The plans are intended to help keep the regulatory burden on business to a minimum, promote shareholder engagement and encourage a long-term investment culture in the UK.
‘An effective framework of company law and corporate governance will promote enterprise and help stimulate investment in the UK,’ predicted Trade and Industry Secretary Alan Johnson. ‘We have focused throughout on making the law more accessible and thinking small first.’
It is estimated that business benefits from these proposals are likely to total around £250 million a year, including an annual £100 million benefits for small firms 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
- 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 e-communications and removing the need for hard copy share certificates
- an option for all directors to file a service address on the public record rather than a private address.
There will also be an enhancement of the powers of proxies and it will be easier for indirect investors to be informed and exercise governance rights in the company, promoting shareholder engagement. The 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.