§ 7.44 p.m.
§ Viscount St. Davids rose to move, That the regulations laid before the House on 26th November [13th Report from the Joint Committee]; and the regulations laid before the House on 17th and 19th November be approved [12th Report from the Joint Committee.]
§ The noble Viscount said: My Lords, the purpose of these regulations is to implement two EC directives: the Eleventh Company Law Directive and the Bank Branches Directive. They were both adopted in 1989.
§ The eleventh directive deals with the filing of company documents, including annual accounts, by branches of limited companies that are incorporated outside the member state in which the branch is operating. The Bank Branches Directive sets requirements for the disclosure of the accounting documents of credit or financial institutions. Both directives thus deal almost entirely with registration and accounting requirements for non-British companies which work through branches in this country.
§ We are debating here today three sets of regulations that implement these directives. To help your Lordships, the forms and guidance notes which will be used in operating the regulations have been placed in the Library. The Oversea Company and Credit and Financial Institutions (Branch Disclosure) Regulations 1992 are addressed to non-British companies. I shall refer to those as the main regulations. The Companies Act 1985 (Disclosure of Branch and Bank Accounts) Regulations 1992 are addressed to British companies. The Companies Act (Fees) (Amendment) Regulations 1992 set out the fees that will be charged in operating the main regulations.
§ Although we are considering the implementation of these directives in Great Britain, I want to take the opportunity to say a few words about the implications of the directives for British companies operating through branches in other member states. The directives are of considerable help to British companies because they prevent other member states imposing excessive demands for information from branches; in other words, one of the hidden barriers to the completion of the single market. They are to be welcomed in that light.
§ The regulations implementing the directives are technically complex because Britain already has a registration regime for foreign companies. This "place 379 of business regime" is contained in the Companies Act 1985. It requires a foreign company to register if it sets up any form of permanent presence here. For the time being this existing registration regime must continue for operations that conduct functions that are solely ancillary or incidental to the parent company, such as a warehouse or internal data processing facilities. Companies incorporated in Northern Ireland or Gibraltar will also continue to be registered under this regime.
§ The regulations introduce branch registration for the rest. Companies will be required to register a branch if the presence here is sufficient for people to be able to transact business as they would with the parent company. That is a branch within the meaning of the directives. It is not a branch in the sense we usually know it—for example, the branch of a bank where we cash cheques or a local office. "Branch" is used for the purposes of registration rather more in the sense of a subsidiary of a foreign company; but one that is not separately incorporated. It is important that companies understand this distinction, as the directives, and therefore the regulations, require the separate registration of each branch. It is in no one's interest for companies to register each of their individual offices if those are joined within a common management structure and can be regarded as being a single operational entity or, in other words, a branch within the meaning of the directives.
§ I have spent some time explaining the definition of branch and the two registration regimes because they are crucial to understanding the main regulations. We issued a consultative document on implementation of the directives to over 700 organisations and individuals as well as making it available in the Library. The definition of branch and the problems of the dual regime were the points that concerned most respondents. Many pointed out that deciding between registration regimes is potentially confusing or expensive. The Department of Trade and Industry recognises that an up-to-date system of company law helps to reduce the burden of regulation on business and generally promotes the competitiveness of industry. Those are both high priorities for the department and it continues to look at ways of improving selected areas of the Companies Act 1985.
§ Your Lordships may wonder, therefore, why the Government are bringing in this dual regime. We have a Community obligation to implement the directives by the beginning of next year. We cannot lecture others about not meeting their obligations if we ourselves fail to do so because we are unable, at the moment, to find the legislative time to resolve the problems of our existing regime. There are benefits too not only for British companies but also for foreign companies operating here. But I can assure your Lordships that these regulations have been designed to make the operation of the dual regime as easy as possible for companies. For a start, those already registered will not need to file again details of their directors and secretary or their constitutional details and will not have to pay to re-register in the transitional period. Secondly, there is a clear set of 380 guidance notes—which have been made available to your Lordships—to help companies understand what is required of them. I should like to take this opportunity to thank the many organisations who provided help to the department in preparing those notes. The comments received about what should be explained were, I understand, very useful and the guidance notes were amended to take account of those comments. It is an excellent example of the Government and industry working together to ease the impact of a regulatory change and reduce the costs of compliance.
§ The most important benefit for companies registered under the branch regime is that from next year most of them will no longer have to prepare a different set of accounts for this market—known as Section 700 accounts in honour of the relevant provision of the Companies Act 1985. Section 700 accounts are the sort of accounts that a British company would have had to prepare in the 1960s. In future, foreign companies will be able to file instead the accounts that are prepared, audited and disclosed according to their home state law. That should not only be less burdensome for companies but in most cases the information filed should be more helpful to inquirers than the Section 700 accounts. But, as a protection, if accounts are not required to be disclosed in the home state Section 700 accounts will still be required. The arrangements for banks are slightly different but the effect is to allow them to disclose here their home state accounts.
§ As the department's consultative document made clear, it is concerned that some companies might try to take advantage of that change by deliberately incorporating in territories with minimal public disclosure requirements and then working through branches here. From the comments the department received, it was clear that that point concerned others too. I wish to tell your Lordships that Companies House will monitor the numbers of registrations under the branch regime to see whether there is any sign of an increase in companies operating from such territories. If there are signs of abuse we shall not hesitate to take action. The directives provide one solution to this: requiring such companies to produce branch accounts. If that does not work, then the Government will have no hesitation in going back to the Commission and demanding a different solution.
§ Your Lordships will have noticed that the regulations we are debating are different from those first laid. The Joint Committee on Statutory Instruments pointed out that in its view the regulations exceeded the legal powers of the European Communities Act 1972 in setting the level of penalties for failure to comply with them. There is more than one school of thought on the extent of the legal powers in that respect, but to avoid delaying the implementation of the directives, the regulations were amended in the way sought by the Joint Committee. The regulations we have before us clearly show the changes.
§ I shall turn now to the second set of regulations we are debating today—the Companies Act 1985 (Disclosure of Branches and Bank Accounts)
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Regulations 1992. As I explained, these are addressed to British companies. The Eleventh Directive requires all companies to disclose in the directors' report,
the existence of branches of the company".
That provision was inserted into the directive at the request of the European Parliament so that those dealing with a company would be aware of the extent to which it operates through branches; subsidiaries already have to be disclosed. The department consulted on the basis that that would mean disclosing the addresses of branches. Those responding argued that that was too onerous an interpretation. That concern has been recognised and the regulations have been changed so that they now repeat the words used in the directive. The regulations also make some technical changes arising from the implementation of the bank accounts directive and to reflect changes to the definition of credit institutions introduced by the main regulations.
§ The third set of regulations that we are debating is the Companies (Fees) (Amendment) Regulations 1992. Those provide for the fee levels which Companies House will charge companies for registration of branches and inquirers for inspecting the data held. Those fees are in line with those charged to domestic companies and will be subject to the same controls.
§ We are not debating the forms regulations here today or the guidance notes but they have been made available so that your Lordships can see how the whole package will work. The regulations are complex. They serve the dual purpose of keeping the burdens on companies to a minimum while at the same time providing adequate disclosure of information for those dealing with the companies. I beg to move.
§ Moved, That the draft regulations laid before the House on 26th November [13th Report from the Joint Committee], and the draft regulations laid before the House on 17th and 19th November be approved [12th Report from the Joint Committee]. —(Viscount St. Davids.)
§ Lord Clinton-DavisMy Lords, I thank the Minister for having introduced these complicated matters in the way that he has, but I have a number of questions. I agree with him that, overall, the directives upon which the regulations are based are likely to he of considerable help to British and, indeed, other companies, but the fact remains that they are extremely complicated, as the Minister conceded in the last part of his remarks. So I immediately wonder to what extent, if they are so complicated, they are issues which will be tackled successfully by the companies affected.
The Minister says that the department has provided guidance notes, and the rest of it, but, even so, the matter remains complex. I therefore ask him, first, to what extent he is satisfied, from the discussions that the department has had that British and other companies can deal with the matters satisfactorily. One of the issues raised was not just their complexity but the expense involved. Although some steps have been taken to mitigate that expense, can the Minister cast further light on that and say whether, from 382 discussion he has had with the CBI, chambers of commerce and other such bodies, companies still find that the regime will be expensive.
One of the points raised by the Minister was that the directives and regulations require separate registration of every branch. He went on to say something to the effect that companies would be able to register each of the individual offices if they are joined with a common management structure and can be regarded as a single branch. I was not able to take down every word that he said. Is that situation well understood?
Secondly, the Minister said that deciding between registration regimes was potentially confusing. While it was helpful to say, as the Minister did, that the Government are looking at ways and means of improving various areas of the Companies Act 1985, that does not offer much assistance in unravelling the regulations. So, again, I ask the Minister to reveal to the House the result of the discussions his colleagues in the Department of Trade and Industry have had on that point with the various representatives of industry.
The next point I wish to take up with the noble Viscount is that it appears that we were under an obligation to transpose the directive into our law by 1st January next year. Why have the Government left it for so long to take that action? After all, we have only a few parliamentary days left before the Recess and therefore before the date for transposition expires. Were the Government not leaving a little to chance?
Incidentally, as regards that point, the Government often say that they do so much more than other member states to undertake obligations to transpose directives into our law. There has been some criticism of that stance of late. It appears that we have taken steps to transpose and adopt about 70 per cent. of the necessary internal market directives, whereas others appear to have been doing rather better. What progress has been made as regards these directives by other member states?
The next question concerns the filing of accounts. As I understand it, foreign companies have an option to file the accounts which are prepared, audited and disclosed according to their home state law or they can file accounts which have been prepared for them in this country. Let us assume that they file their accounts which have been prepared, audited and disclosed according to their home state law. Does that mean that the accounts can be filed in exactly that form? It may be that some would require a measure of translation. Are the company authorities here able, ready and willing to undertake those necessary tasks? Would it involve additional expense? That matter needs to be clarified.
I noted that the noble Viscount said that a specific provision was inserted into the directive at the request of the European Parliament. The provision in question seemed to be valuable, thereby vindicating the role of the European Parliament in going into some of those matters in considerable detail and having a real role to play. I wish that it had a greater role to play. It might he of some small assistance to those who feel that the European Parliament is often unfairly denigrated.
383 Having said all that and posed those questions, I hope that the noble Viscount will be able to respond. I still believe that overall the regulations will prove to be helpful, but it may be that some further steps need to be taken to explain them rather better to those businesses which remain a little concerned about their over-complexity.
Viscount St. DavidsMy Lords, it is essential to understand the way in which we are now using the word "branch". It indicates a major structure with a management control and not a great number of small, individual operational offices. I know that my right honourable friend the President of the Board of Trade is keeping company law under constant review and will seek the earliest opportunity which the legislative programme accords in order that some of those problems can be removed, for it is obviously not desirable to run the two regimes together.
The noble Lord, Lord Clinton-Davis, raised the question of expense. It is unlikely to exceed £5,000 to comply with the regulations. That is an amount which many companies have to find in the normal course of meeting legal requirements. He also asked, why so long? As noble Lords will see from the regulations, they are enormously complex. A great number of consultations have had to be undertaken, various documents produced and guidelines brought in. That explains why we have had to deal with the matter at quite a late date. I can tell the noble Lord that a number of European countries have already implemented the regulations.
In drawing up accounts foreign companies delivering their home state accounts will have to provide English translations for use in this country.
§ Lord Clinton-DavisMy Lords, I am very much obliged to the noble Viscount for giving way. Can he specifically indicate to me where that requirement appears in the regulations? I could not find it and it may be because the regulations are so complicated. If he has difficulty on that perhaps he will write to me.
Viscount St. DavidsMy Lords, I do have difficulty on that. I shall write to the noble Lord.
He has drawn attention to the complexity of the regulations. As I said, we have consulted a wide range 384 of legal and accountancy firms which have offered their advice. That includes organisations such as the CBI; and we spoke about one-off costs. The consultative document has been drawn up to meet its requirements as far as we can. The member states of France, Germany, Belgium, Denmark, Spain and Greece have already implemented the eleventh directive. France, Germany, Greece and Luxembourg have also implemented the bank branches directive. I hope that that is useful.
§ Lord Clinton-DavisMy Lords, before the noble Viscount sits down, can he give an undertaking that the Government will not leave matters of this importance to the last minute in the transposition of directives into our law? It is most unsatisfactory. It may well be that the Government can be accused of having still brought about an overly complicated system, but they cannot now amend it because we have to undertake our obligation to transpose by 1st January. If the noble Viscount cannot give an undertaking now, will he undertake to consider the point with his right honourable friend the President of the Board of Trade because it is an extremely unsatisfactory state of affairs?
§ Baroness SeearMy Lords, I support what the noble Lord has said. As noble Lords will see, we are somewhat denuded on these Benches. I have colleagues who might well have wished to make a contribution if these regulations had come forward at a more convenient time and with a little more notice.
Viscount St. DavidMy Lords, I shall draw these matters to the notice of my right honourable friend. It would be unrealistic to give an assurance that such matters will not arise late because, as I have said, they are extremely complex. We have to make them work on an existing structure of complex company law. I shall endeavour to ensure that such legislation is brought forward at the earliest possible opportunity.
On Question, Motion agreed to.