Companies Act 2006 (Amendment of Part 25) Regulations 2013

Lord Stevenson of Balmacara Excerpts

Wednesday 6th February 2013 Grand Committee

[Lord Stevenson of Balmacara]

My Lords, I hope it is in no way a measure of the interesting comments made by the Minister in his introduction that the only other noble Lord who was present has fled quickly from the room and is therefore not in a position to respond to his kind invitation to speak, but that leaves the burden on me. I appreciate the way in which he introduced this change and want to make it clear from the start that we broadly welcome it. It is a good idea, but possibly rather later than perhaps it could have been, as the Minister hinted at in his introductory comments.

This has obviously had a troubled background in the sense that, as we discovered, the original consultation was in March 2010 and had to be reissued for further consultation a couple of years later before the department was able to come forward with a modified proposal. Therefore, my first question to the Minister is whether we ended up with a situation in which we have the least worst solution rather than the best solution. Just to amplify that, most people seem to want—and the majority of the responses within the impact assessment suggest this—a fully operable system, with all the detail. There were, however, a significant number of people who felt that that was going to be burdensome and difficult, so the compromise is neither one thing nor the other. I would be grateful if he could make a few remarks to illustrate what he thinks is the end result and how it meets the benefits specified in the documentation.

Secondly, I was having difficulty following the figures, possibly because there were two different consultations and two different levels of issuing comment. The summary document which accompanies the impact statement says that the impact on businesses is expected to be a reduction in the burden on those filing charges, generating a net savings of £21 million a year. However, the impact assessment itself says that the net cost to business will be about £21 million as well; I may have misread that, but I would like a comment on that from the Minister. It seems like a modest reduction, given the amount of effort that goes into registering charges. As the Minister said, this is at the heart of all business transactions involving inter-business acquisitions and sales; any lending going on will always require some sort of assessment of the overall capacity of the organisation to which it is being lent. Therefore, we are saying that this is a very modest change.

However, costs are not symmetrically based; they will fall on those who have to prepare and generate the new input documents which the document says will be recouped through efficiency savings over an estimated period of four years, but no evidence about that is given. I just want to be sure that these are really modest savings and would like it on the record that that is correct.

My third point is about the costs burden arising from moving to a new electronic system. We are all sceptical about the claims that are often made for these systems but this is by all accounts a rather simple one. It is a register that is not capable of doing very much more than simply holding data. Can the noble Lord give a bit of context for how much testing of this new register has been done and whether he is confident that it will be up and running and ready? Quite a lot of time has been spent preparing for it, after all, so I hope that it will be but I would like to be confident.

Finally, I trained as an accountant in Scotland, where one of the things that was drummed into me early on in my studies was the difference between the charging register system in Scotland and that in the rest of the country. In Scotland, it is not necessary to register all charges. There is very little mention of that in the Explanatory Memorandum while there is some comment on it in the impact statement. It would be for the benefit of the Committee if the Minister could simply mention what exemptions there are for Scotland and how they will be accommodated given that the overall aspiration of this move, which I do not dissent from, is to try to provide a simple system for the whole of the country despite the differences in responsibilities between the various territories.

[Lord Popat]

I thank the noble Lord for a number of the issues that he has raised on these regulations. First, let me explain the cost versus the benefits side. Currently, to register a charge the fee is only £13 but there is a huge cost to the businesses and companies when it comes to dealing with a large number of forms through their accountants, solicitors or agents for registration. Electronic transmission will be much easier, as when we do our tax returns and VAT returns electronically. A company can in fact register electronically a director or company secretary. Having business knowledge and a business background, I suppose that this is something that should have been done many years ago.

This is a welcome move for a number of organisations, in particular credit reference agencies, lawyers and accountants but, most importantly, the lenders themselves. It gives a lot of security to lenders because we can register a charge electronically within one day. Currently, the system takes as long as eight days. Lenders will be pretty well secured on day one of release of the money to the companies to which they are lending, so it is a much safer system than we have now.

In the old days, I remember that we used to rush to Companies House in London. Now, Companies House is based in Cardiff and there is also a 21-day time limit, so in that respect the cost saving to the companies is quite huge. Even if it takes roughly half an hour for the lawyers and their secretaries to do the necessary paperwork for company registration, that half an hour is charged as a cost to the client so that will be a saving. That is what the £21 million saving is all about. With regard to the cost of putting it in practice, which is something like £750,000, if you can imagine the time saved by Companies House staff in Cardiff in processing manual applications compared to electronic applications, I would guess that that £750,000 will be recouped in four years’ time. A lot depends on the number of applications going through electronically, which is currently about 90,000. If the numbers go up, recouping the cost will probably take less than four years.

This was taken to be a compromise on future lenders’ requirements and to simplify the particular archive held in their own system. I will explain what I mean by that. When their auditors come, companies are required to do company registration, with its charges. The auditors can actually get information electronically and that screen saves audit fees for the companies, so there is that advantage too. I am afraid that it was not a compromise.

On why this took so long, we obviously had a number of reports on this and took the necessary time, as it is a complex area. We engaged all the stakeholders, who are now largely satisfied, including the Law Society and firms of chartered accountants.

With regard to Scottish companies, this provision will apply to the United Kingdom throughout. The system is not different for Scotland in this respect. I believe that I have answered most of the noble Lord’s questions.

[Lord Stevenson of Balmacara]

My Lords, I do not think that the Minister quite got the grasp of what I was saying about Scotland. Scottish law does not require the automatic registration of all charges. In England and Wales you have to register them automatically. Therefore, given the Government’s drive for simplicity, I was asking whether the Minister could say a little more about how there can be a very simple and universal system, yet also allow Scotland the discretion to not register where that is appropriate. For instance, unincorporated companies do not need to register charges in Scotland.

While I am on my feet, I might add that the Minister did not answer my question about whether the system had been tested and to what extent he felt that it was fit for purpose and ready to implement.

[Lord Popat]

The draft form has been tested with the stakeholders and other learned registrars and the system works well.