Margaret
Hodge: I welcome the general remarks made by those who
speak for the Opposition parties. I look forward to getting on with the
meat of this complex Bill.
It might not surprise the
Committee that I asked precisely the same question about clause 8. I do
not know whether my question was the result of my naivety in trying to
get to grips with the matter or whether it was sensible. All I can do
is offer the response given by my officials.
I was told that after
discussions across the board with interested parties, and after the Law
Commission review of company law, everyone felt that it was important
to preserve the fundamental principle of company law—it has been
part of our law for ever—that a company is an association. As a
result, we decided to keep the memorandum. It is almost a historical
document. Once set, it can never be amended. It is a record of the fact
that people have come together in an association and agreed to form a
company. That
principle provides the flexibility that I am told is the key feature
that underpins company law. However, information on how functions and
powers are allocated between directors and members of companies will in
future be in not the memorandum, but the articles of association. Other
information contained in the 1985-style memorandum will be provided in
the form of a statement. To underpin that principle, which informs all
company law, we have kept the memorandum, although its purpose will be
very
different.
Mr.
Djanogly: I hear what the Minister says, and I thank her
for her response. She spoke about preserving and underpinning the
principle, but if there is no practical or legal reason for it, why
should not the Government reconsider the matter? She might like to have
another look at it.
We support the principle of
moving away from a memorandum. If we are going to go half
way—this will come up in later amendments—it could be
confusing to have half of it left over. Why not get rid of it and move
on? I hear what the Minister says, but she might like to have a rethink
before consideration on
Report.
Margaret
Hodge: What I will do is undertake to write to the hon.
Gentleman and the hon. Member for Cambridge (David Howarth) expressing
the legal reasons that have been given for maintaining the memorandum.
If they are still unhappy with my explanation, we can return to the
issue on
Report. Question put
and agreed
to. Clause 8
ordered to stand part of the
Bill.
Clause
9Registration
documents
Mr.
Djanogly: I beg to move amendment No. 2, in clause 9, page
4, line 16, leave out paragraph (b) and
insert— ‘(b) the address in
the United Kingdom where the registered office is to be
situated,'.
The
Chairman: With this it will be convenient to discuss
amendment No. 64, in clause 86, page 36,line 29, after
‘office', insert ‘in the United
Kingdom'.
Mr.
Djanogly: The clause replaces sections 2 and 10 of the
1985 Act, which refer exclusively to the delivery of a memorandum. The
Bill changes how certain information is delivered: information that is
set out in the memorandum will be provided to the registrar in
accordance with the clause, which describes, among other things, the
contents of an application for registration. It states that the
application must contain a statement of the intended address of the
company’s registered office and a copy of any proposed articles
of association. A
probing Opposition amendment tabled in Grand Committee in the Lords was
designed to find out why companies will need to state their country of
incorporation, as an objective of the Bill is to extend company law to
the whole of the UK. We feel that that point merits further
discussion. The
application for registration, which is covered by amendment No. 2, and
the resulting registered office, which is covered by amendment No. 64,
must be in England, Wales, Scotland or Northern Ireland, as set out in
part 6. In this globalised age, we are trying to simplify rules as much
as possible to facilitate companies doing business. One reason for
doing so is the certificate of incorporation, which will often need to
be sent to overseas companies or used in legal opinions to validate the
existence or good standing of a
company. As the clause
stands, the certificate will say that a company is incorporated in
England and Wales, in Scotland or in Northern Ireland. Frankly, that
could be confusing for foreigners, who like to think that they are
dealing with the United Kingdom. It would therefore
be easier if the certificate said, “Registered in the United
Kingdom.” That is what the amendments would
achieve. In Committee
in the Lords, it was mentioned that non-company laws, such as
insolvency laws, vary between the countries of the UK. In trying to
move the Lords debate on a bit, I say to the Minister that insolvency
processes can be started in any country, in the same way that a
Scottish and French company could agree to a contract under English
law. I am therefore not sure why it is necessary to have the country of
incorporation on the certificate. I ask the Government to consider the
issue.
Margaret
Hodge: As the hon. Gentleman said, the matter was
considered in Committee in the Lords. I appreciate the motivation that
underpins the reconsidered amendment before us, because in a sense it
seems overly bureaucratic to require that an application for
registration must state whether the company’s office is to be
registered in England and Wales, in Wales, in Scotland or in Northern
Ireland. As the hon.
Gentleman said, the main reason for that is that there are three
separate jurisdictions within the UK. He mentioned the need for clarity
for the international interests that will be involved in the operation
of UK companies, but I put the opposite point to him. For an
international organisation or somebody from abroad who wishes to engage
with a company in the UK, it will be more helpful to know which
jurisdiction they will have to deal with rather than have to attempt to
find out for themselves whether the jurisdiction is English and Welsh,
Scottish or Northern Irish. That will bring clarity to the increasingly
international nature of business
dealings. Mr.
David Jones (Clwyd, West) (Con): Appreciating all that the
Minister says about the jurisdictional points, is it not the case that
England and Wales is a unified jurisdiction? Why, therefore, is it
necessary to distinguish between England and Wales, and Wales?
Admittedly, there are certain language requirements in Wales, but that
is not a jurisdictional point. It is purely a procedural
one.
Margaret
Hodge: We have put that particular facility in place
because it will give a company the opportunity to opt for the
jurisdiction in which it wishes to operate. A company may want to take
advantage of special provisions that might apply, for example, to Welsh
companies. Taking the example of the Welsh language, a company may wish
to use the Welsh equivalent of “limited” or
“plc”, and provided it gives a translation, the company
may then file documents in Welsh. If a company wishes to do that, I see
no reason why we should remove or widen that
concession.
Mr.
Jones: I appreciate that fully, but surely this is not a
jurisdictional point. It is a matter of procedure and the filing of
documents. It does not relate to jurisdiction because England and Wales
are a unified
jurisdiction.
Margaret
Hodge: My notes say that it is a jurisdictional point, and
if a company wishes to take
advantage of the legal facilities that are available through
incorporation in Wales, it can do so. If the legal facilities are Welsh
facilities, we must spell that out in the place in which the company
incorporates itself. A
company pleading insolvency could start insolvency litigation wherever
it wished to do so. The hon. Member for Huntingdon (Mr. Djanogly) is
right in principle, but there is a strong presumption in EU insolvency
regulation that it is proper to start insolvency proceedings in the
place of incorporation. He will also know, if he has read the House of
Lords debate, that not only insolvency legislation, but property
legislation and disputes over registers, differ between the legislative
frameworks for the separate
nations. Justine
Greening (Putney) (Con): I am slightly confused by the
Minister’s comments about jurisdiction, mainly because, for
example, in part 16, which deals with the auditor offence that is being
introduced by the Government, there are separate clauses for England
and Wales, for Northern Ireland and for Scotland, but no separate
clause for Wales. I seek clarification as to whether the jurisdictional
position is separate, or indeed joint, for England and
Wales.
Margaret
Hodge: Separate parts of legislation may have a Wales-only
implication. I am referring in particular to the desire of a company to
do business in the Welsh language. That might be particular to Wales.
Other legislation will be relevant to companies where the jurisdiction
in England and Wales is the same. I do not dispute that, but if there
are clauses that are specific to Wales, we should not limit the
capacity of a company that wishes to choose to incorporate in Wales to
do so. That is all we are trying to
do. The requirement to
state the jurisdiction in which the company’s registered office
is situated might appear bureaucratic and purposeless, but in fact it
is much needed. It is neither outmoded nor, if I may say so, trivial.
If the amendment were adopted, other amendments would be needed to
determine, when relevant, the law applicable in the part of the UK in
which the registered office was
located. Amendment No.
64 is unnecessary because a company’s registered office must
always be in the jurisdiction chosen when it was incorporated. There is
no provision for the change of jurisdiction. A company’s
registered office can be changed only by giving notice to the
registrar, so it is impossible for the registered office to be moved
elsewhere. With that
explanation and response to issues raised by hon. Members, I hope that
the amendment will be
withdrawn. 10.30
am
Mr.
Djanogly: My hon. Friend the Member for Clwyd, West (Mr.
Jones) made an important point: we have to differentiate between
jurisdiction and mechanics. He made that point
well. One of the better
aspects of the Bill is the merger of Northern Ireland with England and
Wales for the purposes of company law. That will save time and
provide transparency. We thought that the amendment went down the same
route. The Minister has a point: the proposed changes would require
knock-on amendments. However, we do not believe that the amendment is
any worse because of that. Nevertheless, I hear what she says, and I am
pleased that we have had the debate. On that basis, I beg to ask leave
to withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
9 ordered to stand part of the
Bill.
Clause
10Statement
of capital and initial
shareholdings
Mr.
Djanogly: I beg to move amendment No. 3, in clause 10,
page 5, line 2, leave out subsection (1) and
insert— ‘(1) The articles of
association of a company on its incorporation shall contain a
statement, which must comply with this
section.'. The
clause relates to sections 2(5)(a) and (c), 6 and (6A) of the Companies
Act 1985 and effectively accepts a recommendation by the company law
review to abolish the requirement on a company to have an authorised
share capital. In future, the memorandum will contain only a limited
amount of information on a company’s founder members—the
subscribers to the memorandum. Information about the shares subscribed
for by them, which is currently set out in the memorandum itself, will
in future be provided to the registrar in the form of two statements
made inthe application for registration—one of initial
shareholders, and one of share
capital. The statement
of initial shareholdings must contain the names and addresses of the
subscribers to the memorandum. In all cases, the requirement is for a
contact address. House of Lords amendments took issue over the point at
which names and addresses of initial shareholders of a company should
first be published. The Bill required that to be at the point of
formation, but the amendments would require it to be at the time of the
first annual return. My
noble Friends argued that it was better to have a later declaration
when it was more meaningful than one at the formation of the company,
as the Government argued, when individuals were often essentially
nominees. We do not intend to review that debate. However, to return to
an earlier point, why is there the need for a separate form? We think
that the Bill should be about limiting forms to the bare
minimum. In any event,
newly formed companies will often include in their articles details of
the share capital on incorporation. So making that compulsory and
removing the form would be uncontroversial. That form might be linked
to the implementation of the EU second company law directive 77/91/EC,
but I do not see why that could not be complied with by using the
articles to provide the information, rather than another
form.
Margaret
Hodge: It is important that we consider clause 10 against
the background of other provisions, particularly those in part 19 on
share capital, which requires certain types of company to provide an
updated statement of subscribed capital whenever the subscribed capital
changes. The statement required in clause 10 is essentially a snapshot
taken at the time of the formation of the company, as the hon.
Gentleman said. It is likely to be superseded over time by further
statements of the same sort—for example, if new shares are
allotted or the company’s share capital is reorganised. The
question then becomes where those statements should appear. The choice
seems to be among the memorandum, the articles or, as the Bill
provides, a separate statement. I shall explain why we believe that a
separate statement is the right
approach. As we have
discussed, the memorandum will contain nothing other than the
historical information. As the statement of capital will change over
time, that does not appear to be the appropriate place in which to put
the statement. On the face of it, as the hon. Gentleman said, using the
articles makes more sense. I can see why he is attracted to the logic
of that argument. Articles contain information of ongoing relevance
about the company and may, on occasion, need to be
updated. However, there
is a requirement in the law that whenever any element of the articles
is changed, a full new and updated copy of the articles has to be
produced and filed with Companies House. That requirement is sensible,
ensuring that those who need to consult the articles will never need to
look in more than one place to understand all the provisions contained
in them, but the implications could be onerous if the statement of
capital was involved. Some companies may well change their subscribed
capital frequently, and certainly more frequently than we would expect
them to change other elements of their articles. It would be excessive
to require them to produce a fully revised new set of articles every
time they changed their share
capital. We have taken
a pragmatic approach. The Bill provides for the statement to be an
independent element of information that will appear separately on the
Companies House register and which will be easier to identify by
searchers of the
register.
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