Companies Act 2006 (Amendment of Part 18) Regulations 2013

Viscount Younger of Leckie Excerpts

Monday 25th March 2013 Grand Committee

Moved by

[Viscount Younger of Leckie]

That the Grand Committee do report to the House that it has considered the Companies Act 2006 (Amendment of Part 18) Regulations 2013.

Relevant document: 22nd Report from the Joint Committee on Statutory Instruments

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)]

My Lords, the purpose of the regulations is to facilitate employee ownership by simplifying company law in the area of share buy-backs.

The independent Nuttall review of July last year set out the economic and social benefits of employee ownership, including improved business performance, increased economic resilience and greater employee engagement and commitment. The review also made a series of recommendations to the Government about how to increase the uptake of employee ownership in the private sector and what barriers needed to be removed to enable that.

One of Graeme Nuttall’s conclusions was that the company law provisions on share buy-backs are overly burdensome. The Nuttall review recommended that the Government consult on improving the operation of internal share markets to support companies with direct share ownership models. Companies that wish to encourage their employees to hold shares directly—that is, without the use of a trust—will often seek to buy back shares from employees who are leaving, or have left, the company to redistribute them to new employees. That allows the company to avoid the risks that, over time, shares earmarked for allocation to employees become predominately owned by former employees or others outside the company. Buy-back arrangements will depend on the departing shareholder, the seller, and the company, the buyer, mutually agreeing a price, inter alia. Once a buy-back is agreed, companies must comply with a number of company law provisions that regulate the process.

Having accepted this recommendation to examine company law about buy-backs, the Government held a consultation to obtain views and evidence on: the extent to which company law rules on buy-backs are an impediment to employee ownership; changes to the rules on the authorisation and financing of share buy- backs; the holding of shares in treasury; and potential problems or unintended consequences.

The regulations for the Committee’s consideration contain provisions that address the concerns raised in the consultation by reducing the administrative burden faced by companies when administering share buy-backs; increasing the flexibility available to companies in how they fund share buy-backs; and allowing companies to select the most suitable arrangements for their particular needs. Specifically, the proposals will, first, allow shareholders in any company to approve off-market share buy-backs by an ordinary resolution—that is, by a simple majority vote—and, where such buy-backs are connected with an employee share scheme, allow for approval to be granted in advance. This will reduce the need for multiple resolutions, saving companies both time and money.

--- Later in debate ---

[Viscount Younger of Leckie]

My Lords, first, I thank the noble Lord, Lord Stevenson, for his earlier comments. I hope that this will be a short sitting, in marked contrast to the rather livelier sittings that we experienced in the main Chamber together last week. I also thank him for his comments and questions about this issue. Just to reassure him, where concerns have been expressed, we will keep matters under review and evaluate them at the time of the post-implementation review. This will include implications for taxation, which is an important point raised by the noble Lord, Lord Stevenson.

While the regulations have merit in themselves, they are part of a wider package of measures that implement the recommendations of the Nuttall review of employee share ownership. They simplify the company law provisions on the buy-back of a company’s own shares in a manner which reduces administrative burdens and increases the flexibility available to companies to administer and finance buy-backs in a way that best suits their needs. The proposals in the regulations were endorsed and enhanced by the consultation process, and, as I mentioned earlier, are mainly targeted at private limited companies that undertake buy-backs pursuant to, or for the purposes of, an employee share scheme. The measures are not only deregulatory but enabling.

Picking up the point about costs raised by the noble Lord, Lord Stevenson, he may be reassured that the independent Regulatory Policy Committee, the RPC, confirmed that these changes are deregulatory and impose little or no cost to business. Having said that there are no costs to Government from the measures, I can make no other substantive comments on costs, but it may help the noble Lord if I also mention the question of savings. It is not possible to quantify the potential savings to business, as these will vary greatly depending on a range of factors, including the size of the business, the scale of the share scheme and the quantity of the shares bought back over a given period of time.

For example, a company which has several buy-backs during the course of a year could benefit from being able to approve these buy-backs in advance, rather than having to focus on approval each time the buy-back is effected individually. I regret that it is not as yet possible to quantify this.

[Lord Viscount Stevenson of Balmacara]

I am sorry to press the noble Viscount on this, but I remind him that paragraph 18 of the impact assessment states:

“In the current consultation … an attempt has not been made to monetise any of the costs and benefits associated with the policy”.

This is an alarming point. If this is going to be standard practice for the department, what is the department there for? These are not major changes. I accept the Minister’s point that everybody seems to welcome them, but some evaluation of what they cost and of the benefits would have been helpful. The impact assessment goes on to state:

“The intention is to utilise the consultation period as an opportunity to obtain further information from stakeholders”.

However, the report from the consultation states that it was not possible to obtain any information on costs or benefits from the consultation. One has to ask: what sort of consultation was that?

[Viscount Younger of Leckie]

The noble Lord makes a fair point, but it remains the fact that there are no costs to define or describe. It was looked at in great detail. However, given that the noble Lord has raised the issue twice, if I can produce further information to satisfy him, I will certainly do so in a letter.

The noble Lord, Lord Stevenson, also asked what else the Department for Business, Innovation and Skills is doing to promote employee ownership. There has been much discussion in the Chamber about this matter. BIS is developing a programme of work, overseen by my honourable friend in the other place, Jo Swinson, including developing model articles for employee ownership of companies. To respond to the question raised by the noble Lord, Lord Stevenson, about the tax implications, I can also confirm that work is ongoing on capital gains tax relief. I will be pleased to write to him with further details—in the same letter, I hope, rather than in a separate one. Further questions were raised and I will be more than delighted to round them up afterwards and be sure that there is a full response to the noble Lord, Lord Stevenson.

In conclusion, the Government state that these regulations meet the requirements of the Act and I commend them to the Committee.

Motion agreed.