Government unveils overhaul of UK company law

Deregulation is at the heart of the 552-page Bill, which contains proposals to save businesses up to an estimated £250 million a year.

The plans are also designed to help keep the regulatory burden on business to a minimum, to promote shareholder engagement and to encourage a long-term investment culture.

Trade and Industry Secretary Alan Johnson said: "An effective framework of company law and corporate governance will promote enterprise and help stimulate investment in the UK."

He said that the focus was on making the law more accessible and "thinking small first."

The Government expects significant savings, particularly for small businesses, as a result of changes:

• 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 be benefits from a range of measures for all businesses 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 electronic 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 comprehensive package 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 Bill is also 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 used 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 scrutiny requirements.

Alan Johnson added: "We have consulted every step of the way. Our company law is central to corporate activity and this important updating will provide a tremendous boost for British businesses, large and small. We are determined to make sure that our law keeps step with economic needs. This Bill will help ensure that Britain remains a prime place for incorporation."