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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.
GC 279 Overseas Companies Regulations 2009 [17 JUNE 2009] Limited Liability Partnerships Regs 2009 GC 280 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. 4.15 pm 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. Motion agreed. Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 Considered in Grand Committee 4.16 pm Moved By Lord Young of Norwood Green 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. The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Lord Young of Norwood Green): 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. Lord De Mauley: 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?
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1057 Police: Funding [17 JUNE 2009]
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1061 Sri Lanka [17 JUNE 2009] Banks
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