Second Standing Committee on Statutory Instruments, &c.




Wednesday 2 December 1992


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The Committee consisted of the following Members:


Ainsworth, Mr. Robert (Coventry, North-East)

Bell, Mr. Stuart (Middlesbrough)

Berry, Dr. Roger (Kingswood)

Betts, Mr. Clive (Sheffield, Attercliffe)

Boswell, Mr. Tim (Daventry)

Bruce, Mr. Malcolm (Gordon)

Byers, Mr. Stephen (Wallsend)

Cann, Mr. Jamie (Ipswich)

Cohen, Mr. Harry (Leyton)

Hamilton, Mr. Neil (Parliamentary Under-Secretary of State for Corporate Affairs)

Knapman, Mr. Roger (Stroud)

Page, Mr. Richard (Hertfordshire, South-West)

Stephen, Mr. Michael (Shoreham)

Thomason, Mr. Roy (Bromsgrove)

Townsend, Mr. Cyril D. (Bexleyheath)

Trend, Mr. Michael (Windsor and Maidenhead)

Willetts, Mr. David (Havant)

Wolfson, Mr. Mark (Sevenoaks)

Mr. R. G. James, Committee Clerk.

3 Second Standing Committee on Statutory Instruments, &c. Wednesday 2 December 1992

[MR. ROBERT HICKS in the Chair]

Companies (Fees) (Amendment) Regulations 1992

10.30 am

The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Neil Hamilton): I beg to move, That the Committee has considered the Companies (Fees) (Amendment) Regulations 1992.

The Chairman: With this we shall also discuss the draft Oversea Companies and Credit and Financial Institutions (Branch Disclosure) Regulations 1992 and the draft Companies Act 1985 (Disclosure of Branches and Bank Accounts) Regulations 1992.

Mr. Hamilton: Before I embark on a short expatiation on the merits of the regulations, it would be remiss of me not to draw the Committee's attention to a matter of considerable importance: my hon. Friend the Member for Daventry (Mr. Boswell) is 50 years old today. The purpose of the regulations is to implement two EC directives—the eleventh company law directive and the bank branches directive, which were both adopted in 1989. The eleventh directive deals with the filing of company documents, including annual accounts, by branches of limited companies that are incorporated outside the member state in which the branch is operating. The bank branches directive sets requirements for the disclosure of the accounting documents of credit or financial institutions. Both directives thus deal entirely with registration and accounting requirements for non-British companies which work through branches in this country. We are debating three sets of regulations today that implement those directives. To help hon. Members, I have made available the forms and guidance notes that will be used in operating the regulations. The Oversea Company and Credit and Financial Institutions (Branch Disclosure) Regulations 1992 are addressed to non-British companies. I shall refer to those as the main regulations. The Companies Act 1985 (Disclosure of Branches and Bank Accounts) Regulations 1992 are addressed to British companies. The Companies Act (Fees) (Amendment) Regulations 1992 set out the fees that will be charged in operating the main regulations. Although we are considering the implementation of the directives in Great Britain, I want to say a word about the implications of the directives for British companies operating through branches in other member states. The directives are of considerable help to British companies because they prevent other member states from imposing excessive demands for information from branches—in other words, one of the hidden barriers to the completion of the single market. I welcome them in that light. The regulations implementing the directives are technically complex, because Britain already has a registration regime for foreign companies. This "place of 4 business regime" is contained in the Companies Act 1985. It requires a foreign company to register if it sets up any form of permanent presence here. For the time being, the existing registration regime must continue for operations that conduct functions that are solely ancillary or incidental to the parent company, such as a warehouse or internal data processing facilities. The regulations introduce branch registration for the rest. Companies will be required to register a branch if the presence here is sufficient for people to be able to transact business as they would with the parent company. That is a branch within the meaning of the directives. It is not a branch in the sense in which we usually or colloquially know it, such as the branch of a bank or a local office. "Branch" is used for the purposes of registration rather more in the sense of a subsidiary of a foreign company, but one that is not separately incorporated. It is important that companies understand that distinction, as the directives, and therefore the regulations, require the separate registration of each branch. It is in nobody's interest for companies to register each of their individual offices if they are joined within a common managment structure and can be regarded as a single branch. I have spent some time explaining the difinition of branch and the two registration regimes because they are crucial to understanding the main regulations. We issued a consultative document on the implementation of the directives to more than 700 organisations and individuals, as well as making it available in the Library. The definition of branch and the problems of the dual regime were the issues about which most respondents were concerned. Many of them said that deciding between registration regimes was potentially confusing or expensive. Both my right hon. Friend the President of the Board of Trade and I support the view that an up-to-date system of company law helps to reduce the burden of regulation on business and generally promotes the competitiveness of industry. Those are both high priorities for my Department and we are looking at ways of improving selected areas of the Companies Act, 1985. You may wonder, therefore, Mr. Hicks, why I am bringing in this dual regime. We have a Community obligation to implement the directives by the beginning of next year. We cannot lecture others about not meeting their obligations if we ourselves fail to do so because we are unable, at the moment, to find the legislative time to resolve the problems of our existing regime. There are benefits, too, not only for British companies, but for foreign companies operating here. But I can assure the Committee that the regulations have been designed to make the operation of the dual regime as easy as possible for companies. First, those already registered will not need to file again details of their directors and secretary or their constitutional details and will not have to pay to re-register in the transitional period. Secondly, we have provided a clear set of guidance notes, which have been made available to hon. Members, to help companies understand what is required of them. I am grateful for the help that we have received in preparing the notes from the many organisations which have replied. The comments received about what should be explained were useful and the guidance notes were amended to take account of those comments. It is an excellent example of the Government and industry working together to ease the impact of a regulatory change and reduce the costs of compliance. 5 The most important benefit for companies registered under the branch regime is that from next year most of them will no longer have to prepare a different set of accounts for this market. Known as the section 700 accounts, they are the sort of accounts that a British company would have had to prepare in the 1960s. In future, foreign companies will instead be able to file the accounts that are prepared, audited and disclosed according to their home state law. In general that will provide us with far more information than is provided in the section 700 accounts. Therefore, it should be more informative, as well as less burdensome, for the companies. As a protection, if accounts are not required to be disclosed in the home state, section 700 accounts will still be required. Therefore, if the disclosure requirements are less than what we already require under the existing provisions, the regulations will ensure that the disclosure is still required. The arrangements for bans are slightly different, but the effect is to allow them to disclose here their home state accounts. Hon. Members will have noticed that the regulations that we are debating today are different from those first laid. The Joint Committee on Statutory Instruments reported that, in its view, we had exceeded the vires of the European Communities Act 1972 in setting the level of penalties for failure to comply with the regulations. There is more than on school of thought on the extent of the vires in that respect, but to avoid delaying the implementation of the directives we have amended the regulations in the way sought by the Joint Committee. These regulations clearly show the change. As I explained, the second set of regulations, the Companies Act 1985 (Disclosure of Branches and Bank Accounts) Regulations 1992, is addressed to British companies. The eleventh directive requires all companies to disclose in the directors' report "the existence of branches of the Company". That provision was inserted into the directive at the request of the European Parliament, so that those dealing with a company would be aware of the extent to which it operates through branches; subsidiaries already have to be disclosed. The Department consulted on the basis that that would mean disclosing the addresses of branches. Those responding argued that that was too onerous an interpretation. I have been pleased to respond to that concern and the regulations now merely repeat the words used in the directive. The regulations also make some technical changes arising from the implementation of the bank account directive and to reflect changes to the definition of credit institutions introduced by the main regulations. The third set of regulations is the Companies (Fees) (Amendment) Regulations 1992. They provide for the fee levels that Companies house will charge companies for registration of branches and inquirers to inspect the data held. Those fees are in line with those charged to domestic companies and will be subject to the same controls. We are not debating the forms regulations here today or the guidance notes, but I have made them available so that hon. Members can see how the whole package will work. The regulations are complex. They serve the dual purpose of keeping the burdens on companies to a minimum, while providing adequate disclosure of information for those dealing with the companies.


10.38 am

Mr. Stuart Bell (Middlesbrough): May I first add my congratulations to the hon. Member for Daventry on reaching the age of 50 today. I am sure that he does not feel as one of our former colleagues, Sir Harold Nicholson, did many years ago, when he wrote in his diary that he was entirely devastated to reach the age of 50. As it happened, he lived until 84, so perhaps there is a precedent there for the hon. Gentleman. May I also say how glad I am to see the hon. Member for Havant (Mr Willetts) in his place. He has the distinction of being mentioned on page 10 of Lord Lawson's memoirs. Most of us have only managed to reach page 10. We shall have to journey on through the long Christmas recess to see whether he is mentioned again. But it is nice to see that someone who started as a research assistant is now sitting where the master sat many years ago. I thank the Minister for giving us what is, as he said, a technical report on some technical amendments. I notice that all the regulations must come into force on 1st January 1993 and that they flow from directives adopted by the Council of Ministers on 21st December 1989 and 13th February 1989. It would appear that the House is on schedule in bringing forward not only the directives, but the rules and regulations that go with them. I wonder how far ahead we are of many of our Community partners in modifying our laws to comply with the Single European Act 1986. The eleventh directive deals with the filing of company documents, including annual accounts, by branches of limited companies incorporated outside the member state in which the branch is operating. The bank branches directive sets different requirements for the disclosure of the accounting documents of credit or financial institutions. The branch registration regulations implement both directives and the regulations amend the current place of business registration regime for overseas companies contained in part XIII of the Companies Act 1985. We could have a long debate on whether the regulations are properly entitled. I think that "Oversea Companies" should be "Overseas Companies", as we are clearly operating abroad over more than one sea, but I shall not delay the Committee unduly on that aspect. It is interesting to note that the regulations modify the Companies Act 1985. There are also technical changes to sections 228, 255A, 255B and 262 of the Companies Act 1985 which arise from the implementation of the bank accounts regulations. Opposition Members are not entirely sure how the Government can modify the Companies Act 1985 through the directives that flow from Brussels and the Council of Ministers, but seem reluctant to modify it on the Floor of the House. Clearly the Act can be amended to take into account the consequences of the Single European Act. The Committee must be thankful for small mercies, because if the hon. Member for Stafford (Mr Cash) were here today, and saw that we were modifying our legislation through directives of the Council of Ministers, he might have given us a two-and-a-half-hour speech on the subject. I shall not go down that line, but simply say that we are achieving legislative change through Europe that we cannot achieve on the Floor of the House. 7 In that context, I refer briefly to the Minister's speech, quaintly headed "Whither Corporate Governance?", which he made at the Henley management college to the Strategic Planning Society, a very noble body. Using a cryptic and Delphic phrase, he said: "Company law is voluminous and requires periodic maintenance." We are not entirely sure from that whether he intends in the next two years to introduce a New Companies Bill that will incorporate the changes and the compliance rules suggested by the Cadbury report which was published yesterday. Alternatively, he might be suggesting that the Government are suffering from legislative fatigue, do not wish to bring forward any further legislation and are not prepared to legislate on the internal regulation of companies, but prefer to leave it to the directives before us, perhaps the Government and the Department of Trade and Industry understand that, ultimately, we will need proper statutory regulation for companies through legislation on the Floor of the House, not simply through the regulations that we are debating today. When the Minister explained briefly why we were here today and why the regulations were being introduced, a voice from the Conservative Benches said "Hear, hear" sotto voce, as if to say "Yes, indeed". Opposition Members were wondering why we were here, too, but I am grateful to the Minister for his explanation and I am sure that he will wish to give us a further sign of his legislative intentions over the next two years.

10.44 am

Mr. Hamilton: I shall respond briefly to the remarks of the hon. Member for Middlesbrough (Mr. Bell). I have not yet, I regret to say, invested in a copy of Lord Lawson's memoirs. However, in the long watches of the night which stretch before us in all their majesty as the European Communities (Amendment) Bill proceeds, and a two-and-a-half-hour speech by the hon. Member for Stafford will seem small beer, there will perhaps be much enjoyment and diversion to be derived from reading some of the 1,100 pages of Lord Lawson's book. The hon. Member for Middlesbrough asked me about the implementation record of other member states on such issues. We understand that France, Germany, Belgium, Denmark, Spain and Greece have implemented the eleventh directive, while France, Germany, Greece and Luxembourg have implemented the bank branches directive. I cannot tell him the dates on which they will be implemented in the remaining member states, but they all have the same Community obligations as we do. Our main objective is that we should not be in default on the due date, 1 January 1993. However, it is not the policy of Her Majesty's Government to over-implement or do more than is necessary to fulfil our obligations unless we consider that that is advantageous to us for domestic reasons. Therefore, we have certainly not done so in the the regulations. The vires issue to which the hon. Gentleman referred—when he asked why we were not changing the Companies Act rather than implementing our obligations via the directives—is an important one and I do not play it down. We are not, via the directives, trying to get round our obligations in the limitations of the European Communities (Amendment) Bill, because primary legislation cannot be amended by means of secondary legislation. But we are maintaining the original definitions 8 for disclosure—the place of business regime—and adding the bank branches regime pending a legislative opportunity to sweep away the former. Therefore, there is the potential for some confusion, although I think that it will be minimal. Confusion could arise from the choice that companies will have to make, according to the guidance notes—that is the deficiency contained in the procedure that we are now adopting. There are two views on the issue of vires. Even lawyers disagree: they are of course paid to do so. The matter, therefore, was not free from doubt and was not one for which any blame could fairly be levelled at our legal advisers. The issue has been questioned and we have noted the observations. I cannot anticipate the business managers' decisions, but my hon. Friend the Member for Daventry will have heard the views of the hon. Member for Middlesbrough, who obviously knows—as he referred to my speech at the Henley management college the other day—that I am keen to use opportunities as they arise to tidy up the Companies Act and bring it up to date. It is in everybody's interests to make the Act, a useful vehicle that takes into account current circumstances, as far as possible. The hon. Member for Middlesbrough referred to the voluminous nature of the companies legislation. As the Minister responsible for deregulation I have this very much in mind. I was somewhat disturbed on my assumption of this office to take down from the bookcase two volumes of the Butterworth company law handbook and to discover that the 1980 volume, following one year of Conservative Government, contained 486 pages, but the 1991 volume, which at that time was the latest, had 3,544 pages. That does not seem to be consistent with our aim of reducing the burden of legislation and regulation generally. But the law does change and has to keep up to date—no doubt everything in it is included with that in mind. The hon. Member for Middlesbrough tempted me down the highways and byways of the Cadbury report, but I am sure, Mr. Hicks, that you would think that that fell some way outside the limited boundaries of this morning's debate. Therefore, I look forward to jousting with the hon. Gentleman on that topic at a future date. I shall content myself this morning with thanking him for his welcome for the regulations, which I commend to the Committee.

10.49 am

Mr. Bell: I am grateful for the Minister's comments and for his frank admission of the difficulties that the Government face over the vires rule—and modifying an Act of Parliament through a European directive. He has given us a refreshingly honest answer. Certainly we would not wish to take the Minister further down the road of the Cadbury report. I merely leave him with the kind thought of Aneurin Bevan: "He who fights and runs away fives to run away another day". In terms of Cadbury, however, we shall continue to chase him.

Question put and agreed to.

Resolved, That the Committee has considered the Companies (Fees) (Amendment) Regulations 1992.

9 Draft Oversea Companies and Credit and Financial Institutions (Branch Disclosure) Regulations 1992

Resolved, That the Committee has considered the draft Oversea Company and Credit and Financial Institutions (Branch Disclosure) Regulations 1992.

Draft Companies Act 1985 (Disclosure of Branches and Bank Accounts) Regulations 1992 10

Resolved, That the Committee has considered the draft Companies Act 1985 (Disclosure of Branches and Bank Accounts) Regulations 1992.—[Mr Neil Hamilton.]

Committee rose at nine minutes to Eleven o'clock.


Hicks, Mr. Robert (Chairman)

Bell, Mr.

Berry, Dr.

Betts, Mr.

Boswell, Mr.

Byers, Mr.

Cann, Mr.

Hamilton, Mr.

Knapman, Mr.

Page, Mr.

Stephen, Mr.

Townsend, Mr.

Willetts, Mr.

Wolfson, Mr.