Comprehensive changes to simplify and improve company law have been unveiled
in the Company Law Reform Bill. The government published the long-awaited reforms
on Thursday 3 November, saying they would cut through unnecessary regulation,
simplify legislation and save businesses £250m a year.
Company law will be substantially rewritten to make it easier to understand
and more flexible. The plans are designed to help keep the regulatory burden
on business to a minimum, promote shareholder engagement and encourage a long-term
It is expected that business benefits from these proposals will come from
restructuring those parts of company law most relevant to small businesses,
making it easier for them to understand what they need to do; simpler rules
for forming a company; abolition of the need for a company secretary; making
AGM opt in rather than opt out; and new model articles.
There will also be benefits from a range of other measures, including greater
clarity on directors' duties, including making clear that they have to act
in the interests of shareholders, but need to pay regard to the longer term,
the interests of employees, suppliers, consumers and the environment; greater
use of e-communications and removing the need for hard copy share certificates;
and an option for all directors to file a service address on the public record
rather than a private address.
Shareholder engagement will also be promoted through enhancing the powers
of proxies and making it easier for indirect investors to be informed and exercise
governance rights in the company.
The Bill also includes proposals to introduce auditor liability and boost
audit quality including allowing shareholders to agree to limit the auditors'
liability to the company, so the financial liability of the auditor relates
to the auditors' responsibility for the loss; greater rights for shareholders
to question auditors and named partners for audit reports; and audit reports
to give the name of the individual lead auditor, as well as the audit firm
(although provision is made for confidentiality in exceptional cases).
The Bill also includes a new offence for recklessly or knowingly including
misleading, false or deceptive matters in an audit report.
The Company Law Reform Bill will also be used to implement the EU Takeover
Directive, placing the work of the Takeover Panel on a statutory footing. It
will implement the company law aspects of the European Transparency Directive
(relating to disclosure of shareholdings), where the Bill would make the Financial
Services Authority (FSA) the competent authority for the rules which will be
broadly similar to the current rules under part 6 of the 1985 Act. It also
implements aspects of the EU Audit Directive.
A power is provided to require institutional investors to disclose how they
have use their votes. The Bill also paves the way for the Financial Reporting
Council to undertake regulation of the actuarial profession, following the
Penrose report into Equitable Life.
The Bill includes a company law reform power to allow faster updating and
amendment of company law in future, subject to rigorous consultation and Parliamentary
Trade and Industry Secretary Alan Johnson said:
"These measures represent a significant step forward in ensuring that
our company law remains up to date, flexible, and accessible for everyone who