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Comments from ACCA
May 2007

ACCA has reviewed all the material contained in the document and are generally comfortable with the proposals made. Our comments on specific matters are set out below.

Chapter 2 - Secondary legislation under the Act

C Company and business names

While the proposals under this section are presented as limitations on the corporate and trading names that companies may adopt, the limitations (and by extension the prohibitions) are set at such extreme levels that for the great majority of companies they will be irrelevant. A case in point is the proposal to place a cap of 160 on the number of characters that may be featured in a corporate name. We do not dispute the administrative need for rules on these matters to be in place. But if it is to be made public that companies in future are to be officially allowed to adopt very long names and to include a very wide range of punctuation and diacritical marks in those names, it must be accepted that some use is likely to be made of this freedom, and also that the more extraordinary the name the greater the potential for confusion and mistake. We would make the points in this context that companies are obliged by law to state their full corporate names on official documentation and that directors may be held liable to creditors where the name of their company is mis-stated on cheques etc. The very liberal approach to permissible company names will make it all the more necessary for other corporate details to be published so that appropriate cross-referencing can be undertaken by interested parties. We suggest that Companies House makes clear to those forming a new company that they must ensure that wherever necessary the company's correct name is published and that directors may in some cases be made personally liable for mis-statements.

Q 2.11 It is proposed that existing companies limited by guarantee will continue to be exempt from the requirement to append 'ltd' at the end of their corporate names, but that new guarantee companies would not be. Exemption would be afforded only to registered charities and possibly, in regulations made under section 60 CA 2006, to regulatory bodies such as the FSA. The document assumes that new companies with a non-profit-making motive will choose to become community interest companies. We do not think it is fair to make this assumption or, effectively, to force new companies into choosing the CLC option. We believe that new guarantee companies should be in the same position as existing guarantee companies.

D Trading Disclosures

Q 2.14(a) We believe that companies' full registered names should always be disclosed on business stationery etc, even where the registered name differs from the trading name only by the addition of 'ltd' or 'plc'. The cost savings to companies of omitting this information will be negligible. It is on the other hand important that customers and suppliers know exactly which entity they are dealing with, and while the publication of the company's registration number on stationery etc will enable third parties to access the company's full file on the public record, they should not be obliged to do this, consistent with the provisions of section 40 CA 2006. We would also refer back to the point made earlier regarding directors' liability for company cheques which mis-state the company's full registered name: this situation should be maintained as a force for discipline for company directors.

Q2.15 Yes.

Q2.16(a) We agree that every company should be required to display its corporate name in a prominent position at each of its UK business premises. To reiterate the point made in response to 2.14(a), however, we query what benefit would accrue from allowing companies to omit express reference to its corporate status. Knowing that a business is a corporate body will be a significant matter to many customers and suppliers and it is reasonable for them to be made systematically aware of this.

Again, the costs of adding the corporate identifier will be negligeable.

E Addresses on the public record

As a general point on these proposals, the provision in the Companies Act 2006 for directors to be able to file a service address rather then their residential address is likely to have the effect of cluttering up the on-line register and making it more problematic to identify a particular director. Conceivably, in the case of a person with 50 directorships, the register of directors at Companies House will carry 50 references to that person, with a different service address for each company, rather then just the one at present. As well as causing problems to searchers generally, this situation may make it more difficult for insolvency practitioners and regulated persons under the Money Laundering Regulations to carry out their functions with respect to company directors.

G Accounting and reporting regulations

Q2.36 We agree with the proposal to set out the disclosure and reporting rules for small companies separately from the rules applicable to other companies. This will be thematically consistent with the approach taken to the drafting of the Companies Act 2006 and will be of benefit to small companies and their advisers. In the interests of clarity we would, however, prefer that the rules on group accounting and reporting are dealt with separately from the rules for single companies.

Q2.37 We believe that the heavy preponderance of small companies on the register makes it logical and desirable to treat them as a special and distinctive case for the purpose of framing the new regulations. By comparison, the number of 'other' companies on the register is small. While quoted companies at least have similarly distinct disclosure and reporting obligations to small companies, we do not believe there is a sufficiently strong case for setting out stand-alone reporting rules for the different types of 'non-small' companies, not least because of the very substantial amount of duplication that this would create. We believe that a single set of rules, incorporating derogations and additional requirements, would be appropriate.

Q2.39 We accept that information on patterns of remuneration within the company, with particular emphasis on the relationship between senior executive remuneration and average pay levels, may be of interest to employees and their representatives, as well as to the Remuneration Committee and to interested observers. We agree also that while a company's remuneration policy should incentivise board members and executives to achieve success for the company, it should also be responsive to performance and pay due regard to the contribution to the company made by staff generally. For it to be in a position do these things, the company needs information.

But we do not consider that new external disclosures on the specific matter of patterns of pay are something that necessarily falls to be dealt with via the law. Information on internal patterns of remuneration can of course already be accessed via current mandatory disclosures and comparative information on pay is compiled and made publicly available by private research organisations. Companies which are complying with their responsibilities under the Combined Code will already wish to ensure that the remuneration levels at the top of the company are justifiable in terms of the value that the individuals concerned have brought to the company and are consistent with market levels. Responsible boards should also be mindful of the effect of very high remuneration at board level on staff morale throughout the company. In terms of existing legal obligations, the Remuneration Report, which sets out the Remuneration Committee's considered policy on remuneration issues, must by law be considered and voted on by the shareholders: if the shareholders are not satisfied with the Committee's explanation of its remuneration policy, they can vote against the Report, in which case the Committee may feel it has no option but to re-consider and re-present it. The Report already provides a vehicle for any aspect of pay policy to be disclosed or discussed if the Committee - or the shareholders - think it appropriate to do so.

While therefore we accept that the accumulation of information on internal patterns of pay may be useful in terms of considering whether the company is paying appropriate remuneration for the contribution of its board and non-board personnel, we do not think it necessarily serves the interests of companies' shareholders for there to be a specific legal requirement for disclosure of information on this matter.

Q2.40 We agree that small companies should be required to disclose details of their turnover in their abbreviated accounts. The most obvious argument for disclosing this figure is that it helps to indicate why the company qualifies to file abbreviated accounts in the first place. But without a turnover figure it is very difficult to assess accurately the scale of a company's commercial activity and the level of its administrative expenses and retained profit or loss. In the light of the document's concerns about imposing additional 'burdens' on small companies, it should be remembered that there is no actual burden involved in the disclosure of this figure - the turnover figure has already been arrived at in the course of preparing the company's 'full' accounts and the only issue stake is the elimination of the current privilege of non-disclosure. In our view, the interests of transparency outweigh individual companies' desire to keep this information secret.

H Audit and statutory auditors

Q2.43(a) We are content with the proposal that guidance on sections 508-509 CA 2006 should stress the relevance, for any decision as to prosecution, of specific evidence of recklessness on the part of the auditor. Any such guidance should, however, make clear the extent to which it will be followed by the courts.

Q2.43(b) We agree that the disclosure of relevant information on a liability limitation agreement should be disclosed in the approving company's accounts.

L Registrar of Companies

Q 2.58 We suggest that the new power of Companies House to correct data on the register should extend to allowing individual directors who have resigned to ask for that fact to be recorded on the record (where the company has failed to file a 288b form).

Q2.61 We query whether it would be in the public interest to allow Welsh companies to file important statutory documents in Welsh without a translation into English. Welsh companies are after all incorporated on a UK basis and their details are posted on a UK-wide register. They are as likely as companies elsewhere in the UK to have stakeholders throughout the UK. The interests of non-Welsh-speaking stakeholders would be inconvenienced by the proposal. There could, conceivably, also be adverse commercial consequences for those companies which file Welsh-only documents. Further, to allow Welsh companies to file untranslated documents would be to set a precedent which would open the doors to pressure for companies to be entitled to file documents in many other languages.

Q2.63 We agree that the Gazette should be retained as the vehicle for posting of official information.

Chapter 3 - New default model articles

We support the general approach taken in the drafting of the model articles, as explained further in the text. In particular, the updating of the articles so as to recognise developments in technology and flexible decision-making arrangements is overdue and welcome. We have, though, some comments on specific aspects of the draft articles for private companies (Schedule 1), as set out below.

i) Para 7 says that a unanimous decision may be taken 'without any discussion between directors'. We feel that it is potentially problematic and contrary to directors' duty of diligence to suggest that directors can take a decision in this way - any decision, however straightforward the matter, must surely be based on some collective understanding of what directors are agreeing to, however brief the communication between them may be. We suggest that it would be better to omit para 7(2)(a) and simply provide, as does 7(1), that directors can take a unanimous decision where they all indicate to each other that that share a common view on a matter - it can then be inferred that directors have complied with their legal duties in coming to a decision.

ii) Para 8(2) says that the process of taking a majority decision involves one director making other directors aware of the matter (which needs to be decided) and the decision.This would appear to be pre-empting the outcome of their discussion on the matter. We therefore suggest that the three words in bold above be omitted from para 8(2)(b).

iii) Para 8(3) says that directors will not need to involve other directors in the majority decision-making procedure if by doing so it will make it impossible to take a decision as soon as the company's business requires. This would appear to create scope for disputes. Surely if all directors have valid notice of a decision that has to be made and the timescale in which this must be done, then as long as the prescribed quorum for majority decision-making is achieved - normally at least two - non-participation of any single party will not obstruct the taking of the decision.

iv) Para 8(4) says that a director may say that he does not want to be invited to discuss or vote on 'a particular matter'. Such a provision is not in our view consistent with the principle of directors' collective responsibility and with each director's statutory responsibilities under the CA 2006, in particular the duty to exercise independent judgement.

v) Para 9 provides for the possibility of holding 'virtual' directors' meetings. We agree that such a provision is desirable. But there is no basic requirement in the paragraph that each director should be able to communicate with each other person participating in the meeting. We suggest that a requirement to this effect should be inserted between sub-paras (1) and (2).

vi) Para 9(5) says that notice of directors' meetings need not be given to directors who waive their entitlement to notice, prospectively or retrospectively. It needs to be made clear that waivers must not be 'blanket' waivers - again there is a potential conflict with directors' legal duties here.

vii) In para 14 - written records of directors' decisions to be kept - it could be made clear that this does not refer to records of actual meetings, separate provision for which is made in Act.

viii) Para 17 lists resignation as one ground for ceasing to hold office as director, but there are no standard provisions for how this is to be done. Para 17 only says that 'notification to the company that a director is resigning or retiring takes effect in accordance with its terms'. We believe it is necessary for there to be more of a standardised procedure for the making and acceptance of resignations. While we accept the rationale for the general trend towards a more flexible approach, the area of resignation is fertile ground for disputes, even under the present, comparatively prescriptive rules. In the interests of all interested parties we believe that there needs to be clarity on how a valid resignation is to be effected. It is not sufficient in our view for model articles to limit themselves to saying that a resignation amounts to a notification to the company which takes effect in accordance with its terms.

Points vi) and viii) above are relevant also with respect to the corresponding provisions of the draft model articles for public companies.

Chapter 4 Transitional arrangements

Our responses to questions posed under this chapter are set out below.

Q4.1 Yes

Q4.2 No. If a company has made an express decision no longer to have a company secretary and to divest authority from the previous occupant of that post,

Q4.3 Given the length of time that the Bill has taken to prepare, and given that the relevant provisions do not come into effect until October 2008, we do not think that a further period of grace is called for. Appropriate information on this matter should be issued by Companies House, perhaps with notifications of due annual returns, during the year 2007/2008. This should allow sufficient time for all companies to adapt to the change.

Chapter 5 LLPs

Q5.1 Our understanding of the LLP concept is that it was intended to be neither a company nor a partnership but a hybrid corporate body. When the LLP was created in 2000, the relevant statutory framework was a combination of extracts of company law, partnership law and a small number of dedicated LLP rules. It would be more consistent with the approach taken in 2000 for any transitional reform now to be restricted to the updating of those aspects of company law which were extended to LLPs at that time. To update LLP law more extensively so as to apply substantial amounts of the new companies legislation to it would be to assume, we believe wrongly, that the LLP is a form of company and that company law should naturally be extended to LLPs. Thus the distinction between the two types of entity should be retained.

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