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Deregulation (Resolutions Of Private Companies) Order 1996

Volume 572: debated on Tuesday 7 May 1996

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3.21 p.m.

rose to move, That the draft order laid before the House on 25th March be approved [17th Report from the Delegated Powers Scrutiny Committee].

The noble Baroness said: My Lords, the draft order under the Deregulation and Contracting Out Act 1994 will make some minor but important changes to company law. The changes affect the procedures which private companies must follow in respect of written and elective resolutions and can be summarised as follows. First, the present requirement for a minimum of 21 days' notice to be given of a meeting at which an elective resolution is to be proposed would be removed. That would allow such meetings to be held at short notice. But the dispensation would apply only where all members entitled to attend and vote at the meeting were agreeable to the short notice.

The second change relates to the passing of written resolutions under the Companies Act. At present, copies of proposed written resolutions must be sent to a company's auditors. If the resolution concerns the auditors as auditors they may, within seven days, give notice to the company that it should be considered in a general meeting of the shareholders. The resolution will not be effective unless the auditors inform the company that the resolution does not concern them as auditors, or that it does but need not be considered at a general meeting. If the auditors do not contact the company it must wait the full seven days before the resolution can come into effect.

That requirement has proved burdensome and time consuming. It has also been questioned whether the procedures apply to those companies which do not have auditors; for example, because they are dormant. As a result, the written resolution procedure is seldom used by private companies. They often resort to calling meetings instead and accept the additional expense incurred.

The draft order will, if accepted by your Lordships, reduce those burdens. The only requirement would be to send a copy of a proposed resolution to the auditors or to notify them in some other way of its contents at or before the time it is given to a member for signature. A breach of that requirement would be a criminal offence but would not affect the validity of the resolution. The order also provides certain defences for those responsible for complying with that requirement; namely, the directors and secretary of the company. The present requirement for auditors to be given seven days' notice of proposed written resolutions and for them to be able effectively to insist on a meeting being held would be repealed.

Finally, the draft order would amend the Companies Act to make clear that the statutory written resolution procedure may be used in addition to any provision for written resolutions in a company's articles. The company has a choice of which procedure it wishes to use.

In accordance with the usual scrutiny procedures under the Deregulation and Contracting Out Act there has been full public consultation on the draft order. It has also been considered by your Lordships' Select Committee on the scrutiny of delegated powers and the Deregulation Committee of another place. Under the original proposal for a draft order, which was laid before Parliament on 23rd October last year, the requirement to inform auditors of proposed written resolutions would have been revoked completely. A new requirement to send to outgoing auditors copies of agreed written resolutions which replace them with the new auditors would have been introduced.

The Deregulation Committee of another place expressed concern in its report that the proposal would remove some necessary protection from members of private companies. It therefore recommended, first, that auditors be sent copies of proposed written resolutions at the same time as members, or that they be informed of the contents of such resolutions no later than when they are first made available to members; secondly, that in order to enable auditors to provide advice to shareholders if requested to do so the proposed written resolution should not be adopted before notification of it has reached the auditors; and thirdly, that the requirement to notify auditors of proposed written resolutions should not apply to the category of companies which are not required to appoint auditors.

The Government considered carefully those proposed amendments and the draft order now before the House reflects the committee's recommendation with one exception. The draft order does not require notification of proposed resolutions to reach the auditors prior to their adoption. The Government consider that to include such a requirement in the written resolution procedure would add little in terms of shareholder protection and would reintroduce uncertainty and delay. Companies would continue to be discouraged from using the procedure and would continue to call meetings instead. In short, the opportunity for deregulation would be lost.

I should also mention that the requirement in the original proposal for a draft order to send to outgoing auditors copies of agreed written resolutions which replace them with new auditors has not been carried forward. That was considered unnecessary since the auditors would be informed of all proposed written resolutions.

The Deregulation Committee has considered the amended draft order and has recommended unanimously that it should be approved. When your Lordships' Select Committee on the scrutiny of delegated powers considered the original draft order it stated that it saw no objections to the Deregulation Committee's proposed amendments. The committee considered that no necessary protection would be lost if the draft order were made and it considered it an appropriate order to be made under the Deregulation and Contracting Out Act. In its second report, your Lordships' committee reported that the draft order now before your Lordships' House was in a form satisfactory to be submitted to the House for affirmative resolution. Finally, the committee reported that there was nothing in the draft order which the Joint Committee on Statutory Instruments would have needed to draw to the special attention of each House. I commend the draft order to the House.

Moved, That the draft order laid before the House on 25th March be approved [ 17th Report from the Delegated Powers Scrutiny Committee].—( Baroness Miller of Hendon.)

On Question, Motion agreed to.