Company Accounts (Hansard, 13 July 1993)

§ The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Neil Hamilton)
I beg to move, That the draft Partnerships and Unlimited Companies (Accounts) Regulations 1993, which were laid before this House on 21st June, be approved.
Accounting requirements for companies in the European Community have been harmonised, principally through the fourth and seventh company law directives, but there was concern that companies in some member states were avoiding the disclosure requirements of those directives by conducting business through the equivalent of partnerships. The Council therefore adopted the partnerships directive to bring partnerships between limited companies and unlimited companies owned by limited ones within the scope of the accounting directives, requiring them to produce and publish accounts.
In Great Britain the directive and thus these regulations apply to partnerships, limited partnerships and unlimited companies where all the members with unlimited liability are themselves limited companies. For a limited partnership it is the nature of the general partner or partners only—the ones with unlimited liability—that matters.
To be within the scope of the regulations the general partner or partners must be limited companies. The regulations will not apply to most partnerships in Great Britain, such as those between accountants, solicitors and small traders, where one or more of the partners is a natural person, not a company. Partnerships between limited companies, or where the general partners are limited companies, are not thought to be particularly common in Great Britain. In fact, they amount to only about 3,500 out of 600,000.
We consulted business and others on the line to be taken in the negotiation of the directive. The conclusion of that consultation was that partnerships between companies, or where the general partner is a company, were not being used as a vehicle to avoid disclosure, the problem with which the directive seeks to deal. Our negotiators strove, therefore, to achieve sufficient options in the directive to ensure that existing practice in Great Britain could continue to be followed as far as possible.
It is important for those dealing with a partnership or unlimited company to know that its members or general partners are limited companies. The liability of members or general partners is unlimited, but, if they are limited companies and the debts of the partnership force them into liquidation, the creditors of the partnership would become unsecured creditors of the company up to the limits of the capital of the company. It is equally important for those dealing with and investing in a company to know that it has exposure to unlimited liability through partnerships and unlimited companies.
The regulations provide three ways in which accounting information about the partnership can be handled, depending on the circumstances. There are also provisions that apply to all companies and partnerships which are within the scope of the regulations, no matter which accounting treatment is used. The members of a partnership must give inquirers the name of at least one company member that has included the partnership in its accounts, or the names of all the company members that 955 are publishing its accounts. Companies which are involved in partnerships or unlimited companies within the scope of these regulations must reveal their names and addresses and legal forms. The companies must also state in their accounts where the accounting information about the partnership is to be found.
The directive, when implemented in all member states, will require all companies incorporated in the Community to give such information about the partnerships and unlimited companies within its scope of which they are members. That will help companies in Britain to find out more about the companies that they are dealing with in other member states.
If the partnership is included in consolidated accounts by at least one of its partners, there will be no further requirement to draw up and publish accounts. The member companies must state in their accounts whether they have consolidated the partnership or whether another company has done so. In the latter case, the name of the other company must be given in the accounts.
Our aim has been to provide information for those dealing with the partnership and the company, while keeping the burdens to a minimum. My Department consulted last year on the method of implementation, and the approach that we have taken in these regulations was welcomed by the organisations that responded. We have estimated that the compliance costs will be low. A compliance cost assessment has been prepared and is available.
To give companies and partnerships the maximum time to adapt to the requirements, the directive permits member states not to apply its provisions to financial years commencing before 1 January 1995. The regulations would take advantage of this.
As I have explained, throughout the process of negotiation of the directive, and the consultation and drafting of these regulations, there has been no evidence that the problem with which the directive seeks to deal—the lack of disclosure of accounting information by partnerships between companies—is a problem in Britain. We therefore sought, and were successful in negotiating, options that would permit us to leave existing provisions largely intact. The regulations implement the directive in a most light-handed way.
I commend the regulations to the House.

§ Mr. Stuart Bell (Middlesbrough)
I am grateful to the Minister for taking us rapidly through the regulations. There is usually a 10-minute speech arranged for these occasions, but I am aware of the quorum hovering in the Chamber at this hour. Therefore, I will not seek to delay the House unduly.
These regulations implement a Council directive dealing with annual accounts and consolidated accounts. They confirm again, if confirmation is necessary, that we are within the European framework, that we have been in a European framework for some 20 years now, and that we are developing that framework along lines of which even the noble Lady Thatcher would approve. We are creating harmonious conditions throughout the length and breadth of Europe so that company law and accountancy law are the same in all European countries.
956 Regulations such as these create a level playing field that companies will come to know and understand. The time may come when we will be debating a European company which is trans-national and which will incorporate the whole of our European company law. Indeed, such a law has been debated for the past 20 years, but it has yet to make its way on to the statute book. Perhaps with debates and regulations such as these we shall be able, little by little, to creep towards it.
The scope of the application of the regulations concerns partnerships, limited partnerships and unlimited companies, all of whose members, having unlimited liability, are limited companies. That may seem like gobbledegook to you, Mr. Deputy Speaker, but for the cogniscenti, it means that there is a difference in liability for partnerships and unlimited companies when compared to those that have limited their liability by incorporating themselves into limited liability companies.
There is a significant difference in the treatment of trading companies and partnerships not limited by liability and those which are. We shall debate that difference in greater detail and whether they should be subject to audit when we have the Minister's proposals for small businesses. It will be the Opposition's submission at that time that limited liability companies that do not wish to submit themselves to an audit should disincorporate themselves—take unlimited liability—with all its attendant risks, while leaving limited liability companies properly audited in the interests of full disclosure and in the interests of work force, bankers and outside parties, which may be shareholders. That is also for another debate, but it might be as well to put down a marker for the Minister's attention.
As I understand it—I am grateful to the Minister for explaining this to me—there are occasions, principally in Germany, where partnerships gather together from limited liability companies. Those dealing with such partnerships may do so on the basis that there is unlimited liability upon the partnership. As the Minister said, that is not often the case in our country, and it is not likely that such situations will arise, or, if they do, it will not be very often. Nevertheless, it is appropriate that there should be a common framework throughout the Community so that those dealing with such partnerships will know where they stand and will act accordingly.
As we read Sir Andrew Large's critique of our self-regulation organisations—acting within his Securities and Investment Board—it is being drummed into us that the principles of caveat emptor can never be removed from financial investment. There will always be an element of risk. Regulations such as these, bringing in their wake full disclosure, will provide the information for the investor to take into account when he takes his investment decisions and risks his money.

§ Mr. Tim Devlin (Stockton, South)
The hon. Gentleman is an expert in French law and has practised at the French Bar. Can he tell us, with regard to partnerships, whether the same rules or uberrima fides-the utmost good faith—apply in other European countries as they do in Great Britain?

§ Mr. Bell
They certainly do. As I said earlier, one of the reasons for this directive is that it will cover the whole of 957 Europe so that the principles and concepts to which the hon. Gentleman referred conform with what we are debating and what we have in our country.
The Minister said that compliance would not be costly. It would be nice to look on the measure as constituting a mini securities and exchange commission, with its imposition of criminal penalties for failure to comply with the regulations. But of course such penalties already exist within the framework of the Financial Services Act 1986 and the Companies Act 1989. Still, it is nice to see the extension of criminal penalties for failure to comply with financial regulations, which edges us further towards the sort of statutory regulation which no doubt we will debate on the Floor of the House and towards which, if I have read Sir Andrew Large's report aright, even the Government are edging.
I promised the Minister not to have too long a saunter around the paddock of regulation and self-regulation, independent or statutory, and I hope that I have not done so. One of the difficulties of opening debates such as this one is that I cannot respond to any speech that the hon. Member for Mid-Staffordshire (Mr. Fabricant) may make later. If he does make one, I shall listen to it with great interest. If he does not, I remind him that the best speeches can be kept for another occasion.
I assure the serried ranks of Conservative Members who are waiting to go home that none of my hon. Friends is loitering in the Corridors waiting to cast a vote or to press the button that will ring the Division bell. I thank the Minister for his courtesy and patience in explaining these technical but important regulations to the House. The attendance may have been a bit thin, but I assure him that his comments—and mine, I hope—will read well in Hansard tomorrow.

§ Mr. Neil Hamilton
With the leave of the House, I will not reply to the debate.