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NEWS ROUND-UP |
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Consultation on changes to Community Interest Company regulations See CLM ¶62+ BERR has issued a consultation paper on various proposals to amend the CIC regulations to bring them up to date and to clarify certain aspects (SI 2005/1788). The Government intends to carry out a full review of the legislation after it has had 5 or 6 years to bed down; this review is just intended to address particular issues that have arisen now. The key proposals are: » to clarify the community interest test that the company must satisfy to qualify as a CIC. The proposed amendments would clarify that the regulator can look at whether a reasonable person would consider that the proposed beneficiaries of the company’s activities would constitute a “section of the community”. This amendment aims to prevent random groups of people (e.g. people with brown hair) qualifying as beneficiaries. A second proposed amendment to the community interest test aims to address the danger that activities benefiting one section of the community but harming another might pass the test by allowing the regulator to take the wider community and public policy into account; » to enable the residual assets of a CIC that is being wound up to be transferred to a public authority or regulatory body that oversees its activities, even if that authority or body is not asset-locked. This flexibility would be useful where, for example, a local housing authority set up and supervised a CIC so that its assets (the housing stock) can revert to the housing authority; » to remove the requirement for a majority of the directors to be appointed by the CIC’s members. This requirement appears to be unnecessary in practice as all of the directors are subject to the same duties; » to remove the chairman of the board’s casting vote in deadlock situations, as this is inconsistent with company law; and » to allow a CIC to convert into an asset-locked community benefit society and to allow a Scottish charitable company to convert to a CIC. This would update the regulations to reflect changes in the law that have occurred since their implementation in 2005. The consultation is open until 6 April 2009 and is available at: http://www.berr.gov.uk/consultations/page50213.html. EC Small Business Act for Europe See CLM ¶88, ¶3199 The EC’s Small Business Act for Europe has been endorsed by the European Economic and Social Committee (EESC), with recommendations for its implementation. The Small Business Act for Europe was an initiative launched last year designed to put small businesses at the heart of EC policy (not a statute, despite its name). Small businesses make a substantial contribution to employment growth and economic prosperity, but European SMEs lag behind their American counterparts in terms of growth and productivity. By taking a “think small first” approach, the EC aims to create an environment in which setting up and running a small business is an attractive option. The principles of the Small Business Act include adapting public policy and administration to SMEs’ needs, to help them benefit from things like state aid. The EESC fully supports the ethos of the Small Business Act, and counsels the EC to ensure that it is implemented across the EU by giving it statutory force. One of its concerns is that the policy will be popular during the economic downturn, when small businesses can have a positive impact on employment statistics, but will lose political support when the economic situation improves. Traditionally, the EC’s focus has been on big business and high-tech development, leaving SMEs unable to access EU programmes because of complex compliance requirements, for example. The EESC sees the key priorities for achieving the Small Business Act as giving SMEs the help they need to adapt to the various changes they face (climate, demographic, industrial, social and in terms of globalisation) and to help them get involved in political decision making. The EESC makes a number of recommendations to ensure that the Small Business Act has the desired effect, including to address SMEs’ needs specifically in EC policy making rather than assuming that a scaled-down version of the big business policy will suit them. One of the components of the Small Business Act is the EC’s proposal to create a new type of company that will help SMEs carry on cross-border business within the EU: the European Private Company. This proposal was outlined in CLM 2008 Newsletter Issue 4. BERR has recently published responses to its consultation on the proposal. The proposal was broadly supported by the consultees (a targeted group of stakeholders) and their comments will inform BERR’s approach in negotiating the final text of the legislation. The general consensus was that the European Private Company will not offer as many benefits to UK companies as to those in other member states because the cost of setting up a private limited company here is relatively cheap and the private limited company form is well-known and respected abroad so there is less incentive to use a pan-European format. However, it was generally agreed that the new format would be useful in some situations. The text of the proposal was due to be finalised by the end of 2008, but has had to be postponed to give member states time for consultation. In the meantime, the European Parliament has requested that various amendments are made to the EC’s proposal in anticipation of some of the objections that may be raised by member states. These amendments include: » raising the minimum capital on incorporation from €1 to €8,000, unless the equivalent of the board signs a solvency statement on incorporation; » requiring European Private Companies to establish that they have a cross-border element; » requiring a European Private Company to re-negotiate employee participation rights for all employees where a certain proportion of the workforce works in a member state with greater participation rights than the company’s home member state; » requiring member states to set out penalties for breach of the EC Regulation; and » bringing more provisions within the scope of the Regulation rather than leaving them to domestic law, such as the liability of directors. Reports on corporate social responsibility published See CLM ¶3199+ The Government has published a “Corporate Responsibility Report” considering recent developments and progress made generally in this area since its last report was published in 2004 (“Corporate Social Responsibility: A Government Update”). It regards corporate responsibility (which it previously described as corporate social responsibility) as vital to the international business community and aims to support UK businesses to adopt socially and environmentally responsible behaviour by taking voluntary action over and above minimum legal requirements. It wants to encourage all UK businesses to recognise the potential strategic advantages of corporate responsibility (such as earning the trust of customers and the community, improving efficiency and increasing long term performance) in taking account of the economic, social and environmental impacts that can arise from the choices businesses make. In addition, the European Commission has issued a press release on “Corporate Social Responsibility (CSR)” (MEMO/09/109). This explains the Commission’s view on what corporate social responsibility is and the advantages of it for companies. Several examples are given of current activities in Europe and internationally as part of the EU’s role to raise awareness of corporate social responsibility, facilitate the exchange of best practice across Europe and organise the discussion of topical issues in this area. The Commission confirms that corporate social responsibility remains a priority despite the economic crisis and hopes to encourage companies to keep their strategies in place through the downturn. European Commission moves towards cutting the cost of financial reporting See CLM ¶3199, ¶4212, ¶4356 As part of the European Commission’s rolling programme to reduce the administrative burden and cost to companies in complying with company accounting and disclosure requirements (See CLM 2008 Newsletter Issue 3), it has published a new consultation and a draft directive.
The consultation document seeks views on several proposals regarding amending the Fourth and Seventh Company Law Directives (EC Directive 1978/660; EC Directive 1983/349). The proposals include: » setting out the main principles of the current rules so that these “general principles” are clear and easily identifiable; » restructuring the rules following a “bottom up” approach, in line with the “think small first” principle, so that it firstly suits the needs of small companies, with additional requirements then added for larger companies; » taking additional factors into account in determining company categories. Currently there are three size criteria based on turnover, balance sheet total and number of employees (see CLM ¶ 4363+); » reducing the number of company categories, for example, merging the medium-sized company category with the category for either small companies or large companies; » removing the requirement for medium-sized companies to prepare a directors’ report; » removing the requirement for small companies to prepare full accounts (when they use the exemption available to file abbreviated accounts) or removing the requirement for them to file their accounts entirely; » adding a requirement for cash-flow statements to be prepared; » increasing the use and availability of electronic means of filing; » including more restrictive valuation principles; and » including all of the rules (the accounting, auditing and publishing requirements) in one single directive. Comments are invited by 30 April 2009. The consultation paper can be viewed on the Commission’s website: http://ec.europa.eu/internal_market/consultations/2009/company_law_dir_en.htm. The draft directive aims to implement the EC’s proposals to introduce a new category of company, the “micro entity”. The draft defines a micro entity as being a company which satisfies two of the following criteria: » a balance sheet total below €500,000; » a net turnover below €1m; and/or » fewer than 10 employees. The Commission estimates that approximately 5.3m companies currently in the EU would satisfy the criteria. It believes that the proposal to give member states the option to exempt these companies from the requirement to prepare annual accounts will enhance their competitiveness, release growth potential and encourage new start-ups. Basic bookkeeping and tax return requirements would not be affected. The Commission intends the proposal to come into effect in the first half of 2010, subject to approval of the draft directive. The draft directive can be viewed at: http://ec.europa.eu/internal_market/accounting/docs/news/legal_proposal_en.pdf. European Commission makes improvements to IASs See CLM ¶4212 An EU Regulation has been passed to amend certain IASs (EC Regulation 70/2009). The amendments have been made to take into account improvements recommended by the International Accounting Standards Board to streamline and clarify IASs. The amendments: » result in accounting changes for presentation, recognition or measurement purposes; and » change some of the terminology used and make minor editorial changes. The full text of the regulation and amendments made can be downloaded from the EU law website: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:021:0016:0037:EN:PDF. New guidance on financial reporting challenges for small companies See CLM ¶4229+, ¶4367+ The FRC has published new guidance for directors of small companies to assist them in preparing for their forthcoming end of year reporting requirements. “An Update for Directors of Companies that adopt the Financial Reporting Standards for Smaller Entities (FRSSE): Going Concern and Financial Reporting” is, as the title suggests, intended for directors of smaller companies that qualify for the small companies’ regime in the new Companies Act and choose to apply FRSSE. It includes: » guidance on assessing whether to use the going concern basis of accounting and additional disclosures required; » suggested procedures that directors may wish to follow in carrying out this assessment; and » two practical examples to illustrate the type of disclosures that could be appropriate to a smaller company. It does not introduce any new requirements but the FRC envisages that, when compared to prior years, additional work is likely to be necessary by directors due to the current difficult economic conditions. It does not anticipate any significant increase in smaller companies preparing accounts other than on a going concern basis, but it does expect that many accounts will benefit from a short note explaining how the present credit market and other economic difficulties have an impact, if any, on the particular company’s circumstances. Any specific disclosures about going concern contained in the accounts should also be included in any abbreviated accounts filed at Companies House. The FRC’s previous guidance, “An Update for Directors of Listed Companies: Going Concern and Liquidity Risk”, may also be useful for directors of smaller companies, particularly those that use UK GAAP rather than the FRSSE (see CLM 2009 Newsletter Issue 1). Both documents can be freely downloaded from the FRC website: http://www.frc.org.uk/publications/pubs.cfm. Memorandum of understanding between OFT and Competition Commission See CLM ¶5507+ Both the Office of Fair Trading and the Competition Commission have the responsibility for regulating merger, monopoly and market undertakings and orders. In essence, the OFT keeps undertakings and orders under review once they are imposed, although the ultimate decision on whether to vary or terminate them lies with the Commission. In recognition of their interlinked statutory roles, the OFT and the Commission have jointly issued a memorandum of understanding, the purpose of which is to promote effective co-operation between them, and to ensure that their procedures can be communicated effectively to other parties concerned. The main points from the memorandum include the following: » the OFT will keep the Commission up to date as to the progress of the reviews it conducts, and provide information on applications for variation and termination it has received to the Commission; » the OFT will submit its report and recommendation once a review is completed. The Commission will then consider the OFT’s advice, supporting documentation and analysis when making decisions on variation and termination; » OFT staff will be available to explain the reasoning and analysis underlying its recommendation, and to provide any further information where necessary; » once the Commission has made a provisional decision, it will be published on the Commission’s website. At the same time, the OFT will also publish its original report and recommendation to the Commission on the same site. Both parties will co-ordinate on the timing of the publication; and » when the Commission issues its final decision, the OFT will make appropriate amendments to its registers of orders and undertakings. A copy of the memorandum can be found on the OFT’s website: http://www.oft.gov.uk/shared_oft/595316/595319/oft1060.pdf. Insolvency law modernisation and consolidation project See CLM ¶7365 From 6 April, changes to the Insolvency Act and Rules will update the advertising requirements in all corporate insolvency procedures (SI 2009/642; draft Legislative Reform (Insolvency) (Advertising Requirements) Order 2009 (at the time of writing, a final version of this Order has not yet been published but the Insolvency Service anticipates that it will be implemented on 6 April along with the changes to the Rules)). The changes aim to harmonise the requirements for insolvency practitioners to advertise certain events during the procedures so that events appear in the Gazette where this would be useful and to give insolvency practitioners the freedom to choose when and how to use other advertising. The Insolvency Service’s consultation and research into this area has shown that, in most cases, advertising in newspapers is expensive and unnecessary. For example, very few creditors come forward as a result of these adverts. Most creditors find out about a debtor company’s insolvency through word of mouth, Companies House and the company’s own website (which now has to give basic details about the procedure and responsible insolvency practitioner). Allowing insolvency practitioners to choose when it would be appropriate to use non-Gazette advertising, and what the most suitable form of the advert would be in the circumstances, will lead to costs savings for every procedure and enable the adverts to reach their intended audience more effectively. For example, if creditors’ meetings are advertised on the insolvent company’s website instead of in a local or national newspaper they will probably come to the attention of more creditors. There are no restrictions on the type of advertising that can be used, so insolvency practitioners could advertise on the internet, radio, television or in print media as appropriate in the circumstances. The amendments to the Rules impose new advertising requirements in three cases. A notice must be placed in the Gazette and can be advertised by any other means as appropriate when: » a winding up petition has been dismissed (the responsibility is on the petitioner, but if he does not comply within 21 days of the dismissal the company can place the advert(s) instead); » a provisional liquidator has been appointed (the responsibility of the provisional liquidator); and » a provisional liquidator’s appointment has been terminated (again, the responsibility of the provisional liquidator). Full details of the changes to the advertising regime are covered in the CLM updates (25/03/09). The Insolvency Service has announced that the implementation of the rest of the modernisation and consolidation project has been postponed as follows: » the other changes due to be made to the Insolvency Act will be implemented on 6 April 2010. In summary, these changes are: - to remove the requirement for liquidators to obtain sanction for the use of certain powers; - to remove the requirement on liquidators to summon annual meetings; - to replace affidavits with witness statements; and - to remove the court’s power to order a person who owes money to a company in liquidation to pay it into the liquidator’s account at the Bank of England. Other proposals were dropped or suspended after consultation, see CLM 2009 Newsletter Issue 1; and » the new Insolvency Rules and other secondary legislation are due to be implemented on 6 April 2011. |
