The reform will save businesses £250 million a year, the
DTI
claims, with small companies benefiting to the
tune of £100 million a year as a result of targeted changes.
According to the
DTI
, these include:
- 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; and
- new model articles.
The
DTI
says businesses in general will benefit
from a range of measures put forward in the proposals for the
Company Law Reform Bill.
In particular there will be greater clarity on directors'
duties, including making clear that they have to act in the
interests of shareholders, but can pay regard to the long as well
as the short term, taking due account of the interests of
employees, suppliers, consumers and the environment.
The
DTI
is proposing a greater use of
e-communications and intends to remove the need for hard copy share
certificates. It will also use the bill to implement the Takeover
Directive, placing the work of the Takeover Panel on a statutory
footing.
Taking account of directors' fears over targeting by such
organisations as animal rights activists, the
DTI
has
also put forward an option for all directors to file a service
address on the public record rather than a private address.
In addition, the proposals seek to promote shareholder
engagement through enhancing the powers of proxies and making it
easier for indirect investors to be informed and exercise
governance rights in the company.
Finally, the draft package also includes proposals on auditor
liability and 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;
- audit reports to give the name of the individual lead auditor,
as well as the audit firm; and
- tougher penalties for reckless statements by auditors including
custodial sentences.
The
DTI
is consulting on the proposals, and would
like comments by 10th June. The aim is then to introduce a bill as
soon as Parliamentary time allows.
A separate consultation document, also issued by the
DTI
yesterday, covers a further recommendation of the
Company Law Review: the extension of the option to prepare and
distribute summary financial statements to all companies.
This consultation includes proposals for allowing companies that
prepare their accounts using international accounting standards to
continue to take advantage of the summary financial
arrangements.
"We needed a thorough overhaul of the law to make it more suited
to the needs of our companies and the measures set out in the White
Paper will help us achieve that," said Trade and Industry Secretary
Patricia Hewitt.
"The proposals are part of a wide programme of action to boost
enterprise, encourage investment and promote long-term company
performance. These measures represent a significant step forward in
ensuring that our company law remains up to date, flexible, and
accessible for everyone who uses it," she added.
