exist between the person or an associate and the audited person or an
associated undertaking that result in lack of independence is primarily a technical
consideration. Therefore, an order made under this clause will be subject to the
negative resolution procedure. The provisions of this clause have been published
in draft on the DTI web site. This is a power that has been delegated to the
independent supervisor under SI/2005/2337 Companies Act 1989 (Delegation)
Order 2005. If this is to continue the power will be subject to the restrictions
identified in Paragraph 7 (1) of Schedule 14.

Clause 825: Appointment of the independent supervisor
548. The requirement for the work of statutory auditors to be monitored extends
to the Auditor Generals for England and Wales, Scotland and Northern Ireland.
An independent supervisor will be required to be appointed to perform this
supervisory function. Subsection (1) gives the Secretary of State the power to
appoint such a body and it is a new power. The detailed provisions regarding this
body and its constitution are areas that will need to be drafted although they will
be similar to those of the Independent Supervisor that oversees the work of other
statutory auditors. As it is an area that will require continuous monitoring and
change it is considered to be an area that the Secretary of State should retain this
delegated power. This power is limited to the appointment of an Independent
Supervisor for only the Auditor Generals. The functions of the Independent
Supervisor are specified in clause 826. Therefore, an order made under this clause
will be subject to the negative resolution procedure. The provisions of this clause
have been published in draft on the DTI web site.

Clause 836: The register of auditors
549. This clause concerns the keeping of a register of statutory auditors. The
details to be kept are contained in the subsections of this clause. There is a
requirement for a register, accessible by the public, to be kept in section 35 of the
CA 1989. Subsection (1) of this clause requires the Secretary of State to make
regulations for the keeping of this register for persons eligible for appointment as
statutory auditors and third country auditors, and subsections (2), (4), (5) and (6)
provide subsidiary powers. The provision in paragraph (b) of subsection (1) for the
register to include third country auditors is new (there is currently no requirement
for the keeping of information about these persons). As regulations made under
this clause will be primarily technical in nature, they will be subject to the negative
resolution procedure. The provisions of this clause have been published in draft on
the DTI web site.

Clause 837: Information to be made available to the public
550. Subsection (1) gives the Secretary of State power to make regulations
requiring statutory auditors to make available to the public information on their
ownership, internal controls, turnover and on whom they have acted for as a
statutory auditor. This is a new requirement and the Financial Reporting Council
has been consulting on this area. As this area is under review and there will be
frequent change in the detail the delegation of this power to the Secretary of State
will allow flexibility. Regulations made under this clause will be subject to the
negative resolution procedure as they will be primarily technical in nature. The
provisions of this clause have been published in draft on the DTI web site.



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Clause 838: Meaning of ‘third country auditor’, ‘registered third country auditor’ etc.
551. This clause defines the meaning of “third country auditor” and “registered
third country auditor.” Subsection 2 (c) allows the Secretary of State to exclude
certain “bodies corporate” from other countries that would otherwise be included
in this provision, so that in turn, auditors of such companies are not caught by this
provision. As it will be purely technical in nature, an order made under this clause
will, be subject to the negative resolution procedure. The provisions of this clause
have been published in draft on the DTI web site.

Clause 843: Removal of third country auditors from the register of auditors
552. This clause gives the Secretary of State power to make regulations allowing
the keeper of the register to remove a third country auditor who fails to comply
with a requirement (subsection (1)). This power is consistent with the
requirements on auditors carrying out non third country statutory audits contained
in this part of the bill, and regulations made under this clause will therefore be
subject to the negative resolution procedure. The provisions of this clause have
been published in draft on the DTI web site.

Clause 847: Fees
553. Subsection (1) allows the Secretary of State to set the level of the payment of
a fee for any person who applies to be recognised as a statutory auditor and this
power has been extended to the Auditor Generals for the four regions and third
country auditors. As the level of fees will be assessed on a regular basis this power
is appropriate for delegation to the Secretary of State. This power, in as far as it
only effects persons who have applied to be recognised as a statutory auditor, is
currently delegated to the independent supervisor under SI/2005/2337 Companies
Act 1989 (Delegation) Order 2005. If this delegation continues it will be subject to
the restrictions contained in paragraph 7 (1) of Schedule 14. Regulations made
under this clause will be subject to the negative resolution procedure as is normal
in the case of fee-charging powers. The provisions of this clause have been
published in draft on the DTI web site.

Clause 848: Delegation of the Secretary of State’s functions
554. Subsection (1) replaces section 46 of the CA 1989 as amended by section 3
to 5 of the C(AICE) Act 2004. It empowers the Secretary of State to establish or
designate a body to exercise his powers relating to statutory auditors and the
recognition of bodies that supervise auditors and/or provide professional
qualification (currently performed by the Professional Oversight Board for
Accountancy). The powers in the CA 1989 were delegated to the independent
supervisor under SI/2005/2337 Companies Act 1989 (Delegation) Order 2005
that took effect on 5th September 2005. Regulations made under this clause will
either be subject to the affirmative or negative resolution procedure. If the effect of
this delegated power transfers or resumes any function then the affirmative
procedure will be required. If not, then the negative procedure will be required.
Powers of the Secretary of State delegated to the body under this provision will be
subject to the limitation contained in paragraph 7 (1) of Schedule 14. The
provisions of this clause have been published in draft on the DTI web site.




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Clause 857: Minor definitions
555. This clause is based on section 53 of the CA 1989 with certain extra
definitions. Subsection (3) empowers the Secretary of State to make amendments
by regulation to the provisions in this Part that are needed to apply them to a firm
that is neither a partnership nor a body corporate. As the provisions will require
ongoing review delegation of this function will give the Secretary of State flexibility
to perform this function. Regulations made under this clause will be subject to the
negative resolution procedure because they will be merely adaptive in nature. The
provisions of this clause have been published in draft on the DTI web site. This
power is currently delegated to the independent supervisor under SI/2005/2337
Companies Act 1989 (Delegation) Order 2005. If this continues it will be subject
to the limitation contained in paragraph 7 (1) of Schedule 14.

Clause 859: Power to make provision in consequence of changes affecting accountancy
bodies
556. This power contained in this clause allows the Secretary of State to amend
regulation or other legislation that refers to accountancy bodies in the event of a
name change, merger or transfer of engagements and is a restatement of section 51
of the CA 1989. Delegation of this power will allow the Secretary of State to react
to these changes when they occur. This power is consequential in nature and
limited by the provisions contained in this part of the bill. Regulations made under
this clause will, therefore, be subject to the negative resolution procedure. The
provisions of this clause have been published in draft on the DTI web site.

Schedule 11: Recognised professional qualifications
557. Paragraph 8(1) empowers the Secretary of State to make regulations
prescribing subjects that must be covered by an examination testing theoretical
knowledge, in order for a qualification to be recognised. As the relevance of
subjects may change in time according to changes in the professional practices to
which the qualifications relate, the Secretary of State will need to have the power
to recognise appropriate subjects. As they will be primarily technical in nature
regulations made under this paragraph will be subject to the negative resolution
procedure (as under the current legislation). The provisions of this paragraph have
been published in draft on the DTI web site.

Schedule 12: Arrangements in which registered third country auditors are required to
participate
558. Paragraph (6) empowers the Secretary of State to specify the arrangements
that a third country auditor must participate in under paragraphs (1) and (2) of
Schedule 12 (as contained in clause 839). Where there exists two or more sets of
arrangements this allows the proper supervision and investigation of third country
auditors and is consistent with the requirements on non third country statutory
auditors. These are new powers that will be delegated to the Secretary of State.
This delegation will provide flexibility in the way that the requirement is clause
839 is implemented. An order made under this clause will be subject to the
negative resolution procedure as it is primarily technical in nature. The provisions
of this clause have been published in draft on the DTI web site.




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Schedule 13: Supplementary provisions with respect to delegation order
559. To ensure that the Secretary of State’s delegated power under clause 848
does not impose regulation without consultation, paragraph 7(3) empowers the
Secretary of State to decide (using expediency and necessity as the basis for his
decision) whether consultation is required on regulations or orders proposed by it.
An order made under this clause will be of a purely technical nature and thus
subject to the negative resolution procedure. The provisions of this clause have
been published in draft on the DTI web site.
560. Paragraph 11(2) empowers the Secretary of State to make transitional or
other supplemental provision as he thinks fit that will aid the resumption or
transfer of any of any functions to or from his delegate under clause 848.
Circumstances where this might be necessary include the transfer of an area of
responsibility between a recognised supervisory body and the delegate. Orders
made under this clause will be subject to the negative resolution procedure, as is
usually appropriate for orders of this nature. The provisions of this clause have
been published in draft on the DTI web site.
561. Paragraph 12 provides for the event that a delegation order under clause 848
is revoked. The Secretary of State is empowered by order to wind up and dissolve
the delegate and also to compensate its employees. As this would be a situation
requiring resolution in a limited period of time the delegation of this power, to the
Secretary of State, would provide him with the flexibility to deal with this
occurrence. As this power is limited to the dissolution of an existing delegate
rather than the appointment of a new one an order made under this clause will be
subject to the negative resolution procedure, consistently with clause 848(11). The
provisions of this clause have been published in draft on the DTI web site.

Part 34: Miscellaneous provisions

Clause 861: Transparency and corporate governance rules
562. It is proposed that the FSA be given powers to implement the EU
Transparency Obligations Directive (Directive 2004/109/EC, the “TOD”) by
making FSA rules. This level of delegation is justified by the FSA’s closeness to
the market and practitioners, its market knowledge, and by the need for the FSA
to be able to respond quickly in response to frequent and fast-moving changes in
the behaviour of financial markets and the innovation in the design of financial
instruments. The FSA is better placed than other entities to calibrate such
regulatory responses to market requirements.

     90A Transparency rules
563. Transparency of the ownership of significant blocks of shares and of the
control of the votes attached to those shares is necessary for the transparent
operation of equity markets and for corporate control to operate effectively.
Disclosure of financial and management information by issuers is required to
ensure that prices of those issuer’s securities accurately reflect the issuer’s real
value.
564. The TOD establishes rules on the disclosure of major shareholdings for
issuers whose securities are admitted to trading on a regulated market in the EU,
and their shareholders. The TOD also requires those issuers to disclose period
financial information and annual audited accounts. These rules must be


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implemented into domestic legislation no later than January 2007. Obligations
relate to both issuers and holders of votes attached to shares in the issuers.
565. All holders of specified interests in shares in UK public companies are
currently required to make public their major holdings as part of their ongoing
disclosure obligations, and in specific circumstances, such as takeover and merger
situations. The former obligations are set out in Part 6 of the 1985 Act, and the
latter in the City Code on Takeovers and Mergers (which currently operates on a
voluntary basis).
566. The current requirements for issuers to disclose financial information are
contained either in the listing rules or in the rules of the market to which their
securities are admitted. Existing periodic disclosure obligations are well-
established and seen as necessary for the effective transparency of company
performance and for holding management accountable. They are currently used to
impose disclosure obligations with respect to annual reports, half-yearly reports
and summary financial statements.
567. New section 90A(1)(a) of the Financial Services and Markets Act 2000
(introduced by clause 861 if the bill), combined with 90A(2), gives the FSA the
power to make rules to implement the TOD, to deal with matters arising out of
the Directive and its implementation and to make rules for the purposes of the
TOD. The TOD mandates less extensive restrictions on a narrower range of
companies than the Companies Act; however the power to make transparency
rules under section 90A of the Financial Services and Markets Act 2000 (inserted
by clause 861) is wider in two ways than is required purely to implement the
TOD. Giving the FSA the general power to make rules for the purposes of the
TOD gives it a reasonable amount of scope for the implementation of the
necessary obligations as well as the wider purposes drawn from the recitals to the
directive and implied by its provisions. Such purposes include ensuring coherence
with other Community legislation and improving investor confidence.
568. Firstly new section 90A(1)(b) will enable the FSA to require disclosures
about significant holdings of votes from issuers whose shares are traded on non-
regulated UK markets as well as those on regulated markets, and holders of votes
attached to the shares of those issuers. This extension into non-regulated UK
markets does not enable the FSA to impose requirements for periodic financial
disclosure on issuers whose securities are traded on those markets.
569. Secondly new section 90A(1)(c) will enable the FSA to require disclosure of
control of the votes attached to a share where a person has access to control of the
vote through holding a type of financial instrument which is not specified under
the Directive. Providing the FSA with discretionary powers to determine which
financial instruments will be captured enables it to reflect the changing markets,
and the changing interrelation between financial instruments (e.g. Contracts for
Difference - CFDs), and control of the shares underlying those instruments. The
flexibility of the FSA’s power will maximise the effectiveness of the disclosure
requirements, where frequent and rapid responses to change is potentially
required.
570. The FSA is required to consult on proposed rules and subject them to
rigorous benefit cost analysis, ensuring that the regime enables notification of
shareholdings in the most cost-effective way. Transparency rules and corporate
governance rules are to be made without prejudice to any other Part 6 rule-making
powers of the FSA.


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     90B Further provision about transparency rules
571. New section 90B limits the circumstances in which transparency rules made
under paragraphs (b) and (c) of section 90A(1) may be made and may apply.
Thus it imposes limitations on the transparency rules which apply outside the
scope of the Directive, to ensure that the rules will be consistent with and limited
to requiring the same disclosures as those that are required under the Directive.
572. Voteholder and issuer notification rules can only require notification of
information about the holdings of votes by a person, where that person’s level of
holding meets or crosses specified thresholds. The specific thresholds requiring
notification both for issuers and vote holders will be set out in the FSA rules.
573. There is some overlap between notifications required by the Panel on
Takeovers and Mergers in the City Code, and notifications required by the TOD.
New section 90B(7) enables the FSA to cross-reference the rules with the City
Code, which will enable alignment between the two sets of rules. This flexibility
ensures the regime can be better aligned with other EU notification regimes.

     90C Competent authority’s power to call for information
574. New section 90C permits the FSA to call for information from specified
classes of person. It does not contain any delegated powers for the FSA to make
rules under this section for the purposes set out in 90A.

     90D Corporate Governance rules
575. New section 90D confers a power on the competent authority to make rules
that will implement, enable the implementation of or deal with matters arising out
of Community obligations relating to corporate governance. These will cover
issuers whose securities are traded on a regulated market.
576. The purpose of this provision is to enable implementation of such obligations
through provisions in rules analogous to listing rules where the degree of flexibility,
scope of application and enforcement measures available with the listing rules are
appropriate. In particular, this power may be considered appropriate to implement
the requirement for listed companies to have either an audit committee or a body
performing equivalent functions to those set out in article 39 of the proposed new
Audit Directive. If such rules were considered the most appropriate way of
implementing this requirement, this power will allow the competent authority (in
this case the Financial Services Authority) to make rules to impose that
requirement on listed companies. Whether such rules provide the most
appropriate method of implementation for this provision will, however, be the
subject of a full and open consultation by the Government and the Financial
Services Authority. The power will also allow further community obligations that
relate to corporate governance to be implemented in this way should that be
considered most appropriate (in respect of the degree of flexibility, scope of
application and enforcement measures) after a full period of consultation.
577. Because these rules will not be made by a Minister, they will not be made by
statutory instrument or subject to Parliamentary control. In that respect, they are
identical to listing rules already made by the Financial Services Authority under
the Financial Services and Markets Act 2000.




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Clause 862 consequential amendments of the Financial Services and Markets Act 2000
578. Clause 862 makes consequential amendments to other parts of the Financial
Services and Markets Act 2000, related to the FSA’s Part 6 rule-making power.

Clause 863: Grants to bodies concerned with actuarial standards etc.;

Clause 864: Levy to pay expenses of bodies concerned with actuarial standards etc.;

Clause 865: Application of provisions to Scotland and Northern Ireland
579. Clauses 863, 864 and 865 extend the provisions of sections 16 to 18 of the
Companies (Audit, Investigations and Community Enterprise) Act 2004 (the
“C(AICE) Act”) so that the grant-making power under section 16 of that Act can
be exercised in relation to a wider list of matters as set out in subsection (2) of
clause 863 which amends section 16(2) of the C(AICE) Act by inserting new
paragraphs (l)–(t). This list as extended includes similar matters in relation to
actuarial oversight as those listed in paragraphs (a)–(k) in relation to accounting
and audit oversight. The power in section 17 to make provision by regulations for
a levy to be paid to the oversight body to cover its expenses by persons or bodies
described in the section is also extended to include the recovery of its expenses in
relation to the matters added to section 16(2) as paragraphs (l)–(t). The immunity
conferred by section 18 in relation to a body receiving a grant is thus extended to a
body, which could be the same body, in respect of activities relating to the
actuarial profession.
580. Clauses 863, 864 and 865 do not confer any power to legislate. Clause 864
amends the levy power in section 17 of the C(AICE) Act by allowing for
regulations made under that section to make different provision for different cases
and to include amongst the persons by whom the levy may be payable the
administrators, trustees or managers of pension schemes. It also disapplies the
hybridity rules in the standing orders of either House of Parliament. Given the
different types of actuarial services and firms making use of those services, it is
possible that, in specifying the persons to whom the levy is to apply, the hybridity
rules might otherwise be engaged. The intention is that the power would only be
used should the planned voluntary funding arrangements for the oversight
function prove unsustainable.
581. Subsection (6) of clause 864 provides that the amendments to section 17 of
the C(AICE) Act made by this clause have effect in relation to any regulations
made under that section after the bill becomes an Act, even if those regulations
impose a levy to meet expenditure incurred before the bill attained Royal Assent.
Subsection (7) of clause 864 amends the Pensions Act 2004. It removes a
restriction which that Act imposes on the Pensions Regulator relating to the
disclosure to the Secretary of State of restricted information in relation to pension
schemes. This information is relevant to the exercise of the Secretary of State’s
power under section 17 of the C(AICE) Act to specify in regulations persons by
whom the levy is payable.

Clause 866: Institutional investors: information about exercise of voting rights
582. Institutional investors own assets on behalf of clients and members and have
an obligation to manage those assets in their interests. Voting is central to the
exercise of ownership control and an important element in adding value to an
investee company. However, the ability of ultimate beneficiaries (e.g. members of

                                             94
a pension fund) to monitor institutional investors and hold them accountable for
their stewardship is limited in practice.
583. Clause 866, therefore, confers a power on the Secretary of State and the
Treasury to make regulations requiring certain categories of institutional investor
to provide information about the exercise of their voting rights attached to shares.
The proposed power would not preclude the adoption of a voluntary regime.
584. It is proposed that regulations made under this power would provide that the
institutional investors to whom the clause applies should disclose information on a
periodic basis. It is envisaged that this information would include:
       • which issuers’ shares they have interests in;
       • whether they have exercised votes attached to shares that they have an
          interest in; and
       • what resolutions they exercised such votes on and how they voted.
585. Subsection (2) sets out the types of institution that the regulations may apply
to. There is a power in subsection (3) to extend the application of regulations
made under this clause to other descriptions of institution or to exclude certain
types of institution from their application. This wider power could capture certain
investors, who exercise voting rights and are not captured by the definition in
subsection (2). Taking this wider power enables the Secretary of State and the
Treasury to amend the disclosure regime to ensure all appropriate institutions and
investors exercising voting rights can be captured, particularly as differing forms of
holdings in voting rights emerge.
586. Subsection (3) allows the Treasury or the Secretary of State to exempt certain
investors from the disclosure obligations, for example, where the benefits are not
proportionate to the cost.
587. Subsection (5) contains a power to provide in the regulations that this clause
is not to apply to certain shares. It also provides scope to determine which shares
on which sorts of markets will be subject to the regime. A wider regime
acknowledges that, whilst shareholder value is determined by shares owned in all
markets, disclosure obligations should be tempered by cost and efficiency
considerations.
588. It is envisaged that any regulations made under the proposed power would
require institutional investors to disclose information about the exercise of voting
rights attached to shares held by or on behalf of collective investment schemes in
which they have an interest. This is necessary to ensure that the disclosure
properly captures the shares in which such institutions invest, as they invest a
significant proportion of their funds through other collective investment schemes.
Subsection (7) captures “second-tier” institutions in the disclosure regime. While
it is acknowledged that institutional investors can have interests in “third” or even
“fourth-tier” institutions, limiting disclosure to “second tier” is considered
appropriate at this stage.
589. Subsection (8) confers a power on the Secretary of State and the Treasury to
specify in the regulations what information may be required under the regulations
within the boundary that the information must be about the exercise of voting
rights.
590. It is envisaged that the regulations would require disclosure of the specified
information at least to the institutional investor’s clients and members and
potentially to a wider public (given the public interest in disclosure of voting to

                                         95
help improve governance of listed companies). The proposed power is contained
in subsection (9). Consultation with industry before the proposed power is taken
will help to identify the most cost-effective approach to publishing information.
591. Detailed consultation will be undertaken before taking any power, and will
help determine the boundaries of what institutions, what shares and what
information is to be included in the regime. A regulatory impact assessment will be
provided.
592. Voting disclosure is increasingly being mandated internationally, and there is
a growing trend towards voluntary disclosure by institutional investors in the UK.
Having flexibility in drawing up any regulation will ensure international
developments in mandatory disclosure of voting, as well as changing voluntary
practices in the UK, can be taken into account. This will ensure that the most
effective regime is established at minimum cost.
593. Any regulations made under this clause will be subject to the affirmative
resolution procedure.

Clause 867: Disclosure of information under the enterprise act 2002
594. The clause will amend Part 9 of the Enterprise Act 2002 (“EA Part 9”) to
enable information to be disclosed by public authorities to individuals for the
purposes of private civil proceedings as specified in an order made using the
power. The order will determine what kind of disclosures can be made and for
what purposes. This amendment will change the information disclosure regime in
EA Part 9 as such disclosure is currently not permitted. This is a new power to be
exercised by the Secretary of State.
595. An order will be subject to the negative resolution procedure. EA Part 9
contains three order-making powers each of which is similarly subject to negative
resolution procedure. These are in sections 238(1)(c) and (5), 241(3)(c) and (6)
and 243(8) of the EA. The powers in EA section 238 enable the Secretary of State
to amend the list of legislation in Schedule 14 and to specify secondary legislation
by order. Information obtained by a public authority in connection with the
exercise of functions under such legislation is subject to the restrictions in EA Part
9. The powers in EA section 241 enables the Secretary of State to amend Schedule
15 and to specify secondary legislation by order. Information held by a public
authority subject to EA Part 9 may be disclosed to facilitate the exercise by a
person of functions under such legislation. The third power relates to overseas
disclosure and enables the Secretary of State to modify the matters that must be
considered before making an overseas disclosure. The new power is subject to
annulment as this is consistent with the other powers listed above to amend the
disclosure regime in EA Part 9.
596. The amendment does not impose a requirement for consultation to be
carried out before the power can be exercised. EA Part 9 does not currently allow
information to be released to business and individuals for the purpose of private
civil proceedings. Stakeholders such as enforcers and intellectual property rights
holders have highlighted that this is causing a problem for them and consequently
the Government is consulting on proposals to open a gateway for private civil
proceedings. The consultation closed on 18 November 2005. An early opportunity
has been taken to amend EA Part 9 in the Company Law Reform bill
notwithstanding the open consultation. A decision will have to be taken in the light
of consultation responses whether to amend the bill to remove the amendments to


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EA Part 9 or to announce that the amendment will not be commenced or to
proceed with the amendment. The consultation document can be viewed at:
www.dti.gov.uk/ccp/consultpdf/eapart9condoc.pdf.
597. The decision to take a power to specify the type of information which may be
disclosed and the kinds of civil proceedings for which it may be disclosed is based
first on the current uncertainty as to what the outcome of the consultation may be.
Following the consultation it may be necessary to consider further with
stakeholders what kind of information may be disclosed and for what kinds of
proceedings. Furthermore the information which may be subject to EA Part 9
depends on the Orders made under section 238 and hence there is a need for the
Order allowing disclosure for civil proceedings to be reviewed in the light of future
changes to the information covered by EA Part 9.
598. The power is constrained by excluding on the face of the bill the disclosure of
information which has been obtained in the course of competition investigations.
European law imposes a further implicit restriction on the disclosure of certain
information. Disclosure will also be constrained by the requirements of section
244 of the Enterprise Act which specifies considerations relevant to any disclosure.
599. The power could be used to allow disclosure of all information (other than
competition information and information subject to EC law restrictions on
disclosure) which public authorities hold for the purposes of all civil proceedings
or limited categories of information only or for limited types of civil proceedings
such as infringement of intellectual property rights or personal injuries actions
arising from dangerous or defective products.

Clause 868: Expenses of winding up
600. Clause 868(1) makes provision for the insertion into the Insolvency Act 1986
of a new section (section 174A) which makes provision for payment of the
expenses of a liquidation out of assets subject to a charge which when created was
a floating charge. A power has been included in new section 174A(2) to enable
provision to be made in secondary legislation restricting the application of the new
section to expenses whose amount has been approved by the holder of the floating
charge or the court. The matters covered by the power are of a kind which are
usually left by the Insolvency Act 1986 to be prescribed under secondary
legislation, and as with those provisions of similar kind in that Act the power will
be subject to the negative resolution procedure.

Part 35: Northern Ireland
601. This Part provides for the extension of company law and certain related areas
of legislation to Northern Ireland, and the repeal of existing Northern Ireland-
specific provision. There are no delegated powers in this Part.

Part 36: General supplementary provisions
602. This Part lays down general provisions in respect of the regulations and
orders that will be made under powers conferred by or under the bill. It gives
order-making powers to the Secretary of State or the Treasury to make
consequential amendments and transitional provision and savings in connection
with the commencement of any provision in the bill.




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Clause 880: Power to make consequential amendments etc
603. This clause confers on the Secretary of State and on the Treasury the power
to make provision amending, repealing or revoking enactments in connection with
the commencement of any provision by or under the bill. This power applies to
any enactment passed or made before the passing of the bill, any enactment
contained in the bill or its subordinate legislation, and any enactment passed or
made before the end of the session after that in which the bill is passed. Repeals
and amendments consequential on the company law provisions and made under
this power are additional and without prejudice to those made by any other
provision of the bill.
604. This power is essential to ensure that the changes in company law made by
the bill are reflected in other legislation which refers to or is dependent on
provisions repealed or amended by the bill. In particular, it provides for the
Secretary of State or the Treasury to extend any provision relating to companies to
other forms of organisation, and to make provision in other legislation
corresponding to any provision made by or under the bill in relation to companies.
605. Orders under this section are subject to negative resolution procedure. They
will be technical amendments and repeals or revocations of enactments.

Clause 882: Power to make transitional provision and savings
606. This clause confers on the Secretary of State and the Treasury the power to
make transitional provision and savings in connection with the commencement of
any provision made by or under the bill. Transitional provision and savings are
additional and without prejudice to those made in any other provision of the bill.
607. This power is necessary to ensure that necessary or expedient transitional
arrangements can be made as the bill is commenced without creating any difficulty
or unfairness. This means that it will be possible to modify the application of the
bill to existing situations so as to avoid trespassing on acquired rights, especially
those protected by the Human Rights Act 1998, and to ensure a smooth transition
from the old law to the new.
608. Orders under this section are subject to negative resolution procedure
because they will be limited to ensuring the transition between existing law and the
bill.

Part 37: final provisions

Clause 885: Commencement
609. Clause 885 makes provision for certain specific Parts of the bill to come into
force on the day that the Act is passed, or two months from that point. Subject to
those specific provisions, subsection 885(3) provides for the Secretary of State or
the Treasury (since some Parts of the bill, e.g. the transparency provisions in
clauses 861 and 862, are Treasury matters) to appoint, by order, the day on which
the provisions of the bill will come into force. This is a standard form
commencement order provision of a type common to much legislation.

Annex A: DELEGATED POWERS IN THE BILL


  Clause       Title                      Procedure             New or
                                                                restatement?
                                          98
Clause      Title                      Procedure              New or
                                                              restatement?
PART 1: GENERAL INTRODUCTORY PROVISIONS
PART 2: COMPANY FORMATION
8           Memorandum of              None                   Restatement
            association                                       with changes
11(3)       Statement of share          None (first example   New
            capital                     of “prescribed
                                        particulars”*)
* This table does not list all subsequent instances where the Secretary of
State may prescribe particulars, as set out in (retained) section 744 of the
1985 Act. These are mentioned in the body of the text.
PART 3: A COMPANY’S CONSTITUTION
20(1)     Power of Secretary of Negative  Restatement
          State to prescribe              (with little or no
          model articles                  change)
PART 4: A COMPANY’S CAPACITY AND RELATED MATTERS
PART 5: A COMPANY’S NAME
55(1)       Names suggesting           Affirmative            New
            connection government
            or public authority
56(1)       Other sensitive words      Affirmative            Restatement
            or expressions             (approval after        (little or no
                                       being made)            change)
57(1)       Duty to seek comments      Affirmative            Restatement
            of government                                     with changes
            department or other
            specified body
58(1)       Permitted characters       Negative               New
61(1)       Exemption from             Negative               New
            requirement as to use
            of « limited »
66(1)       Inappropriate use of       Negative               New
            indications of company
            type or legal form
67(2)       Name not to be the         Negative               New
            same as another in the
            index
68(2)       Power to direct change     Negative               New
            of name in case of
            similarity to existing
            name
72(1)       Procedural rules           Negative               New
82(1)     Requirement to        Affirmative                   New
          disclose company name
PART 6: A COMPANY’S REGISTERED OFFICE
PART 7: RE-REGISTRATION AS A MEANS OF ALTERING A
COMPANY’S STATUS

                                       99
Clause    Title                      Procedure     New or
                                                   restatement?
103      Application and  None                     Restatement
         accompanying                              (little or no
         documents                                 change)
109      Application and  None                     Restatement
         accompanying                              (little or no
         documents                                 change)
PART 8: MEMBERS OF A COMPANY
126(2)   Overseas branch  Negative                 New
         registers
PART 9: EXERCISE OF MEMBERS’ RIGHTS
137(1)    Power to require        Affirmative      New
          provision to be made in
          company’s articles
PART 10: COMPANY DIRECTORS
142(1)    Power to provide for       Negative      New
          exceptions from
          minimum age
          requirement
149(1)    Particulars of directors   Affirmative   New
          to be registered: power
          to make regulations
220(3)    Permitted use or           Negative      New
          disclosure by the
          registrar
237(1)    Power to increase                Restatement
                                     Negative
          financial limits                 (little or no
                                           change)
PART 11: DERIVATIVE CLAIMS AND ACTIOSN BY MEMBERS
242(4)    Whether permission to      Affirmative   New
          be given
246(3)    Granting of leave          Affirmative   New
PART 12: COMPANY SECRETARIES
256(1)    Particulars of        Affirmative        New
          secretaries to be
          registered: corporate
          secretaries and firms
PART 13: RESOLUTIONS AND MEETINGS
318(1)    Independence        Negative             New
          requirement
328(1)    Power to limit or   Negative/affirmative New
          extend the types of
          company to which
          provisions of this
          Chapter apply
PART 14: CONTROL OF POLITICAL DONATIONS AND
EXPENDITURE


                                     100
Clause   Title                       Procedure          New or
                                                        restatement?
343(6)   Liability of directors in   None               Restatement
         case of unauthorised                           (little or no
         donation or                                    change)
         expenditure
350(2)   Political expenditure       Affirmative        Restatement
         exempted by order                              (little or no
                                                        change)
PART 15: ACCOUNTS AND REPORTS
358(4)   Quoted and unquoted         Negative/affirmative New*
         companies
369(3)   Companies Act               Negative/affirmative New*
         individual accounts
377(3)   Companies Act group         Negative/affirmative New*
         accounts
382(1)   Information about           Negative/affirmative New*
         related undertakings
385(1)   Information about           Negative/affirmative New*
         directors’ benefits:
         remunerations
389(4)   Contents of directors’      Negative/affirmative New*
         report: general
394(1)   Objective and contents      Negative/affirmative New*
         of operating and
         financial review
397(1)   Contents of directors’      Negative/affirmative New*
         remuneration report
402(1)   Option to provide           Negative           Restatement
         summary financial                              (little or no
         statement                                      change)
403(1)   Form and contents of        Negative           Restatement
         summary financial                              (little or no
         statement: unquoted                            change)
         companies
404(1)   Form and contents of        Negative           Restatement
         summary financial                              (little or no
         statement: unquoted                            change)
         companies
422(4)   Filing obligations of       Negative/affirmative New*
         companies subject to
         small companies regime
423(3)   Filing obligations of       Negative/affirmative New*
         medium-sized
         companies
431(2)   Civil penalty for failure   Negative/affirmative New*
         to file accounts and
         reports
432(3)   Voluntary revision of       Negative           Restatement
         accounts etc                                   (little or no
                                                        change)


                                     101
Clause      Title                      Procedure             New or
                                                             restatement?
435(1)      Other persons              Negative              Restatement
            authorised to apply to                           (little or no
            the court                                        change)
440(1)      Power to amend             Negative              Restatement
            categories of permitted                          (little or no
            disclosure                                       change)
441(1)      Accounting standards       Negative              Restatement
                                                             (little or no
                                                             change)
442(5)      Reporting standards        Negative              Restatement
                                                             (little or no
                                                             change)
447(1)       Power to apply           Affirmative            Restatement
             provisions to banking                           (little or no
             partnerships                                    change)
450(1)       Parliamentary            (Describes             New
             procedure for certain    procedures in other
             regulations under this   clauses)
             part
All powers marked * in this part, while new, are within the scope of the
existing section 257 of Companies Act 1985.
PART 16: AUDIT
462(3)      The accountant’s           Negative              Restatement
            report                                           (little or no
                                                             change)
465(1)      Independence               Negative              Restatement
            requirement                                      (little or no
                                                             change)
469(1)      Scottish public sector     Affirmative (in the   New
            companies: audit by        Scottish
            Auditor General for        Parliament)
            Scotland
480(1)      Disclosure of terms of     Negative              New
            audit appointment
481(1)      Disclosure of services     Negative              Restatement
            provided by auditor or                           (little or no
            associates and related                           change)
            remuneration
492(1)      Senior statutory auditor   Negative              New
521(1)    Disclosure of        Negative                      New
          agreement by company
PART 17: PRIVATE AND PUBLIC COMPANIES
PART 18: ALLOTMENT OF SHARES
539(3)      Return of allotment by     None                  Restatement
and (4)     limited company                                  (little or no
                                                             change)
540(1)      Return of allotment by     None                  New
            unlimited company

                                       102
Clause    Title                     Procedure          New or
                                                       restatement?
542(6A)   Time for acceptance of    Affirmative        Restatement
          pre-emption offers                           (little or no
                                                       change)
PART 19: SHARE CAPITAL
PART 20: TRANSFER OF SECURITIES
585(1)    Transfer of securities:   Affirmative        New
          power to make
          regulations
586(1)    Transfer of securities:   Affirmative        New
          extension of powers
586(3)    As above                  None               New
587       Transfer of securities: Affirmative New
          supplementary
          provisions
PART 21: INFORMATION ABOUT INTERESTS IN COMPANY’S
SHARES
616(1)    Power to make further   Affirmative Restatement
          provision by regulation             (little or no
                                              change)
PART 22: TAKEOVERS, ETC
618(2)    Rules                     None (Takeover     New
                                    Panel Rules)
623(4)    Restrictions on           Negative           New
          Disclosure
633(1)    Levy                      Negative/affirmative New
640       Power to extend to Isle None (Order in       New
          of Man and Channel      Council)
          Islands
641(8)    Opting in and opting    Negative             New
          out
648       Power to extend to Isle None (Order in       New
          of Man and Channel      Council)
          Islands
PART 23: COMPANY INVESTIGATIONS
PART 24: UK COMPANIES NOT FORMED UNDER THE
COMPANIES ACTS
657(1)    Power to make           Negative New
         provision by regulations
659(2)    Unregistered            Negative Restatement
         companies                         with changes
PART 25: OVERSEA COMPANIES
661(1)    Duty to register          Affirmative        New
          particulars
664(3)    Accounts and reports:     Negative           New
          general
665(3)    Accounts and reports:     Negative           New
          credit or financial
                                    103
Clause   Title                      Procedure             New or
                                                          restatement?
         institutions
666(1)   Trading disclosures        Affirmative           New
667(1)   Offences                   Negative/affirmative New
PART 26: THE REGISTRAR OF COMPANIES
674(1)   Fees payable to the        Negative              Restatement
         registrar                                        with changes
679(1)   Prescribed forms etc       Definitional clause
680(1)   Registrar’s                Registrar’s           Restatement
         requirements as to form    rules/None            with changes
         and manner of delivery
681(1)   Power to require           Affirmative           New
         delivery by electronic
         means
683      Document not               Registrar’s rules     New
         delivered until received
685(1)   Informal Correction of     Registrar’s rules     New
         Document
686      Voluntary Replacement      Registrar’s rules     New
         of document
690(4)   Documents subject to       Negative              New
         directive disclosure
         requirements
693(2)   Annotation of the          Negative              New
         register
694(1)   Allocation of unique       Affirmative           New
         identifiers
700(1)   Form of application for    Registrar’s rules     New
         inspection or copy
701(4)   Form and manner in         Registrar’s rules     Restatement
         which copies to be                               with changes
         provided
702(4)   Certification of copies    None                  New
         as accurate
707(4)   The Registrar’s index      Negative              Restatement
         of company names                                 with changes
709(1)   Power to amend             Affirmative           New
         enactments relating to
         bodies other than
         companies
710(2)   Application of language    Negative              New
         requirements
712(2)   Documents relating to      None                  Restatement
         Welsh companies                                  (little or no
                                                          change)
713(2)   Documents that may be Negative                   New
         drawn up and delivered
         in other languages


                                    104
Clause    Title                       Procedure             New or
                                                            restatement?
714(2)    Voluntary filing of         Negative              New
          translations
716(2)    Transliteration of          Negative              New
          names and addresses:
          permitted characters
717(2)    Transliteration of          Registrar’s rules     New
          names and addresses:
          voluntary transliteration
          into roman characters
718(1)    Transliteration of          Negative              New
          names and addresses:
          certification
723       Supplementary               Registrar’s rules     Restatement
          provisions relating to                            with changes
          electronic
          communications
724(2)    Alternative to              Negative              New
          publication in the
          Gazette
725       Registrar’s rules           Definitional clause
PART 27: OFFENCES UNDER THE COMPANIES ACTS
PART 28: COMPANIES: SUPPLEMENTARY PROVISIONS
744(1)    Regulations about           Negative              Restatement
          inspection of records                             (little or no
          and provision of copies                           change)
748(2)    Service addresses           Negative              Restatement
                                                            with changes
PART 29: COMPANIES: INTERPRETATION
PART 30: COMPANIES: MINOR AMMENDMENTS
773(1)    Access to constitutional Negative                 New
          documents of RTE and
          RTM companies
PART 31: COMPANY LAW REFORM POWER
774(1)    Power to reform             “Super-affirmative”   New
          company law
PART 32: BUSINESS NAMES
790(1)    Name suggesting             Affirmative           New
          connection with
          government or public
          authority
791(1)    Other sensitive words       Affirmative           Restatement
          or expressions              (approval after       (little or no
                                      being made)           change)
792(1)    Requirement to seek         Affirmative           Restatement
          comments of                 (approval after       with changes
          government                  being made)
          department or other

                                      105
Clause     Title                      Procedure            New or
                                                           restatement?
           relevant body
794(1)    Name containing        Negative                  New
          inappropriate
          indication of company
          type or legal form
799(3)    Disclosure required:   Negative                  Restatement
          business documents etc                           with changes
801(2)    Disclosure required:   Negative                  Restatement
          business premises                                with changes
PART 33: STATUTORY AUDITORS
807        Meaning of “statutory      Negative             New
           auditor” etc
811(4)     Independence               None                 Restatement
           requirement                                     (little or no
                                                           change)
825(1)     Appointment of the       Negative               New
           Independent Supervisor
836(1)     The register of auditors Negative               New
837(1)     Information to be made     Negative             New
           available to public
838        Meaning of “third          Negative             New
           country auditor”
843(1)     Removal of third           Negative             Restatement
           country auditors from                           with changes
           the register of auditors
847(1)     Fees                       Negative             Restatement
                                                           (little or no
                                                           change)
848(1)     Delegation of the          Negative/affirmative Restatement
           Secretary of State’s                            with changes
           functions
857(3)     Minor definitions          Negative             Restatement
                                                           with changes
859(1)     Power to make          Negative                 Restatement
           provision in                                    (little or no
           consequence of changes                          change)
           affecting accountancy
           bodies
Schedule 11: RECOGNISED PROFESSIONAL QUALIFICATIONS
Para (8)   Requirements for        Negative Restatement
           recognition:                     (little or no
           examination                      change)
Schedule 12: ARRANGEMENTS IN WHICH REGISTERED THIRD
COUNTRY AUDITORS ARE REQUIRED TO PARTICIPATE
Para (6)   Specification of        Negative Restatement
           particular arrangements          with changes
Schedule 13: SUPPLEMENTARY PROVISIONS WITH RESPECT TO
DELEGATION ORDER

                                      106
Clause      Title                       Procedure           New or
                                                            restatement?
Para (7)    Legislative functions       Negative            Restatement
                                                            (little or no
                                                            change)
Para (11)   Other supplementary         Negative            Restatement
            provisions                                      (little or no
                                                            change)
Para (12)   Other supplementary         Negative            Restatement
            provisions                                      (little or no
                                                            change)
PART 34: MISCELLANEOUS PROVISIONS
861         Transparency and            None (FSA Rules)    New
            corporate governance
            rules
864         Levy to pay expenses of     Negative/affirmative Restatement
            bodies concerned with                            with changes
            actuarial standards etc
866(1)      Institutional investors:    Affirmative         New
            information about
            exercise of voting rights
867(1)      Disclosure of               Neative             New
            information under the
            Enterprise Act 2002
868         Expenses of winding up      Negative            New
PART 35: NORTHERN IRELAND
PART 36: GENERAL SUPPLEMENTARY PROVISIONS
880(1)    Power to make                 Negative            New
          consequential
          amendments etc
882(1)    Power to make                 Negative            New
          transitional provision
          and savings
PART 37: FINAL PROVISIONS
885         Commencement                None                New
                                        (Commencement
                                        Order)




                                        107
Annex B: DOCUMENT WHERE REGISTRAR PROVIDES FOR “FORM
AND MANNER” UNDER CLAUSES 680 AND 725 IN HER RULES


 Clause       Description of clause         Document
 9            Registration Documents        Application for Registration as a
                                            company containing, inter alia,
                                            statement of the intended address of
                                            the company and copy of articles of
                                            association
 10           Statement of initial          Statement of initial shareholdings
              shareholdings
 11           Statement of share            Statement of share capital
              capital
 12           Statement of guarantee        Statement of guarantee
 13           Statement of proposed         Statement of proposed officers
              officers
 14           Statement of                  Statement of Compliance
              Compliance
 19           Articles of association       Articles of association
 24           Notice to registrar in        Notice to registrar in case of
              case of entrenched            entrenched provisions
              provisions
 24 (2)–(4)   Notice to registrar in        Statement of compliance
              case of entrenched
              provisions
 25           Notice to registrar of        Notice to registrar of removal of
              removal of entrenched         entrenched provisions
              provisions
 25 (2)–(4)   Notice to registrar of        Statement of compliance
              removal of entrenched
              provisions
 27 (1)       Registrar to be sent          Amended articles
              copies of amended
              articles
 30 and 31    Resolutions and               See list in clause 30, subsection (1)
              agreements affecting a        (a) to (k). Note: includes all special
              company’s constitution        resolutions under 30 (1) (a)
              and Copies of
              resolutions or
              agreements to be
              forwarded and recorded
              by registrar
 33 (2)       Statement of company’s    Notice to registrar where company
              objects                   has altered its articles so as to add
                                        remove, or alter a statement of the
                                        company’s objects
 36 (1) (a)   Notice to registrar where Notice of alteration of constitution
              company’s constitution    specifying the enactment
              altered by enactment

                                      108
Clause       Description of clause         Document
36 (1) (b)   Notice to registrar where     Copy of constitution as altered by
             company’s constitution        enactment
             altered by enactment
36 (2)       Notice to registrar where     Copy of “special enactment”
             company’s constitution
             altered by enactment
57 (3) (a)   Duty to seek comments         Statement in application for
             of government                 registration (as a company) where
             department or other           request for approval of government
             specified body                department (or other body) for a
                                           company name has been made
57 (3) (b)   Duty to seek comments         Copy of any response received from
             of government                 government department (where a
             department or other           request for approval of company
             specified body                name has been made) in application
                                           for registration
57 (4)       Duty to seek comments         Statement by director or secretary
             of government                 that a request to a government
             department or other           department for approval of a
             specified body                company name has been made
                                           (applies where a company is obliged
                                           to send to the registrar “the
                                           instrument effecting” the change in
                                           its name e.g. a special resolution
                                           under clause 78)
57 (4) (b)   Duty to seek comments         Copy of any response from
             of government                 government department (applies
             department or other           where a company is obliged to send
             specified body                to the registrar “the instrument
                                           effecting” the change in its name
                                           e.g. a special resolution under clause
                                           78)
61           Exemption from                Statement that company meets the
             requirement as to use of      conditions for the exemption from
             “limited”                     the use of limited
65 (4)       Power to direct change        Notice to registrar of resolution
             of name in case of            passed following direction of
             company ceasing to be         Secretary of State to change name
             entitled to exemption
73 (5) (c)   Order requiring name to       Notice to registrar of determination
             be changed                    of Company Name’s Adjudicator
78 (1)       Change of name by             Notice where company has changed
             special resolution            its name by special resolution
79 (1) (a)   Change of name by             Notice to registrar
             means provided for in
             company’s articles
79 (1) (b)   Change of name by             Statement that the change of name
             means provided for in         has been made by means provided
             company’s articles            for the company’s articles
87 (1)       Change of address of          Notice to registrar of the change of
             registered office             address of the company’s registered

                                     109
Clause        Description of clause      Document
                                         office
88 (4)        Welsh companies            Notice to registrar of special
                                         resolution to amend register on
                                         company becoming or ceasing to be
                                         a “Welsh company”
90 (1) (c)    Re-registration of private Application (where company re-
and 94 (1)    company as public and      registering from private to public)
              Application and
              accompanying
              documents
90 (1) (c)    Re-registration of private Statement of compliance
(ii) and 94   company as public and
(3)           Application and
              accompanying
              documents
94            Application and            Statement of company’s proposed
              accompanying               name on re-registration
              documents
94 (2) (a)    Application and            Copy of special resolution that the
              accompanying               company should re-register as public
              documents
94 (2) (b)    Application and            Copy of company’s articles as
              accompanying               proposed to be amended
              documents
94 (2) (c)    Application and            Balance sheet, unqualified report by
              accompanying               company’s auditor on the balance
              documents                  sheet, written statement of
                                         company’s auditor
94 (2) (d)    Application and            Valuation report
              accompanying
              documents
95            Statement of proposed      Statement of proposed secretary
              secretary
97 (1) (c)    Re-registration of public Application (where company re-
and 100       company as private         registering from public to private)
(1)           limited company and
              Application and
              accompanying
              documents
97 (1) (c)    Re-registration of public Statement of compliance
(ii) and      company as private
100 (3)       limited company and
              Application and
              accompanying
              documents
99            Notice to registrar of     Notice to registrar
              court application or
              order
100 (1)       Application and            Statement of company’s proposed
              accompanying               name on re-registration
              documents

                                      110
Clause        Description of clause         Document
100 (2) (a)   Application and               Copy of resolution that the company
              accompanying                  should re-register as private limited
              documents
100 (2) (b)   Application and               Copy of company’s articles as
              accompanying                  proposed to be amended
              documents
102 (c) (i)   Re-registration of private    Application (where company re-
and 103       limited company as            registering from limited to
(1)           unlimited and                 unlimited)
              Application and
              accompanying
              documents
102 (1) (c)   Re-registration of private    Statement of compliance
(ii) and      limited company as
103 (3)       unlimited and
              Application and
              accompanying
              documents
103 (1)       Application and               Statement of company’s proposed
              accompanying                  name on re-registration
              documents
103 (2) (b)   Application and               Statement of initial shareholdings
(i)           accompanying
              documents
103 (2) (b)   Application and               Statement of capital
(ii)          accompanying
              documents
103 (2) (c)   Application and               Copy of company’s articles as
              accompanying                  proposed to be amended
              documents
105 (1) (c)   Re-registration of            Application (where company is re-
and 106       unlimited company as          registering from unlimited to
(1)           limited and Application       limited)
              and accompanying
              documents
105 (1) (c)   Re-registration of            Statement of compliance
(ii) and      unlimited company as
106 (3)       limited and Application
              and accompanying
              documents
106 (1)       Application and               Statement of the company’s
              accompanying                  proposed name on re-registration
              documents
106 (2) (a)   Application and               Copy of special resolution that the
              accompanying                  company should re-register as
              documents                     private limited
106 (2) (b)   Application and               Statement of initial shareholdings
(i) and 111   accompanying
(2)           documents and Form of
              statements required
106 (2) (b)   Application and               Statement of capital

                                      111
Clause        Description of clause            Document
(ii) and      accompanying
111 (3)       documents and Form of
              statements required
106 (2) (c)   Application and                  Statement of guarantee
and 111       accompanying
(4)           documents and Form of
              statements required
106 (2) (d)   Application and                  Copy of company’s articles as
              accompanying                     proposed to be amended
              documents
108 (1) (c)   Re-registration of public        Application (where a company is re-
and 109       company as private and           registering from public to private
(1)           unlimited and                    and unlimited)
              Application and
              accompanying
              documents
108 (1) (c)   Re-registration of public        Statement of compliance
(ii) and      company as private and
109 (3)       unlimited and
              Application and
              accompanying
              documents
109 (1)       Application and                  Statement of company’s proposed
              accompanying                     name on re-registration
              documents
109 (2) (b)   Application and                  Copy of company’s articles as
              accompanying                     proposed to be amended
              documents
114 (2)       Register to be kept              Notice to registrar of the place
              available for inspection         where a company’s register of
                                               members is kept
150 (1)       Duty to notify registrar         Notice to registrar where a change in
              of changes                       a company’s directors or of
                                               particulars contained in the register
150 (2)       Duty to notify registrar         Statement of particulars of new
              of changes                       director and consent to act
206 (4)       Copy of contract or              Notice to registrar of place at which
              memorandum of terms              copy or memoranda of director’s
              to be available for              service contract is kept and any
              inspection                       change in that place
214 (5)       Copy of qualifying third         Notice to registrar at place at which
              party indemnity                  copy or memoranda of qualifying
              provision to be available        third party indemnity provision is
              for inspection                   kept and any change in that place
217 (1)       Application for non-             Application
              disclosure certificate
222 (2)       Non-disclosure                   Notice to registrar where a change in
              certificate: change of           the protected address of a director
              address
223(1)        Revocation of non-               Notice of revocation
              disclosure certificate

                                         112
Clause        Description of clause            Document
225 (1) (c)   Lapse of non-disclosure          Notice to registrar of all of the
              certificate                      individual’s appointments together
                                               with certified copy of the death
                                               certificate
224 (5) (b)   Effect of revocation             Notice to registrar where company
                                               has been notified by the individual
                                               of a more recent address as his usual
                                               residential address
253 (1)       Duty to notify registrar         Notice to registrar where there has
              of changes                       been any change in a public
                                               company’s register of secretaries or
                                               in the particulars to be registered
253 (2)       Duty to notify registrar         Consent to act (as secretary where
              of changes                       notice given or a person having
                                               become secretary, or one of joint
                                               secretaries)
365           Alteration of accounting         Notice to registrar as to whether the
              reference date                   company’s previous accounting
                                               reference period is to be shortened
                                               or extended
383 (3)       Information about                 Full information about related
              related undertakings:            undertakings to be annexed to
              alternative compliance           annual return where omitted from
                                               accounts
422           Filing obligations of             Annual accounts and reports to be
              companies subject to             delivered to registrar by small
              small companies regime           company
423           Filing obligations of            Annual accounts and reports to be
              medium-sized                     delivered to registrar by medium-
              companies                        sized company.
424           Filing obligations of            Annual accounts and reports to be
              unquoted companies               delivered to registrar by unquoted
                                               company
425           Filing obligations of            Annual accounts, reports and
              quoted companies                 reviews to be delivered to registrar
                                               by quoted company
434 (2)       Application to court in          Notice of application to court and
              respect of defective             general statement of matters at issue
              accounts or reports              in the proceedings
434 (7)       Application to court in          Copy of court order or notice to
              respect of defective             registrar that application has failed
              accounts or reports              or been withdrawn
446           Preparation and filing of        Additional copy of accounts
              accounts in euros                translated into euros
449           Notes to the accounts            Separate document annexed to
                                               accounts
499           Notice to registrar of           Notice to registrar where a
              resolution removing              resolution is passed removing
              auditor from office              auditor from office
504 (1)       Notice to registrar of           Copy of notice
              resignation of auditor

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Clause        Description of clause           Document
508 (1) –     Copy of statement to be         Statement by auditor under clause
(2)           sent to registrar               506 of circumstances connected
                                              with his ceasing to hold office
532 (1)       Procedure for obtaining         Application for a trading certificate
              certificate                     as a public company
532 (1) (d)   Procedure for obtaining         Statement of compliance
              certificate
539 (2)       Return of allotment by          Return of allotment
              limited company
539 (3) (b)   Return of allotment by          Statement of capital
–(4)          limited company
540           Return of allotment of          Return of allotments
              new class of shares by
              unlimited company
552 (1)       Notice to registrar of          Notice
              sub-division or
              consolidation
552 (2) –     Notice to registrar of          Statement of capital
(3)           sub-division or
              consolidation
553 (4)       Re-conversion of stock          Notice to registrar
              into shares
553 (5)–      Re-conversion of stock          Statement of capital
(6)           into shares
Section       Notice to registrar of          Notice to registrar
122           alteration
CA1985
554           Notice to registrar of          Statement of capital
(inserts      alteration
new
subsections
1A–1B
after s.122
CA1985)
see 122
(1A–1B)
562           Reduction of capital            Copy of solvency statement
(inserts      supported by solvency
new           statement (Registration
subsections   of resolution and
135A–         supporting documents)
135C after
s.135 of
CA1985)
see 135C
(1) (a)
562 (see      Reduction of capital            Statement of capital
135C (1)      supported by solvency
(b)– (2))     statement (Registration
              of resolution and
              supporting documents)

                                        114
Clause        Description of clause           Document
562 (see      Reduction of capital            Statement made by directors
135C (5))     supported by solvency           confirming that solvency statement
              statement (Registration         was made within specified time and
              of resolution and               provided to members
              supporting documents)
Section       Registration of order           Copy of court order
138 CA        and minute of reduction
1985
563           Registration of court           Statement of capital
(amends       order
s.138 of
CA 1985)
Section       Disclosure by company           Return to registrar
169 (1)       of purchase of own
CA1985        shares
569           Statement of capital on         Statement of capital
(inserts      disclosure by company
new           of purchase etc of own
subsections   shares
1AA–2B
after s.169
of CA
1985) see
169
(1AA)–
(1B)
Section       Disclosure by company           Return to registrar
169A of       of cancellation or
CA1985        disposal of treasury
              shares
569 (see      Statement of capital on         Statement of capital
169 (2A–      disclosure by company
2B))          of purchase etc of own
              shares
571           177A Notice to registrar        Notice to registrar of payment made
(inserts                                      out of capital
new 177A
after s.177
of
CA1985)
see 177A
(1)
571 (see      177A Notice to registrar        Statement of capital
177A (3))
574 (2)       Register of debenture           Notice to registrar where register of
              holders                         debenture holders is kept and any
                                              change in that place
581 (1) (2)   Notice to registrar of          Notice to registrar
              redenomination
581 (2) (b)   Notice to registrar of          Statement of capital
–(3)          redenomination

                                        115
Clause     Description of clause            Document
583 (1)    Notice to registrar of           Notice
           reduction of capital in
           connection with
           redenomination
583 (2)–   Notice to registrar of           Statement of capital
(3)        reduction of capital in
           connection with
           redenomination
583 (6)    Notice to registrar of           Statement by directors confirming
           reduction of capital in          that reduction of capital is in
           connection with                  accordance with clause 582 (4)
           redenomination
600 (2)    Register to be kept              Notice to registrar of place where
           available for inspection         register of interests disclosed is kept
                                            and any change in that place
655 (2)    Companies authorised             Application by a company not
           to register under the            formed under the Companies Acts
           Companies Acts                   to register under the Companies
                                            Acts
661 (1)    Duty to register                 Return to registrar containing
           particulars (oversea             specified particulars and
           companies)                       accompanied by specified
                                            documents
661 (3)    Duty to register                 Return containing specified
           particulars (oversea             particulars of alteration in previously
           companies)                       registered particulars or documents
663 (1)    Registration under               Statement specifying an alternative
           alternative name                 name
           (oversea companies)
663 (2)    Registration under               Statement specifying a different
           alternative name                 name
           (oversea companies)
664 (3)    Accounts and reports:            Copies of accounts and reports
           general (oversea
           companies)
665 (5)    Accounts and reports:            Copies of accounts and reports
           credit and financial
           institutions (oversea
           companies)
670 (1)    Duty to give notice of           Notice to registrar where oversea
           ceasing to have                  company ceases to have any
           registrable presence in          connection with the UK requiring it
           the UK                           to register particulars
682        Agreement for delivery           Agreement
           by electronic means
685 (2)    Informal correction of           Form of consent to participate in
           document                         informal correction scheme
686 (1)    Voluntary replacement            Replacement document
           of document previously
           delivered
700 (1)    Form of application for          Application

                                      116
Clause        Description of clause        Document
              inspection or copy
712 (2)       Documents relating to        Certified translation
              Welsh companies
713 (1)       Documents that may be        Certified translations
              drawn up and delivered
              in other languages
714           Voluntary filing of          Certified translations
              translations
717 (1)       Transliteration of names     Transliteration of name or address
              and addresses: voluntary     (using other than Roman characters)
              transliteration into         into Roman characters
              Roman characters
756           Duty to notify registrar     Notice to registrar where company
              of certain appointments      has appointed anyone provided for
              etc                          in clause 756 (1) (a)–(c)
756 (3)       Duty to notify registrar     Notice of change in address for
              of certain appointments      service for person appointed under
              etc                          clause 756 (1) (a)–(c)
756 (4)       Duty to notify registrar     Notice to registrar where
              of certain appointments      appointment has been terminated
              etc
844 (4)       Secretary of State’s         Copy of direction of Secretary of
              power to require second      State under clause 844 (2) to be sent
              audit of a company           to registrar
844 (6) (a)   Secretary of State’s         Report of second auditor
              power to require second
              audit of a company




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