Wednesday, 17 June 2009.
Arrangement of Business
Before the Minister moves that the first statutory instrument be considered, I remind noble Lords that in the case of each statutory instrument, the Motion before the Committee will be that it do consider the statutory instrument in question. I should make it clear that the Motion to approve each statutory instrument will be moved in the Chamber in the usual way. If there is a Division in the House, the Committee will adjourn for 10 minutes.
Companies Act 2006 (Part 35) (Consequential Amendments, Transitional Provisions and Savings) Order 2009
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Companies Act 2006 (Part 35) (Consequential Amendments, Transitional Provisions and Savings) Order 2009.
Relevant document: 16th Report from the Joint Committee on Statutory Instruments.
The draft statutory instruments which we are debating this afternoon are an important part of our implementation of the Companies Act 2006. The Act reformed and clarified company law in many areas and brought company legislation together in one place. The Act makes it easier to set up businesses, gives investors greater information and confidence, and promotes shareholder engagement and effective dialogue between business and investors.
The Act has been implemented in stages and these statutory instruments relate to provisions which are due to come into force in October 2009. This staged approach gave companies time to prepare, allowed us to coincide changes with parallel EU requirements and allowed Companies House to update its systems to support the new measures.
The first debate concerns two statutory instruments relating to the Registrar of Companies. The basic functions of the registrar are set out in Part 35 of the Companies Act 2006. This largely replaces the relevant provisions of the Companies Act 1985, but it provides new powers and duties for the registrar which will help Companies House maintain the register as a useful and accurate source of information for users. The draft Registrar of Companies and Applications for Striking off Regulations supplement Parts 31 and 35 of the Act by making more detailed provision in four areas: rectification of the register, annotation of the register, language requirements and an application by a company to have its name struck off the register.
The registrar does not currently have any statutory powers to remove information from the register, although the registrar will remove material if a court order authorises it. It was recognised on both sides of this House during the passage of the Bill that more needs to be done to address the filing of inaccurate, forged or fraudulent information on the register. The Companies Act 2006 introduces two new statutory procedures requiring the registrar to rectify the register—that is, to remove material from the register under court order or under a new administrative procedure on application to the registrar. The new administrative procedure has been introduced to permit certain information to be removed from the register without a court order. It is, we believe, an important step towards a more accurate register, although I should make it clear that it is not a panacea, and that matters requiring adjudication of competing claims should be left to the courts.
Under the draft regulations, it will be possible for an applicant to seek removal of company officers’ details from the register. Companies House will follow the procedure set out in the regulations and, if no objection is received, the material will be removed. It will also be possible for companies to seek removal of material relating to changes to a company’s registered office address. We believe that the way in which the provisions of the 2006 Act are framed in relation to a company’s registered office and the grounds for rectification effectively precludes the possibility of an applicant, other than a company, making an application in respect of a registered office address and prevents the administrative procedure being used at all in respect of a registered office address provided on incorporation of the company.
An earlier draft of the regulations was withdrawn in the light of fresh evidence that some companies were purportedly appointing directors without the consent or knowledge of the persons concerned. The earlier draft addressed this issue where there was a change of directors in an established company, but the revised regulations address it also where directors are purportedly appointed when a company is first set up.
We are very conscious that the provisions of the Act and the draft regulations do not provide a full answer to issues relating to the accuracy of the register, particularly where the company has provided fraudulent information. We will consider these matters further and if solutions can be identified, we are minded to consult on possible changes to the law in this area, including to the 2006 Act in due course.
The second area where the draft regulations make more detailed provision is annotation of the register. They authorise the registrar to annotate the register where he believes that any material is misleading or confusing.
The Act contains rules about the language in which documents can be drawn up and delivered to the registrar under company and insolvency legislation. The basic rule is that they must be drawn up and delivered in English. This does not apply to Welsh companies, which can deliver documents in Welsh so long as they are accompanied by an English translation. The draft regulations relax this exception further, prescribing documents relating to certain Welsh companies that can be delivered to the registrar in Welsh without a certified translation into English. The draft regulations also add further documents to the list of documents in the 2006 Act that can be delivered to the registrar in a language other than English, provided that they are accompanied by a certified translation into English. They also provide the characters and symbols that are permitted in names and addresses.
Finally, the draft Registrar of Companies Regulations require an application by a company to have its name struck off the register to contain a declaration that there are no circumstances as set out in Sections 1004 and 1005 that prevent the application being made.
It is important to Companies House and very helpful to business to have a coherent and consistent registration system for all types of business which are required to send material to Companies House. It has therefore always been our intention to apply provisions of Part 35, relating to the Registrar of Companies, to forms of business association other than companies. Some provisions already apply generally to companies and other bodies, but others, such as certain provisions relating to electronic delivery, must be applied to other bodies to provide a coherent system. It would be possible to do this by making consequential amendments to each individual area of law, but we believe that the legislation will be clearer and simpler if we amend Part 35 to achieve this. The draft Companies Act 2006 (Part 35) (Consequential Amendments, Transitional Provisions and Savings) Order will give effect to this.
I should make it clear that the amendments made by the draft order are relatively modest in their impact, being concerned essentially with procedural and administrative matters. The draft order does not seek to extend all the provisions of Part 35 and does not seek, for example, to extend the provisions about correcting or removing material on the register.
These instruments will make an important contribution to our efforts to make the register a useful and accurate source of information for users. I commend them to the Committee. I beg to move.
I thank the Minister for introducing the order and the regulations. I welcome him to his new department. The SIs are not particularly controversial, so I shall not detain your Lordships long, but perhaps I may ask a couple of quick and rather more general questions of the Minister.
The order is an amendment to Part 5 of the Companies Act 2006. If it has taken the ever-growing Department for Business, with all the resources at its disposal, until 2009 to work its way through the complexity and conclude that there is a need for it, one has to ask what hope there is for the small businessman trying to go through the entire pile of regulation and work out whether and how each item of it affects him.
The Explanatory Memorandum to the order says, under “Matters of special interest to the Joint Committee on Statutory Instruments”, that,
“the Order amends Part 35 itself”—
that is, Part 35 of the Companies Act—
“instead of making amendments to various pieces of legislation which contain functions of the registrar in relation to bodies other than companies”.
Is it easier for the layman if it is done that way rather than by amending the various pieces of legislation? If so, it would be helpful to understand why in a little more detail. I do not ask that with any formed opinion; I would just like to know, because it is important that steps should be taken to ensure that legislation and regulation are accessible and understandable to those being regulated.
With that in mind, my final question is rather more general. What steps are being taken to codify the huge volume of extant legislation and regulation so that a layman stands a chance?
Clearly, these regulations are appropriate and relatively straightforward, although I take the point that the noble Lord, Lord De Mauley, makes about the complexity of statutory instruments under this legislation. I have two points to make. First, I very much welcome the confirmation that the Minister gave that this area will be kept continually under review. I have some scepticism about whether the appetite of Parliament, under any party, for another Companies Act will be met in the foreseeable future, after living through the last one. As the Minister said, anecdotally there is beginning to be a bit of an increase in fraudulent formation of companies, with directors’ names being used who were never directors and never actually signed the consent form—somebody else forged their signature. Recognising that that is a problem, I welcome the undertaking that the Minister has given that this will be kept under review.
My second point is on a slightly more difficult question. I am always amused by the report that we, rightly, receive on consultation outcomes, when the phrase is used,
“the proposed approach was generally supported”.
I would always like to know what objections people had who did not generally support the proposed regulations. Clearly, we will not have a statement in this document, because it has already been written, but it would be helpful if the Minister could give some indication about the objections, because they are not stated and they are not obvious to me. If anyone is sitting behind him who can summarise it for him, I would be grateful.
I wonder whether I might impudently ask the Minister one or two gentle queries on the order before us today. First, I declare a very minor interest. I look around the Committee today to find the Minister, my noble friend and perhaps one or two other noble Lords who have ground through the years to become chartered accountants. Indeed, I am reminded of the musical, “Evita”, when the young lady says, “Somebody called me something unmentionable” and an old man says, “Yes, madam, they still call me an admiral, although I left the sea many years ago”. With regard to the accountancy profession, that is very much up my street.
The Minister referred at least twice to language. I beg him not to trouble himself today, but I hope that he can answer this impudent question in writing. The Minister referred twice to the language requirements, which are mentioned right at the bottom, in paragraph 4, Section 1059A(4), Sections 1102 to 1105 and 1107(18). I think that he mentioned Welsh. I had the opportunity to serve in Northern Ireland. I do not think that any cantankerous people would wish to have financial documents in Irish—or I doubt it. Do the language requirements cover other languages? I think particularly of oriental languages such as Japanese or Chinese, let alone Vietnamese. I understand that the Minister served in Vietnam. I was curious about that; perhaps he could reassure me that there should be no problem here. He referred to Welsh, which should be the only one.
On page 4, paragraph 13 refers to Section 1109(1) and,
“voluntary transliteration of name or address into Roman characters”.
Is there a problem there? I am curious as to quite what that refers to. I am not necessarily aware of that section in the Companies Act. Could the Minister reassure me that there is no problem there? If he cannot today, perhaps he could write to me as I would not wish at any time to delay the Committee.
The starting point is that Part 35 contains a mixture of provisions that apply generally and provisions that have either more limited application or that contain references to companies but which are essentially intended to apply generally. I hope that I will reassure the noble Lord, Lord De Mauley, that it takes relatively little to amend some of the provisions so as to generalise them or make it clear that they apply generally. That is more efficient than amending other legislation simply by writing in the provisions we want to apply with very little adaptation.
Our approach leaves Part 35 as the foundation of the law about the register’s function and material sent to the register. Other legislation will build on that foundation by applying the less straightforward provisions, including those that require greater adaptation to fit particular cases. An example of that is provided by limited liability partnerships. We intend to apply most of Part 35 to limited liability partnerships. The amendment made by the draft order will provide the foundation for that.
I am not sure that that actually deals with the noble Lord’s point. Unless I misunderstood it, the point was whether it would make it easier for lay people to deal with this issue. I am looking at my officials to see whether they will say yea or nay. In the mean time, I will deal with a point raised by the noble Lord, Lord Razzall about the proposed approach being generally supported. He asked what objections anybody had. We received relatively few written responses, but both the department and Companies House discussed them in detail with our leading stakeholders. We are not aware of any areas where our approach is not supported, other than those relating to rectification, which we have already said we will keep under review. So we have nothing up our sleeves on that one.
The noble Lord, Lord De Mauley, asked whether we would codify for clarity. We will not be codifying secondary legislation made under the Act, but we will publish guidance on the websites for the Department for Business, Innovation and Skills and for Companies House. We will also work closely with our leading stakeholders and leading publishers.
As regards the point the noble Lord, Lord Lyell, raised—we will confirm this in writing just to ensure I get it absolutely right—English is the preferred language but there are allowances for other languages provided that they are accompanied by a translation. The reference to Roman characters is shorthand for the characters set out in the schedule. Only these may be used in names and addresses in documents delivered to the registrar. Not a lot of people know that.
I hope that that has dealt with all the questions. As regards the point of the noble Lord, Lord De Mauley, we believe that this will be a reasonable procedure for lay people. Proof of that particular pudding will be in the eating.
Registrar of Companies and Applications for Striking Off Regulations 2009
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Registrar of Companies and Applications for Striking Off Regulations 2009.
Relevant document: 16th Report from the Joint Committee on Statutory Instruments.
Overseas Companies Regulations 2009
Considered in Grand Committee
We are today debating the draft Overseas Companies Regulations. They set out a simplified regime for registration of information at Companies House of companies incorporated overseas that operate their business in the United Kingdom through an establishment. We are talking not about UK incorporated subsidiaries of overseas companies, rather about overseas companies that are conducting their business through a local representative or have a small, permanently active base in the UK, such as a representative office, warehouse or shop. The regime concerns only obligations to file specified information in the UK at Companies House. The internal governance of companies incorporated outside the UK is for the law of the country of their incorporation.
In order to best protect UK creditors and the needs of law enforcement agencies, a regime has been prepared that continues to meet the EU requirements of the 11th directive for branches of overseas companies and also includes companies operating a place of business in the UK. The draft regulations include a revised accounting regime for overseas companies that is transparent, straightforward and up to date. Overseas companies will primarily file accounts prepared under the parent law of the country where the company is incorporated. However, where that is not applicable, accounts are to be prepared and disclosed in a manner compatible with the requirements for UK companies as set out in the Companies Act 2006. The regulations do not cover the law on the execution of contracts or the requirement to register the use of their assets in the UK to secure loans. These will be covered by a separate statutory instrument that will be made by negative resolution after these regulations have been made.
In line with the approach in the Companies Act 2006, the draft regulations apply to the United Kingdom rather than, as at present, to Great Britain only. This considerably simplifies the position for overseas companies that conduct business in both Northern Ireland and the rest of Great Britain by allowing them to register their presence in the UK once and therefore avoid the burden of duplicate filing. These draft regulations meet the concerns raised during the consultation process. They provide a single regulatory regime for the filing obligations of overseas companies operating in the UK. I commend this instrument to the Committee.
I cannot see anything in the regulations to object to per se. Indeed, if my reading is correct, according to the Explanatory Memorandum, the majority of respondents to the consultation exercise agreed with what is being done here, although in line with the comments made by the noble Lord, Lord Razzall, in the previous debate, it would be interesting to know how big the minority was and what its major concerns were.
My only question is on the regulatory impact assessment. I explained before in this Committee my scepticism of the figures put on costs and, in particular, the claimed benefits of certain regulations in RIAs. In the case of these regulations, the net benefit claimed is no less than £43,360,000. I have followed the calculations, which are based on a sweeping assumption that half the 7,847 overseas companies will be in a position to provide parent company accounts and the other half will not. A further assumption is made about the average costs for each of those categories of company. The whole of the annual saving so calculated is then, I think, subjected to a net present value calculation, which itself makes assumptions—for example, about the cost of capital—which must be, to put it mildly, fairly subjective in the current market. I do not disagree that it is helpful to have a regulatory impact assessment, but I wonder what value there is in a claim of benefit to corporate entities based on such huge assumptions. I wonder whether the Government have, in a wider context, given thought to improving the techniques followed for arriving at a cost-benefit analysis, or at least to giving an indication of the subjectivity.
My Lords, I join the noble Lord, Lord De Mauley, in agreeing that the regulations are appropriate. Clearly, it makes enormous sense to simplify the procedure for registration of an overseas company, so that the company no longer has to take legal and accounting advice about the form of registration it requires. That lifts the regulatory and cost burden on overseas companies establishing places of business in the UK, which is welcome.
I have only one technical question, on which I would welcome the Minister’s view. Clearly, what became known as Section 700 accounts were criticised by the company law review committee, and it is appropriate to move away from that. My question concerns the simplification of accounts procedures for non-European Union countries. They are straightforward in the EU because companies formed there comply with the accounting rules that have emerged by a series of directives, so it is clear what they will say. In the Government’s view, will the liberalisation—that may be the wrong noun, so let us say alteration—of the rules and the replacement of the Section 700 accounts make it marginally harder for creditors and people dealing with those companies to find out exactly what is happening or will it improve their position?
My Lords, the first question was a minority view, so to speak, as I understood the noble Lord, Lord De Mauley. Responses to each of the consultations on a simplified single regime for overseas companies consistently supported the approach. Almost all respondents supported the regime as set out in the draft regulations set out in December 2007, which was based on the concept of an overseas company with a UK establishment. Key stakeholders have continued to be involved in the finalisation of the draft regulations and have continued to support the concept of a single regime. It seems to be pretty well supported.
Impact assessment can be justified by the savings. The net saving of £4.9 million is measured in terms of new overseas companies registering a UK establishment under the new regime. It is rather difficult to quantify one of the main benefits of the regime, which is that these companies no longer have to decide whether their establishment in the UK is a place of business or a branch. This element of choice and the time and effort required will vary from company to company.
The PwC assessment of costs to business of UK regulation did not include an assessment of this choice. We believe that the simplification of the regime is a major customer benefit, and it is unfortunate that this saving cannot be counted. Instead, we have been able to quantify the benefit to companies of following the new simplified accounting regime and avoiding the existing Section 700 accounts requirements. PwC assessed the cost of preparation of such accounts to be just under £885 per company.
Many overseas companies will now be in a position to avoid this cost by filing accounts already prepared under the parent law of their country of incorporation. We have taken an indicative view that half the overseas companies that could benefit from this change will do so. It is difficult to be more accurate, given the range of countries involved, and the saving could be higher. Those companies unable to rely on parent law and still required to prepare accounts will find the new arrangements more straightforward, and we have estimated an average reduced cost of half that for Section 700 accounts assessed by PwC. We based the saving on the number of active overseas companies registered at Companies House that are non-EU companies with a UK branch or overseas companies with a place of business. EU companies with a UK branch are not subject to Section 700 accounts, so we have not counted them in the saving calculation.
For some existing overseas companies, there will be negligible increased cost. The regulations include transitional provisions that allow existing companies sufficient time to provide a set of accounts where they have not already been provided. Other information to be provided as part of the transition is negligible. We have allowed companies six months from 1 October 2009 to comply with a simple return to the registrar. Respondents to the December 2007 consultation did not challenge the figures used, nor did they offer any alternative approach. On the contrary, the majority supported the approach taken.
In response to the noble Lord, Lord Razzall, accounting by non-EU companies has been modernised, not liberalised. It will be easier for creditors because the resulting accounts will follow more modern accounting standards—so I am assured. I think that we have dealt with all the questions raised.
Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009.
Relevant document: 16th Report from the Joint Committee on Statutory Instruments.
We are debating today the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009. Limited liability partnerships were introduced by the Limited Liability Partnerships Act 2000. The main early users of the limited liability partnership form were major accountancy and law firms, and now all sizes and types of businesses are using it.
The LLP Act is a relatively short Act that sets out the basic structure of the LLP and provides a power to fill it out as appropriate by applying to LLPs selected provisions of company law. The LLP Regulations 2001 applied major parts of the Companies Act 1985, with appropriate modifications, to LLPs along with bits of financial services and insolvency law.
As the Companies Act 1985 has been comprehensively replaced by the Companies Act 2006, we need to update the regulations that apply company law provisions to LLPs. Last year, your Lordships debated the Limited Liability Partnerships (Accounts and Audit) Regulations, which applied to LLPs rules on accounts and audit corresponding to those under the Companies Act 2006. These take effect for financial years beginning on or after 1 October 2008. The current regulations complete that work by applying to LLPs the other relevant provisions of the Companies Act 2006, with modifications as necessary. They apply to the whole of the United Kingdom.
If any noble Lord is familiar with the 2001 LLP regulations, he or she will have noticed that the current regulations are much longer. This is because the earlier regulations simply listed the section numbers of provisions in the Companies Acts that were to be applied with a list of textual modifications. The current regulations take the approach of writing out the provisions so that the regulations can be read as a stand-alone document without looking at the Companies Act. This approach received strong support when we consulted, particularly from practitioners in the field.
Much of the update has simply meant applying to LLPs the provisions of the Companies Act 2006 that correspond to the provisions of the 1985 Act that were applied to LLPs. As set out in the Explanatory Memorandum, some of the new provisions of the 2006 Act are applied to LLPs, but others are not. Broadly, these decisions maintain the approach of applying to LLPs the rules that regulate a company's dealings with third parties and, in particular, the filing and transparency requirements, but not rules on the internal workings of companies.
There is also a small number of changes that are not directly related to the Companies Act 2006. They include providing a new right for a member of an LLP, if he is the sole remaining member, to apply to have the LLP dissolved. In summary, these regulations will keep the law on LLPs up to date and consistent with current company law. I beg to move.
I am grateful to the Minister. The Explanatory Memorandum says that this instrument and the application of the accounts and audit provisions of the 2006 Act to LLPs will be,
“reviewed, from 2011, as part of the Companies Act 2006 evaluation”.
I notice that the other Explanatory Memorandums for the orders that we are discussing today all say something similar. What does “from 2011” mean? It sounds like, “not before 2011”, which is rather worrying. Does it mean, on the other hand, “in 2011”? If not, when will we know the outcome of the review?
Other noble Lords may have received a communication regarding these regulations from the Institute of Chartered Accountants in England and Wales, an institute of which, I should disclose, I am a member. While most of its concerns with earlier drafts appear to have been allayed, it raised the following points. Perhaps the Minister could address them.
The first concerns Regulation 18, which would apply Sections 162 to 165 of the 2006 Act, which concern the registry of directors’ names to LLPs with modifications. That will require an LLP to keep available for inspection a register of members containing certain particulars, including a service address for each individual member and whether a member is a designated member. In practice, the institute notes that most LLPs currently maintain a list of all members at their principal place of business and do not object to the requirement being imposed. However, particularly given that failure to comply will be an offence, it feels—and I can see the point—that it is important that the Minister’s department provides LLPs with adequate information about that new requirement to ensure compliance as from 1 October.
The institute also notes that the department has postponed the decision on whether to apply the overseas company disclosure regime to LLPs. It understands that it would be undesirable to hold up the application of the remainder of the Act to LLPs while the difficult question of overseas LLPs is considered, but it would like to know when the issue will be tackled, as there is now a discrepancy between the treatment of overseas companies, as against overseas LLPs.
Lastly, as a drafting point, the institute draws attention to the fact that in Regulation 51 applying Section 1007(1) and 1007(5)(a), reference is made to an application being made by an LLP. It says that that should refer to an application being made on behalf of an LLP. I should be interested to hear whether the Minister can respond to those points.
I make one point in support of the regulations, which is to congratulate whoever in the Government or the department was responsible for producing them in this format. Before the Minister’s time, when we ground our way through the Companies Bill in the august Chamber, we argued from these Benches that it was important that the Company Law Reform Bill became a consolidating Act, for the reasons that the Minister gave—that it was important that people could read legislation in a digestible form, rather than having to leap from one section and one Act to the other, the only benefit of which being to increase the profits of Butterworths. I welcome this approach and hope that the Government will continue to follow it when we have further legislation in this area.
I thank the noble Lord, Lord Razzall, for that comment. The Acts have been implemented in stages, which will need to be reflected in our evaluation. We will begin to evaluate some provisions commenced in 2007 next year, but we will wait until 2011 to evaluate most provisions commenced in October 2009.
The regulations for LLPs come into effect on 1 October 2009, in line with the implementation date for the remaining provisions of the Companies Act 2006 for companies. We will take steps to ensure that LLPs know about these changes, particularly the new register of members, given the importance of the situation in which they find themselves. Companies House will send a mailshot to all LLPs telling them about the changes. It will highlight the new requirement to keep a register of members available for inspection, and it will mention that a failure to do so will be an offence. Guidance and specimen forms will be available on the Companies House website from 1 July. We will look at the drafting point raised by the ICAEW to see whether it needs amendment. No consensus has emerged about how or whether to change the way in which we regulate overseas LLPs. The regulations before us therefore continue the approach in the existing regulations.
I believe that I have dealt with all the questions. I am grateful to noble Lords for their contributions to this debate. The regulations represent the last step towards the application of the Companies Act 2006 to limited liability partnerships. They ensure that the regulations under which LLPs form and operate are in step with modern company law. In summary, by applying the remaining provisions of the Companies Act 2006 to LLPs, as set out in the regulations, where necessary and appropriate, we make essential changes to align the requirements for LLPs with those for companies. This will ensure that LLPs enjoy some of the same benefits and savings as companies, and remain an attractive and distinctive corporate vehicle for business, with different characteristics from companies and other types of partnerships. I commend these regulations to the Committee.
Companies Act 2006 (Accounts, Reports and Audit) Regulations 2009
Considered in Grand Committee
The main purpose of this instrument is to complete the implementation of the company reporting directive, directive 2006/46, in relation to corporate governance statements that publicly traded companies publish separately from the directors’ report.
The regulations before the Committee today amend the Companies Act 2006 to make provision for the filing of separate corporate governance statements at Companies House. They also implement the directive’s requirement for an auditor’s report on any separate corporate governance statement. Rules made last year by the Financial Services Authority implemented the requirement for a corporate governance statement and set out what it should contain. As permitted under the directive, the FSA rules give companies the option to prepare a separate corporate governance statement rather than including it in a specific section of the directors’ report. The auditor is required by these regulations to check that information in a separate corporate governance statement on internal control and risk management systems in relation to the financial reporting process and share capital is consistent with the audited financial statements. That is the same check that would be required to be carried out by the auditor if the information formed part of the directors’ report.
We do not believe that these regulations should add to the costs of audit because the test for consistency should not be onerous, and in a number of companies, the audited financial statements may not contain information on internal control and risk management systems.
The regulations also contain some technical accounting amendments. If the noble Lord wishes, I can give a brief description of each of the accounting amendments that remain in Part 3 of the regulations.
As noble Lords will be aware, a version of this instrument was laid before Parliament earlier this year and then withdrawn. That earlier version contained an amendment to Section 413 of the Companies Act 2006 concerning disclosure of loans to directors of banking companies. We have decided to re-lay the draft regulations without that amendment. We want to consider further what form the amendment should take and to conduct a public consultation. I commend these regulations to the Committee. I beg to move.
I thank the Minister once again for introducing these regulations. I do not think that they are particularly controversial so I will not detain your Lordships long. As the name includes the word “audit” I suppose I should disclose once again my membership of the Institute of Chartered Accountants in England and Wales although I have not been a practitioner since at least the early 1980s.
When these regulations were being debated on Monday in another place, I notice that the Liberal Democrat spokesman asked the Minister several technical questions, which he did not fully answer. Perhaps I can leave it to the noble Lord, Lord Razzall, to pursue these matters if he wishes to do so. On these Benches, we are strong supporters of transparency. Transparency is particularly important with company accounts. Although relatively modest in their ambitions, we are supportive of the impetus behind these regulations. When they were debated in another place my honourable friend Oliver Heald asked the Minister why these provisions had taken so long to promulgate. He asked if it was because the Financial Services Authority had taken a very long time to create the rules. The Minister there undertook to make inquiries of the FSA, and it would be helpful to know if there is an answer yet.
I do not propose to repeat the questions that my colleague in another place asked, but I will say what they were. The two questions he asked were: first, whether the Minister will state the accounting impact of the fairly technical changes to realise losses; and, secondly he asked about the transfer and value of pensions. I do not expect the Minister to answer because I understand that the Minister in another place gave an undertaking to write to my colleague with an answer to that, which no doubt we will see in due course. I do not propose to delay the Committee any further; I am happy to support this regulation.
Could I delay the Minister for 10 seconds? I had a look through the corporate governance statements. My noble friend told us when he last carried out work in the audit profession; I go back at least 15 to 20 years before that.
Will the Minister clarify something for me, though not necessarily today? On page 3 under “Part 15 definition of ‘corporate governance statement’”, the noble Lord will find paragraph 6 and “Auditor’s report on separate corporate governance statement”. That is not necessarily his duties, but in Regulation 6 he will find Section 497 of the Companies Act 2006, which, I am afraid, is not part of my bedtime reading. I am fascinated by the auditor’s report on the auditable part of directors’ remuneration, but I am somewhat suspicious. I wonder what aspects of the report and the directors’ remuneration would not be auditable, to put it politely. Perhaps the noble Lord could reassure me—not today, but in writing, because I do not want to delay the Committee any further. I am very grateful for his words of reassurance throughout.
I say to the noble Lord, Lord De Mauley, that with regard to the implementation by the FSA of rules of directive 2006/46, requirements on corporate governance statement, the Government consulted on the implementation of the directive in March 2007. One of the questions asked was whether the requirement for a corporate governance statement should be implemented by rules made by the FSA or should it be prescribed as part of the Companies Act.
The consultation period closed on 1 June 2007. Consultees preferred a continuation of the existing regime for corporate governance statements. The Government therefore decided with the agreement of the FSA that the requirement for a corporate governance statement should be implemented by FSA rules. The FSA needed to consult on its rules, which encompass not only the corporate governance statement but also requirements for audit committees in the Audit Directive 2006/43/EC. The FSA’s consultation document was published in December 2007; the consultation period closed on 20 March 2008. Due to that need to consult and the length of the consultation period, the FSA was not able to make the rules by the common commencement date of 6 April 2008. They were made, however, within the deadline for implementation of the directive.
In answer to his technical questions, I assure the noble Lord, Lord Razzall, that a letter has been placed in the Libraries of both Houses. The noble Lord, Lord Lyell, asked about the non-auditable parts of directors’ remuneration—the parts that the auditors cannot reach. No doubt, we will provide a Written Answer.
I am grateful to noble Lords for their contributions to this debate and for their succinctness. The regulations make some modest changes to the law which are needed to complete our exercise of the member state option under the EU directive permitting publicly traded companies to prepare a separate corporate governance statement should they so wish. I hope that, on this basis, noble Lords will support the regulations.
Committee adjourned at 4.36 pm.