house of lords official report - United Kingdom Parliament

GC 277 Overseas Companies Regulations 2009 [LORDS] Overseas Companies Regulations 2009 GC 278
[LORD YOUNG OF NORWOOD GREEN]
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.
Lord De Mauley: 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.
Lord Razzall: 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?
Lord Young of Norwood Green: 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.