Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Company reform bill confirms proportionate liability

by
3rd Nov 2005
Save content
Have you found this content useful? Use the button above to save it to your profile.

As promised, the Company Law Reform Bill, published earlier today, contains the long-awaited provision on proportionate liability.

This allows shareholders to agree to limit auditors' financial liability, so that it relates only to their responsibility for the loss - not the mistakes of others. However, there will be disappointment that the Bill also contains the hotly debated new offence of "recklessly or knowingly including misleading, false or deceptive matters in an audit report".

Other audit-related clauses in the Bill give greater rights for shareholders to question auditors, and introduce a requirement for audit reports to give the name of the individual lead auditor, as well as the audit firm - although confidentiality will be allowed in "exceptional cases".

The red-tape-cutting provisions in the Bill, which aim to simplify company law, could save UK companies up to £250 million a year claims the Government - including around £100 million for small businesses. The Bill simplifies the rules for forming a company, abolishes the need for a company secretary, introduces new model articles, makes AGMs 'opt in' rather than 'opt out, and simplifies company law all round making it easier for smaller firms to understand what they have to do.

The bill also provides greater clarity on directors' duties, including making clear that they have to act in the interests of shareholders, but need to pay regard to the longer term, the interests of employees, suppliers, consumers and the environment.

Other provisions will encourage shareholder involvement, and require institutional investors to disclose how they have use their votes.

Announcing the Bill, Trade and Industry Secretary Alan Johnson said: "An effective framework of company law and corporate governance will promote enterprise and help stimulate investment in the UK. We have focused throughout on making the law more accessible and 'thinking small first'. The Bill makes an important contribution to our better regulation agenda. These measures also represent a significant step forward in ensuring that our company law remains up to date, flexible, and accessible for everyone who uses it."

The complete Bill can be downloaded as a PDF or viewed online on the Parliamentary website.

Tags:

Replies (2)

Please login or register to join the discussion.

avatar
By AnonymousUser
04th Nov 2005 17:16

Old Fashioned
We have state of the art technology, but antiquated tax laws and even more anitquated auditing rules.
With EU and Governments' accounts not balancing and vitually nothing being done about it never mind large concerns in turmoil, the question has to be asked. Is Auditing effective or even needed???? Yes it highlights problems but what is the point if no action is taken or worse, the concern is in liquidation. Rather like locking the stable door after the horse has bolted.
Do we not need the whole system of taxation and accounting to be brought into the 21st Century???
The EU have a fantastic opportunity to get a grip and come up with something special instead of trying to standardise an old fashioned, ineffective system.

Thanks (0)
David Winch
By David Winch
04th Nov 2005 09:37

Not only long awaited . . .

The Company Law Reform Bill is not only long awaited - it is long!

It is a mammoth Bill of 885 sections and 15 Schedules.

It repeals most - but not all of - the earlier Companies Acts.

The result is likely to be that, once the Bill is passed next year, we shall need to consult this legislation and bits of earlier legislation to get a full picture of company law. It is a pity they could not have replaced all the earlier legislation by adding a little more to this Bill.

It is also worth noting that the Bill contains provisions (in part 31) to enable company law statutes and regulations to be amended in future without going through the whole procedure of getting an Act through both Houses of Parliament. Instead, within limits, the law can be changed by a single resolution of the House of Commons affirming a Statutory Order.

We saw a similar system included as section 173 of the Serious Organised Crime and Police Act 2005.

This makes it easier for Ministers to change the law without having the changes fully debated by Parliament.

David
[email protected]

Thanks (0)