Oral Answers to Questions
Debate between Fiona Bruce and Kelly Tolhurst(4 years, 1 month ago)
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Fiona Bruce (Congleton) (Con)
Kelly Tolhurst
My hon. Friend will know that we are providing £5 billion in new funding to overhaul buses and cycling nationwide to benefit all passengers of all ages. The national bus strategy will set out further details.
Draft Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2019
Debate between Fiona Bruce and Kelly Tolhurst(5 years, 2 months ago)
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Fiona Bruce (Congleton) (Con)
May I draw attention to an interest recorded in the Register of Members’ Financial Interests? My law firm, of which I remain a partner, is a limited liability partnership.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kelly Tolhurst)
I beg to move,
That the Committee has considered the draft Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2019.
It is a pleasure to serve under your chairmanship, Ms Buck. The draft regulations, which were laid before the House on 10 January, will address deficiencies in retained EU law in relation to the Companies Act 2006 and supporting secondary legislation. They will ensure that UK law in the area continues to function after exit day. Hon. Members will notice that their provisions cover many different areas; I shall briefly summarise them.
The changes to the 2006 Act and the supporting secondary legislation will ensure that the system of regulation underpinning how companies report to and register with the UK companies registrar, Companies House, makes sense after we have left the EU and the European economic area. They will also remove the UK from ongoing participation in two EU-based processes in the field of company law: the cross-border mergers regime and the business registers interconnection system.
The draft regulations also cover other matters. They include a small number of amendments to address how businesses with membership, access and listing on EEA-regulated markets are dealt with; they will remove preferential treatment in such instances and in relation to EEA entities where there is a potential breach of the World Trade Organisation’s most favoured nation rule. Where there is no such breach, and where it is appropriate to do so, we have maintained the status quo to offer certainty and consistency for business, including EEA businesses.
The main practical changes for business that stem from the draft regulations will be filing changes with an impact on some UK and EEA businesses after exit day, including a requirement for UK companies with an EEA-based corporate secretary or director to file two additional details with Companies House. Additionally, after exit day, EEA companies on the overseas companies register will be treated in exactly the same way as non-EEA companies, meaning that EEA companies that register with Companies House will be required to provide some additional details, while EEA companies that are already registered will have three months to provide the additional information required by the draft regulations. Linked to these filing changes is a requirement for EEA-based companies on the overseas companies register to provide additional minor details in their public-facing material, such as their website and letterhead; again, the draft regulations provide three months from exit day for the affected companies to do so.
In line with those changes, the draft regulations will also revoke legislation on two EU-based processes or systems currently administered by Companies House. The first is the cross-border mergers regime. Hon. Friends and noble Lords in Committees of both Houses have drawn attention to the removal of the current process for UK companies. I understand their concern, because I know that certain companies welcome the fact that it allows companies to merge across EEA jurisdictions. However, that is possible only under the EU cross-border mergers regime, which requires legal entities based in two EEA states. As the UK will no longer be an EEA member after exit, it will not be possible to continue to allow cross-border mergers, but companies will be able to transfer assets and liabilities using contractual arrangements.
The other system of which the UK will no longer be part after exit is the business registers interconnection system—a very new system, introduced only in 2017, that is used mainly to identify companies undertaking a cross-border merger or foreign branches of companies. All the information currently provided publicly on the Companies House register will still be available; the only thing that will cease is Companies House’s access to the register to register connections across the EU.
I will now explain the changes made as a consequence of the insertion of a new definition of “regulated markets” into another statutory instrument, in line with regulations that Her Majesty’s Treasury has laid before the House, and its effect in certain sections of the Companies Act 2006. In most places where it occurs, the change will have no material effect. There are only two occurrences where we have made the decision to apply the same requirements to EEA companies as we do to third-country companies. We judged that without such a change, there would be a risk of breaching the World Trade Organisation’s most favoured nation rule.
The practical effect of each change is that certain intermediaries who deal in securities will no longer be able to hold shares in their parent company where they are a UK-based holding company. This benefit will, after exit, be extended only to intermediaries with access to UK-regulated markets. We are providing a one-year transition for that change. Certain investment companies will no longer be able to benefit from some relaxations on controls on their distribution of profits unless they have access to a UK-regulated market. In addition, we will treat EEA-based credit reference agencies in the same way as third-country credit reference agencies after exit. Companies House will no longer be able to send the protected information that it holds on directors to EEA credit reference agencies and processors.
My officials have worked extensively with Companies House throughout the development of these regulations, and I thank them for their expertise. It is also relevant to point out to hon. Members that this has been done alongside ensuring that the UK’s company registry fully reflects the UK’s departure from the EU on exit day. That includes updating all relevant forms that companies use to file information, as well as updating guidance. That should be emphasised, because it means that companies will have certainty and clarity on what they need to do when the UK leaves the EU. We completed a de minimis impact assessment of the regulations, which shows that the overall costs to business are expected to be small.
As the Committee has heard, the regulations provide numerous technical changes to the operation of UK company law, and they respond to the reality of the UK’s leaving the EU. They are not overly burdensome for business and they will ensure that the UK has coherence in its approach to overseas companies. I therefore commend the regulations to the Committee.
Draft Business Contract Terms (Assignment of Receivables) Regulations 2018
Debate between Fiona Bruce and Kelly Tolhurst(5 years, 7 months ago)
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The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kelly Tolhurst)
I beg to move,
That the Committee has considered the draft Business Contract Terms (Assignment of Receivables) Regulations 2018.
It is a pleasure to serve under your chairmanship, Mr Sharma. This is the first time I have served on a Committee as a Minister, and I am extremely pleased to bring forward these positive draft regulations. I am also pleased that the shadow Minister, the hon. Member for Sefton Central, is on the Committee, because he is a Medway person, too—we grew up in the same area. It is great that there are two people on the Committee who know Medway well.
Britain’s 5.7 million small and medium-sized enterprises are the backbone of the economy, accounting for more than half of turnover and 60% of employment in the private sector. Finance is the lifeblood of those businesses, yet many of them are denied by their customers the ability to access one particular finance option. That is the anomaly that the draft regulations will put right. In future, SMEs will, if they choose, be able to raise finance on their invoices more easily.
The most recent figures for asset-based finance show that total advances stand at £22 billion, of which more than £20 billion is invoice finance. Around half that is to large businesses, so invoice finance advances to SMEs amount to approximately £10 billion. In comparison, bank loans and overdrafts to SMEs were £165 billion at the end of 2017.
Invoice finance has real advantages—it is flexible, immediate and supports businesses to grow—so why is take-up so low? The answer is that many customers prohibit their suppliers from assigning invoices—or, more accurately, receivables: the right to receive the proceeds from an invoice. That assignment is essential for invoice finance to operate. Such restrictive terms are found in many purchase contracts. An SME supplier is typically unable to negotiate changes. If it wants a contract, it had better just accept the standard terms, otherwise the work will be offered to a competitor.
Why do those contract terms persist? Some such clauses are written as a general catch-all to prevent suppliers from subcontracting services. However, those standard terms are so wide that suppliers are equally prevented from assigning their invoices to finance providers. In other cases, customers may not want to deal with an invoice finance company. They know that the imbalance of power means their small suppliers are unlikely to act against them if they impose long payment terms or simply pay late. A finance company is a different proposition. Whether such onerous terms exist through inertia or deliberate intent, their effect is the same: they prevent suppliers from accessing the finance they need to thrive and grow.
The draft regulations will put an end to that situation for SME suppliers making routine supplies of goods and services. They will allow providers to offer invoice finance even where restrictive contract terms are in place, knowing that those terms will have no effect. The draft regulations do not require any contract to be redrafted, nor are they in any way retrospective. Existing agreements will continue to be enforceable, and the same standard drafting, including clauses prohibiting assignment, may still be used for contracts entered into on or after 31 December this year. Those clauses will simply have no effect. Therefore, the impact of the draft regulations will be felt gradually, as new supplier relationships are created. This is a simple mechanism with no compliance or reporting burden.
To offer invoice finance, providers will simply need to assure themselves that the supply contract was entered into on or after 31 December this year and that none of the exemptions apply—for example, that the supplier is not a large enterprise. The change will also unlock additional finance for existing clients where advances are currently restricted due to prohibitions on assignment imposed by some of the SME’s customers. The position for both supplier and finance provider will be simpler and more certain, which will help to create the significant benefits that are expected to flow from the regulations.
Two direct benefits are described in the impact assessment, which reflect the two elements of a typical invoice finance arrangement. The first benefit is a reduction in the discount fees charged to suppliers, which reflects the reduced risk that the finance provider will be unable to collect payment because the assignment was not valid. The annual savings to business from lower discount fees are assessed at £13.7 million. The second benefit is a reduction in the service charge based on turnover. That benefit is assessed at £46.1 million. Both benefits result from the reduced costs incurred by finance providers being passed on to SMEs in a competitive market.
Finally, there will be significant indirect benefits from additional finance becoming available and allowing suppliers to take advantage of new business opportunities. Those benefits are assessed at £84.6 million. All those benefits are calculated from survey evidence and follow-up research, as set out in the impact assessment. The overall outcome is a net present benefit to business of £966 million, which I am sure all hon. Members will welcome.
As with any intervention, it is important to ensure that the benefits do not give rise to unintended consequences. Acting to make contract terms ineffective is a powerful measure, which is typically used where there is an imbalance of power between the parties that cannot be corrected in any other way. After the consultation, and even after an earlier version of the regulations was laid, the legal profession raised concerns about the potential impact of the regulations on the use of English law. As hon. Members will know, English law is one of this country’s most valuable exports and forms the basis for contracts in areas as diverse as aircraft leasing, project finance and infrastructure.
We listened carefully to those concerns and my predecessor, my hon. Friend the Member for Stourbridge (Margot James), withdrew the instrument so that they could be properly considered. Following extensive discussions, I am glad to say that these regulations incorporate changes that meet those concerns. I thank all those involved from the City of London Law Society and the trade body UK Finance who have ensured that the original aim was met without putting at risk the position of English law as the leading choice of governing law for international agreements.
The regulations will set suppliers free to access invoice finance when they wish, without being prevented from doing so by their customers. They will do this while preserving the attractiveness of English law overseas and they will bring significant benefits, with a net present value to business of £966 million.
Fiona Bruce (Congleton) (Con)
On a point of order, Mr Sharma. Having heard the introduction to the debate, I draw hon. Members’ attention to my entry in the Register of Members’ Financial Interests. I am a member of an SME LLP firm, but it has had no involvement with invoice finance in relation to its own contracts during the whole of its existence.
Oral Answers to Questions
Debate between Fiona Bruce and Kelly Tolhurst(7 years, 2 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Fiona Bruce (Congleton) (Con)
Kelly Tolhurst (Rochester and Strood) (Con)