Schedule 13: Supplementary provisions with respect to delegation order
1593.This Schedule restates the provisions of Schedule 13 to the 1989 Act. Paragraph 2 provides that the delegated body is not to be regarded as acting on behalf of the Crown. Paragraphs 7 to 9 provide for the delegated body to exercise any legislative functions by instrument in writing and not by statutory instrument. Instruments must be made available to the public and the Secretary of State may require the body to consult prior to the making of regulations. Paragraph 10 requires the delegated body to report annually to the Secretary of State on the performance of its functions.
Section 1254: Directions to comply with international obligations
1594.This provision restates section 40 of the 1989 Act and empowers the Secretary of State to direct recognised supervisory or qualifying bodies, or any body delegated under section 1252, to comply with Community or other international obligations. If the body fails to comply with a direction, the Secretary of State can apply to the court for his direction to be enforced.
Section 1255: Offences by bodies corporate, partnerships and unincorporated associations
1595.This provision restates section 42 of the 1989 Act and deals with offences committed by bodies corporate, partnerships and other unincorporated associations. Where an offence committed by such a body is committed with the consent or connivance of, or is attributable to the neglect of, an officer (in the case of a body corporate), a partner (in the case of a partnership) or an officer or member (in the case of an unincorporated association), that officer, partner or member is also guilty of the offence.
Section 1256: Time limits for prosecution of offences
1596.This provision restates section 43 of the 1989 Act and sets a twelve-month time limit for the prosecution of offences within each of the jurisdictions. Subsections (1) to (4) identify that the date on which knowledge of sufficient evidence of the offence to justify prosecuting becomes known to either the Secretary of State or Director of Public Prosecutions (for England and Wales), the Lord Advocate (for Scotland) or Director of Public Prosecutions for Northern Ireland is taken as the date from which the twelve month time limit commences. In any event, the prosecution may not be commenced if three years have passed since the date on which the offence was committed.
Section 1257: Jurisdiction and procedure in respect of offences
1597.This provision restates section 44 of the 1989 Act and deals with the jurisdiction and procedure in respect of offences. It specifies that the jurisdiction is that in which a body corporate or unincorporated association has its place of business or, in the case of an individual, where he is located. It also provides for an unincorporated association to be treated in the same way as a body corporate.
Section 1258: Service of notices
1598.This provision restates section 49 of the 1989 Act and states how notices and other documents may be served under this Part of the Act on any person other than the Secretary of State. The three permitted methods of service are: delivery to the person, leaving the document at the person’s address, or sending it by post to the person’s address.
Section 1259: Documents in electronic form
1599.This is a new provision to allow delivery of notices, directions or other documents in electronic form. It allows the use of e-communications where existing provisions in this Part impose requirements on the giving or sending of notices, directions or other documents, provided the recipient indicates he is prepared to accept this form of delivery.
Section 1260: Meaning of “associate”
1600.This provision restates section 52 of the 1989 Act and defines the meaning of “associate”. This definition is particularly relevant for the independence requirement for statutory auditors set out in section 1214.
Section 1261: Minor definitions
1601.This provision is a restatement of section 53 of the 1989 Act with certain extra definitions. Subsection (3) empowers the Secretary of State, by regulations, to make amendments to this Part which are needed in relation to the application of the Part to a “firm” (as defined by subsection (1)) which is not a partnership or body corporate.
Section 1262: Index of defined expressions
1602.This provision contains an index to the defined terms used in the Part.
Section 1263: Power to make provision in consequence of changes affecting accountancy bodies
1603.This provision restates section 51 of the 1989 Act. The provision empowers the Secretary of State to amend by regulation legislation (including this Act) that refers to accountancy bodies in the event of a name change, merger or transfer of engagements affecting the bodies.
Section 1264 and Schedule 14: Consequential amendments
1604.Section 1264 introduces Schedule 14, which contains amendments consequential on this Part to the C(AICE) Act 2004.
Part 43: Transparency Obligations and Related Matters
Section 1265: The transparency obligations directive
1605.Section 1265 inserts a definition of the “transparency obligations directive” at the appropriate place in Part 6 of the Financial Services and Markets Act 2000(“FSMA”).
Section 1266: Transparency rules
1606.Section 1266 inserts seven new sections into Part 6 of FSMA: sections 89A, 89B, 89C, 89D, 89E, 89F and 89G. Part 6 of FSMA deals with certain aspects of the regulation of securities that are traded on regulated markets in the UK. These new sections make provision about rules that may be made by the “competent authority” (which is the Financial Services Authority (“the Authority”)) for the purposes of the Transparency Directive (2004/109/EC)“transparency rules”.
New Section 89A: Transparency rules
1607.Subsection (1) of new section 89A of FSMA enables the Authority to make transparency rules to implement the Transparency Directive in the UK. Subsection (2) enables the rules to include provision for any matter arising out of or related to the Directive provisions.
1608.The Transparency Directive itself covers issuers whose securities are traded on regulated markets and people who hold voting rights attached to shares in such issuers. The scope of the rule-making power allows the rules to address other matters arising from the Directive’s implementation, for example, to ensure that secondary legislation adopted by the Commission can be incorporated into the transparency rules, and that optional aspects of the Directive can be implemented, where the Authority considers this appropriate.
1609.It is expected that rules made under section 89A(1) will implement the Transparency Directive by-
requiring holders of votes attached to shares in issuers to make disclosure about their holdings at certain thresholds (see new section 89B);
requiring issuers to make public their annual accounts and reports, prepared in accordance with the EU International Accounts Standards Regulation (Regulation (EC) 1606/2002), and, where appropriate, half-yearly and interim management statements about their business(see new section 89C);
requiring issuers to make notification about voting rights held by themselves in respect of their own voting shares (see new section 89D);
requiring issuers to notify the Authority and the market of any proposed change to their constitution (see new section 89E).
1610.Subsection (3)(a) enables the Authority to make rules about disclosures of voteholdings to UK markets that are not regulated markets (within the meaning of section 103(1) of FSMA) (such as the AIM). Subsection (3)(b) enables the Authority to make rules about disclosure in relation to certain comparable instruments in respect of voting shares. These are instruments that give the holder a level of economic, as opposed to legal, control over votes attached to shares. An example of the type of instrument that the rules could extend to cover is a contract for difference, known as a “CFD”.
1611.Subsection (4) specifies further matters that the rules may cover. These include: how the proportion of voting rights held by an issuer is to be determined; when voting rights held by one person may be regarded as being held by another; the nature, form, timing and presentation of any notification; and the circumstances in which any of the requirements of section 89A may not apply.
New Section 89B: Provision of voteholder information
1612.New section 89B sets out provisions for notifications by voteholders under transparency rules. Subsection (1) specifies that notification can be required to be made to the issuer or to the public or to both. Under subsection (2), rules may provide for such information to be notified at the same time to the Authority.
1613.Subsection (5) sets out the circumstances in which voteholders may be required to notify of a change in the proportion of voting rights (i.e. when a proportion crosses above or below, or reaches, a proportion designated in the rules).
New Section 89C: Provision of information by issuers of transferable securities
1614.New section 89C sets out provisions for issuers of transferable securities to provide information under transparency rules. Subsection (1) clarifies that information can be required to be given to the public or the Authority or both.
1615.The rules cover annual financial reports (both financial statements and management reports) and, for certain issuers, half-yearly financial reports and interim management statements, as required by the Transparency Directive. The rules can also require issuers to disclose certain other information relating to voteholder information, information about the different classes of share they have issued and the total number of voting rights attached to each class, their own voteholdings, their capital, and information about new loan issues.
New Section 89D: Notification of voting rights held by issuer
1616.New section 89D enables the rules to provide for issuers to make notification of the proportion of voting rights they hold in respect of their own voting shares. Subsection (1)(a) permits rules to set the initial notification period in accordance with the requirements of the Transparency Directive at Article 30.2. Subsections (1)(b), (2) and (3) set out the circumstances under which issuers of transferable securities must notify of a change in the proportion of voting rights (i.e. when a proportion crosses above or below, or reaches, a proportion designated in the rules).
New Section 89E: Notification of proposed amendment of issuer’s constitution
1617.New section 89E enables the rules to provide that an issuer of transferable securities admitted to trading on a regulated market must notify a proposed amendment to its constitution to the Authority and the market.
New Section 89F: Transparency rules: interpretation etc
1618.New section 89F defines a number of terms used in the sections 89A to 89G.
New Section 89G: Transparency rules: other supplementary provisions
1619.New section 89G sets out further supplementary provisions relating to the transparency rules. Subsection (1) enables the Authority to make rules imposing the same obligations on a person who has applied for the admission of transferable securities to trading on a regulated market without the issuer’s consent as they impose on an issuer of transferable securities. Subsection (2) enables the Authority to make rules to allow it to make public information that voteholders or issuers are required to make public, where they fail to do so themselves. Subsection (3) will enable the Authority to make public information notified to it in accordance with transparency rules.
1620.There is some overlap between notifications required by the Panel on Takeovers and Mergers in the rules made under Part 28, and notifications required by the Transparency Directive. Subsection (4) enables transparency rules to cross-refer to rules made by the Panel under Part 28, which will enable greater alignment between the two sets of rules.
Section 1267: Competent Authority’s power to call for information
1621.Section 1267 inserts three new sections into Part 6 of FSMA: sections 89H to 89J.
1622.New section 89H permits the Authority to call for information from specified persons, set out in subsection (2), including issuers of shares and their auditors and directors, and voteholders and their auditors, directors and persons controlling or controlled by voteholders.
1623.Subsection (3) limits the Authority to requesting information and documents reasonably required in connection with the transparency rules. Subsection (4) enables the Authority to determine the timeframe for production and provision of information, and the location for the information to be provided. Subsection (5) makes it clear that the production of the material as required by this section does not affect any lien on a document.
1624.New section 89I sets outs the requirements connected with the Authority’s power to call for information. The Authority will be empowered to specify the form of the information or documents it calls for under section 89H (1), and may require its authentication or verification (subsection (2)). The Authority is permitted, under subsection (3), to take copies of and extracts from the documentation provided, and may also require the persons providing the information, or any “relevant person” within the meaning of subsection (4)(which includes directors, auditors, actuaries, accountants, lawyers and employees), to submit an explanation of any documentation produced.
1625.If a person fails to comply with the requirement to produce a document, the Authority is permitted under subsection (5) to require a person to state where the document is.
1626.New section 89J sets out the supplementary provisions in relation to the competent authority’s power to call for information in sections 89H and 89I.
Section 1268: Powers exercisable in case of infringement of transparency obligation
1627.Section 1268 inserts four new sections into Part 6 of FSMA: sections 89K to 89N.
1628.The four new sections set out the Authority’s powers in case of infringement of transparency obligations. Section 89K enables the Authority to make a public statement if an issuer is failing or has failed to comply with its obligations. It may only do so after it has issued a warning notice to the issuer (subsection (2)), and after any representations from the issuer, it has provided the issuer with a decision notice (subsection (3)). Subsection (4) requires the Authority to provide the issuer with notice that it has a right to refer the matter to the Tribunal.
1629.New section 89L gives the Authority the power, in certain circumstances, to suspend or prohibit trading of securities admitted to trading on a regulated market, or to request the market operator to suspend or prohibit such trading. The powers are to be used where the Authority suspects (subsections (2) and (3)) or finds (subsection 4) applicable breaches of transparency obligations. The Authority’s powers to request a market operator to prohibit trading could be used where and issuer whose home member State is the UK is listed in another EEA State.
1630.Section 89M sets out the procedures relating to the suspension and prohibition powers of the Authority set out in section 89L.
1631.New section 89N sets out the right for those who receive a decision notice or a notice under section 89M to refer matters to the Tribunal.
Section 1269: Corporate governance rules
1632.Section 1269 inserts new section 89O into FSMA which gives the Authority a power (under Part 6 of FSMA) to make rules implementing, enabling the implementation of or dealing with matters arising out of Community obligations on corporate governance of issuers on a regulated market.
1633.This rule-making power will enable the Authority to make corporate governance rules to cover issuers for whom the UK is the home member State, and whose securities are traded on a regulated market in the UK or elsewhere in the EEA.
1634.Subsection (2) sets out the type of corporate governance provision covered by this rule making power. These include:
the nature, constitution or functions of the organs of issuers;
the manner in which organs of the issuer conduct themselves;
the requirements imposed on organs of the issuer;
the relationship between the different organs of the issuer;
the relationship between the organs of the issuer and the members of the issuer (or holders of the issuer's securities).
1635.Subsection (3) provides that greater burdens must not be imposed by corporate governance rules on issuers whose securities are traded outside the UK than those imposed by corporate governance rules or listing rules on issuers with securities on UK markets.
Section 1270: Liability for false or misleading statements in certain publications
1636.Section 1270 inserts sections 90A and 90B into FSMA and establishes a regime for civil liability to third parties by issuers admitted to trading on a regulated market in respect of disclosures made public in response to provisions implementing obligations imposed by the Transparency Directive.
1637.Although no issuer has been found liable in damages under English law in respect of statements made in narrative reports or financial statements, the law relating to financial markets and to the obligations of issuers to investors on those markets has been developing, in the light of increased regulation of both domestic and European origin. The Transparency Directive has continued that process and increased the level of uncertainty as to whether any actionable duty is owed by an issuer and its directors to investors.
1638.The Transparency Directive sets out the periodic financial disclosures that must be made by issuers admitted to trading on a regulated market. Articles 4 and 5 of the Transparency Directive provide for annual and half-yearly reports, including management statements, to be made public, and requires statements made by persons responsible within the issuer for these disclosures (the directors in the case of a public company) that these give a true and fair view, and that the management report includes a fair review of certain matters. Article 6 requires the disclosure of interim management statements.
1639.The Transparency Directive also sets out the minimum requirements for a liability regime that must be adopted by the UK at Article 7, and recital (17) states “Member States should remain free to determine the extent of the liability”.
1640.These provisions give considerable flexibility to Member States in the liability regime they choose to adopt in respect of disclosures under the Directive. The Government has established an exhaustive regime in relation to ensuring the delivery and accuracy of these reports including criminal offences, administrative penalties and actions for civil damages. The provisions in this section relate only to the position in respect of the civil liability of issuers on regulated markets to investors in their securities. The liability regime does not cover issuers on exchange-regulated markets. Their position remains unchanged by implementation of the Transparency Directive.
1641.While it is intended that there be no additional liability under the Directive in respect of the disclosures to which it relates, the regime leaves undisturbed any other liability owed by directors to the issuer and to members of the company under UK and other national law, and any liability under other FSA rules. It also leaves undisturbed any liability of the issuer in respect of any loss or damage arising otherwise than as a result of acquiring securities in reliance on the relevant statement or report.
1642.The primary liability of directors and issuers for the accuracy of the required disclosures comprises criminal offences and administrative penalties under the provisions of Part 15 of this Act and Part 6 of FSMA. The provisions in Part 6 require compliance with FSA rules giving effect to the obligations in the Directive and provide for penalties in respect of failure to comply with the rules. In addition, restitution can potentially be ordered by the court, on application of the Authority or Secretary of State, under section 382 of FSMA or by the Authority directly under section 384 of FSMA.
1643.The Government’s intention in developing a civil liability regime has been to provide certainty in an uncertain area and to ensure that the potential scope of liability is reasonable, in relation both to expectations and the likely state of the law after the implementation of the Transparency Directive. In particular, the Government was anxious not to extend unnecessarily the scope of any duties which might be owed to investors or wider classes of third parties, in order to protect the interests of company members, employees and creditors. However, as the state of the law after the implementation of the Transparency Directive is not certain, the Government has taken a power, at newsection 90B, that will enable the provision introduced by section 1270 to be added to or amended if a wider or narrower civil liability regime is deemed appropriate.
New section 90A: Compensation for statements in certain publications
1644.Subsection (1)(a) of new section 90A provides that the civil liability regime set out in that section applies to those reports and statements required by provisions implementing Articles 4 to 6 of the Transparency Directive. Depending on transparency rules, we would expect this to include annual and half yearly financial statements and management reports, the sign-off by directors or other responsible parties, as well as interim management statements.
1645.Subsection (1)(b) adds to the scope of the regime the information included in preliminary announcements of results made in advance of the reports and statements required by provision implementing Article 4 of the Transparency Directive, but only to the extent that it is intended that the information will appear in the final report or statement and be presented in substantially the same form as that in which it is presented in the preliminary announcement.
1646.Subsection (2) sets the scope of the civil liability regime to cover securities of all issuers for which the UK is the home Member State (whether the regulated market on which they are traded is situated in or outside the UK), as well as to cover those issuers whose securities are traded on a regulated market situated in the UK and for whom the UK is the host Member State. UK holders of securities of other issuers (i.e. those for whom the UK is neither a host nor a home State) will not be able to rely on the rights of action set out.
1647.Subsection (3) provides that issuers of such securities are liable to pay compensation to a person who has acquired those securities and has suffered loss in respect of them as a result of any untrue or misleading statement in a publication to which this section applies, or an omission of a required statement from such a statement. Subsection (4) however limits the liability of the issuer to circumstances where a “person discharging managerial responsibilities” in relation to the publication within the issuer (see subsection (9)) knows the statement to be untrue or misleading, or is reckless as to whether the statement is untrue or misleading, or, in the case of omissions, where it is known to be a dishonest concealment of a material fact.
1648.Subsection (5) provides that loss will not be regarded as having been suffered for the purposes of subsection (3) unless the person suffering it acquired the relevant securities in reliance on the information in the publication and at a time when and in circumstances where it was reasonable to rely on that publication.
1649.Subsection (6) limits the liability with regard to untrue or misleading statements, or omissions, in documents to which the section applies. It sets out that issuers are not liable for any liability other than that provided for by the section and that any person who is not the issuer is not liable, other than to the issuer.
1650.Subsection (8) clarifies that the section does not affect Part 6 of FSMA conferring liability for a civil penalty, liability for a criminal offence or the right to seek restitution.
1651.Subsection (9) sets out the persons who are to be considered as discharging managerial responsibilities for the purposes of the section. This is any director of the issuer, or where the issuer’s affairs are managed by the members, a member of the issuer. In the case where the issuer does not have directors, or members, any senior executive with responsibilities in relation to the publication is considered as discharging managerial responsibilities.
New section 90B: Power to make further provision about liability for published information
1652.Subsection (1) of new section 90B establishes a power to make further provision about liability for published information. The new section allows the Treasury by regulations to amend any primary or subordinate legislation relating to the liability of issuers and others in respect of information, including the regime set out in new section 90A of FSMA. The exercise of the proposed power could, for example, result in that regime or some other appropriate regime applying to other classes of information, such as information that is required to be disclosed by issuers to shareholders or markets under the Market Abuse Directive (MAD).
1653.Regulations made under the section would be made using the affirmative procedure (see the amendment to section 429(2) of FSMA made by paragraph 12 of Schedule 15).
Section 1271: exercise of powers where UK is host member State
1654.Section 1271 inserts a new section into Part 6 of FSMA: section 100A.
1655.New section 100A sets out the Authority’s ability to exercise powers in relation to infringements of prospectus rules and transparency rules or related provisions where issuers’ home State is not the UK. Subsection (2) clarifies that the enforcement powers extend only to cover infringements required by the relevant directive. Subsection (3) sets out the process by which the Authority must engage with the home State competent authority when it finds there has been an infringement. Subsection (4) sets out limitations on the Authority’s ability to act in those circumstances, but subsection (5) provides that, in the appropriate circumstances, it must take all appropriate measures to protect investors.
1656.Subsection (6) imposes an obligation on the Authority to inform the Commission where it takes action to protect investors.
Section 1272 and Schedule 15: Transparency obligations and related matters: minor and consequential amendments
1657.Section 1272 introduces Schedule 15, which makes minor and consequential amendments to FSMA related to the provision in sections 1265 to 1271. The Schedule also makes amendments to the C(AICE)Act 2004.
Part 1: Amendments of the Financial Services and Markets Act 2000
1658.Part 1 of Schedule 15 makes minor and consequential amendments to FSMA.
1659.Paragraph 2 amends section 73 of FSMA to extend, for the purposes of the transparency rules (which can apply to non-regulated UK markets), the factors to which the Authority must have regard when making rules under Part 6 of FSMA, so that these extend to effects on markets other than regulated markets.
1660.Paragraph 3 amends section 73A of FSMA to provide that transparency rules and corporate governance rules are “Part 6 rules” for the purposes of Part 6 of FSMA. But paragraph 3 also makes clear that these rules are distinct and separate from other Part 6 rules, such as the listing rules, disclosure rules, and prospectus rules. These different kinds of rules impose different, and sometimes overlapping, obligations on different groups of issuers.
1661.Paragraph 6 amends the penalty regime for breaches of Part 6 rules in section 91 of FSMA, so that it applies also to non-compliance with transparency rules, provisions made under the Transparency Directive, and corporate governance rules.
1662.Paragraph 8 amends section 97 of FSMA to enable the Authority to appoint a person to carry out investigations into breaches of the transparency rules or related provisions or the corporate governance rules.
1663.Paragraph 9 amends section 99 of FSMA, which relates to fees, so as to enable the Authority to levy fees under the transparency rules.
1664.Paragraphs 10 and 11 amend two definitions in Part 6 of FSMA (“transferable securities” in section 102A and “regulated market” in section 103) to refer to the up–to-date Community legislation (i.e. the Markets in Financial Instruments Directive (2004/39)). These paragraphs also add definitions for the purposes of the provisions on transparency rules.
1665.Paragraph 12 adds regulations made under new section 90B of FSMA to the list of statutory instruments subject to the affirmative procedure in section 429(2) of FSMA.
Part 2: Amendments of Companies (Audit, Investigations and Community Enterprise) Act 2004
1666.Paragraphs 14 and 15 amend section 14 and 15 of the C(AICE) Act 2004. The amendments mean that periodic accounts and reports of issuers required under corporate governance rules or transparency rules may be examined by the FRRP.
Section 1273: Corporate governance regulations
1667.Section 1273 provides the Secretary of State with a regulation-making power similar to the power given to the Authority in new section 89O of FSMA inserted by section 1269.
1668.The Secretary of State may make regulations for the purposes of implementing, enabling the implementation of or dealing with matters arising out of Community obligations on corporate governance for UK companies whose securities are traded on a regulated market in the UK or elsewhere in the EEA.
1669.Subsection (3)(a) allows for regulations to be made by reference to any code regulating corporate governance. This could include, for example, the Combined Code on Corporate Governance (issued by the Financial Reporting Council).
1670.Subsection (4) specifies that any criminal offence created by the regulations may not impose a greater penalty than an unlimited fine.
1671.Subsection (5) provides for regulations to be made by way of negative resolution. However, by virtue of section 1292(4), it will also be possible to make regulations under this power by affirmative procedure.
Part 44: Miscellaneous Provisions
Regulation of actuaries etc
1672.These provisions are the first step in implementing the central recommendation of the Morris Review of the Actuarial Profession: that the Financial Reporting Council (the “FRC”) take on a similar role in relation to the oversight of the actuarial profession to the one it currently exercises in relation to accountancy and the auditors’ profession.
1673.The Government announced in Budget 2005 its intention to legislate in due course to put the oversight regime onto a full statutory footing. It has not been possible to develop such a regime in time for inclusion in this Act. It was therefore agreed with the FRC and the Institute and Faculty of Actuaries that, pending the introduction of a full statutory regime, the FRC would begin voluntary oversight of the actuarial profession at the earliest possible opportunity. The FRC assumed this responsibility for actuarial standards and oversight of the profession in April 2006.
1674.The aim of these provisions is to provide the minimum necessary statutory underpinning for a voluntary regime. They amend the C(AICE) Act 2004 in two ways:
they extend the statutory immunity conferred on the FRC and its companion bodies so that it covers acts or omissions relating to oversight of the actuarial profession;
they allow the Secretary of State, if necessary, to make regulations to require beneficiaries of the actuarial oversight to contribute towards the funding costs of the proposed regime.
1675.This latter is a reserve power. It is proposed, as is currently the case with accountancy and the auditors’ professions, to fund this activity on a non-statutory basis by agreement with the insurance and pensions industries and the actuarial profession. The FRC published its final funding proposals in March 2006.
Section 1274: Grants to bodies concerned with actuarial standards etc
1676.This section amends section 16(2) of the C(AICE) Act 2004 so as to include in the list of matters carried on by bodies eligible for grants activities concerned with the setting of actuarial standards, compliance with those standards, oversight of the actuarial profession and related matters.
1677.A body to which a grant has been paid under section 16 is protected by section 18 of that Act from certain liabilities in connection with its section 16(2) activities.
Section 1275: Levy to pay expenses of bodies concerned with actuarial standards etc
1678.This section amends section 17 of the C(AICE) Act 2004 so as to include amongst those by whom a levy may be payable—
the administrators of a public service pension scheme, and
the trustees and managers of an occupational or personal pension scheme.
1679.The effect of the amendments is to enable the Secretary of State to make regulations specifying such persons as liable to pay a levy if he considers that the oversight activities of the FRC are relevant to them to a significant extent.
1680.Subsection (4) enables regulations under section 17 to make different provision for different cases so that, for example, they can provide for different rates of levy to be payable by different kinds of bodies or persons.
1681.Subsection (5) prevents the first regulations under section 17, and any other regulations under that section that would result in any change in the bodies or persons by whom the levy is payable, from being treated as hybrid instruments for the purposes of the standing orders of either House of Parliament. The effect is that such regulations are not subject to the special procedures in the House of Lords that apply to such instruments.
1682.Subsection (7) amends Schedule 3 to the Pensions Act 2004 to enable the Pensions Regulator to disclose restricted information to the Secretary of State to enable or assist him in the exercise of his functions under section 17 of the C(AICE) Act 2004.
Section 1276: Application of provisions to Scotland and Northern Ireland
1683.This section amends the C(AICE) Act 2004 as regards the application of certain provisions to Scotland and Northern Ireland.
1684.Subsection (2) amends section 16 of that Act so that paragraphs (a) to (t) of subsection (2) of that section, which list matters carried on by bodies eligible for grants, only apply to Scotland insofar as they relate to matters for which provision would be outside the legislative competence of the Scottish Parliament. This is necessary because, whilst section 16 and the provisions of this Act amending it extend to Scotland, some of the matters listed in paragraphs (a) to (t) are not reserved matters for the purposes of section 30 of the Scotland Act 1998 and are therefore within the legislative competence of the Scottish Parliament.
1685.Subsections (3) to (5) amend section 16(2) and (5) and section 66(2) of the C(AICE) Act 2004 so that sections 16 and 18, as well as section 17, of that Act extend to Northern Ireland.
Exercise of voting rights by institutional investors
1686.Institutional investors own and manage assets on behalf of and for the benefit of clients or members and have an obligation to manage those assets in their interests. In some cases there is a trustee-beneficiary relationship between the institution and the client, and in all cases there are contractual and regulatory requirements imposing duties of asset management on the institution. Voting is central to the exercise of ownership control. However, the ability of ultimate beneficiaries (e.g. members of a pension fund) to monitor the way in which institutional investors exercise voting rights is limited in practice.
1687.The CLR (Final Report, paragraph 6.39) concluded that disclosure of voting by institutional shareholders was a desirable objective. There has been a growing trend internationally to require disclosure. There has also been an increasing trend by UK fund managers towards voluntary disclosure.
Section 1277: Power to require information about exercise of voting rights
1688.This section confers a power on the Secretary of State and the Treasury to make regulations requiring certain categories of institutional investor to provide information about the exercise of their voting rights. The power is drawn intentionally widely to enable any mandatory disclosure regime to respond to varied corporate governance arrangements and to capture a range of institutions investing in different markets. Exercise of the power is subject to affirmative resolution procedure.
1689.Subsection (4) provides that the obligation imposed by regulations under this section is enforceable by civil proceedings brought either by the person to whom the information should have been provided or by a regulatory authority specified in the regulations (which could, for example, be the FSA).
Section 1278: Institutions to which information provisions apply
1690.This section lists the categories of institutions in relation to which the power conferred by section 1277 is exercisable. Subsection (2) enables the Treasury or Secretary of State to add to or amend the categories. Subsection (3) requires that the regulations specify by whom the duty imposed by the regulations is to be fulfilled.
Section 1279: Shares to which the information provisions apply
1691.This section confers power to specify by regulations the descriptions of shares in relation to which the information provisions apply. They will apply wherever a listed institution has an interest in such shares. Subsections (2) to (4) provide that an institution is taken to have an interest in shares in certain cases.
Section 1280: Obligations with respect to provision of information
1692.This section specifies the information that can be required. This covers the exercise or non-exercise of voting rights, instructions given by the institution and any delegation of a function related to the exercise or non-exercise of voting rights.
1693.Subsection (1) contains a power to require institutional investors to procure disclosure of voting or of any instructions given by any person acting on the institution’s behalf. Institutional investors would need to make sure that their investment contracts required such information to be passed on to them or disclosed on their behalf.
1694.Under subsection (4), the regulations may specify how and to whom the disclosure is to be made. This would allow the regulations to both specify the manner of disclosure and require disclosure to (for example) clients and members only, or to the public generally.
Disclosure of information under the Enterprise Act 2002
1695.Part 9 of the Enterprise Act applies to information which public authorities receive in connection with competition and consumer functions under certain Parts of the Enterprise Act 2002 and under other specified competition and consumer protection legislation. Information relating to the affairs of an individual or business must be kept confidential unless Part 9 permits its disclosure.
1696.This provision amends Part 9 so as to enable public authorities to disclose information for the purposes of civil proceedings or otherwise for the purpose of establishing, enforcing or defending legal rights.
Section 1281: Disclosure of information under the Enterprise Act 2002
1697.The new section 241A allows a public authority to disclose prescribed information to any person for the purposes of prescribed civil proceedings in the United Kingdom or elsewhere. Prescribed means prescribed by the Secretary of State by order. The new provision extends to prospective proceedings, taking legal advice about proceedings and other ways of establishing, enforcing or defending legal rights (such as alternative dispute resolution schemes).
1698.Information obtained by a public authority in connection with competition functions is excluded from the new provision.
Expenses of winding up
1699.The House of Lords decided in Buchler and another v Talbot and others, in re Leyland Daf [2004] UKHL 9 that property subject to a floating charge is not available to fund the general expenses of winding up. This provision is intended to reverse that decision.
Section 1282: Payment of expenses of winding up (England and Wales)
1700.Subsection (1) inserts a new section 176ZA in the Insolvency Act 1986 under which property subject to a floating charge may, where necessary, be used to fund the general expenses of winding up in priority to the floating charge holder and to any preferential creditors entitled to be paid out of that property. There is power to make provision by rules requiring the authorisation or approval of the floating charge holder, or any preferential creditors, or the court, in certain circumstances.
1701.Subsection (2) makes a corresponding amendment of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I.19)).
Commonhold associations
1702.Commonhold associations are a new form of company limited by guarantee established under the Commonhold and Leasehold Reform Act 2002. Commonhold associations must register their memorandum and articles of association both with Companies House (on formation) and with HM Land Registry (on registration of the commonhold).
1703.At present paragraph 3(1) of Schedule 3 to the Commonhold and Leasehold Reform Act 2002 provides that an alteration of a commonhold association's memorandum or articles is of no effect if it is not registered with the Land Registry. The purpose of the provision is to ensure that the version of those documents held by the Land Registry is up to date. An unintended consequence of it, however, is that it effectively prohibits any change of an association’s memorandum or articles before the land which the commonhold association is established to manage is registered as commonhold land or after it has stopped being commonhold land.
Section 1283: Amendment of memorandum or articles of commonhold association
1704.This section amends paragraph 3(1) of Schedule 3 to the Commonhold and Leasehold Reform Act 2002 so as to limit the application of the provision to alterations made at a time when the land the association is established to manage is commonhold land.
Part 45: Northern Ireland
1705.Companies Acts since 1929 have extended to Great Britain only. But Northern Ireland companies legislation has followed changes in GB companies legislation very closely. The principal piece of current Northern Irish companies legislation, the Companies (Northern Ireland) Order 1986, is effectively a copy of the 1985 Act, with only very minor modifications to fit the Northern Irish context.
1706.Following public consultation, it was decided that the new Act should extend directly to Northern Ireland, along with certain other closely related areas of law. Company law would remain in formal terms a transferred matter, and a future Northern Ireland Assembly could for example decide to enact separate Northern Ireland companies legislation if it considered it desirable. In the meantime, companies in Northern Ireland would experience the regulatory effects of new companies legislation at the same time as their GB counterparts. The Act gives effect to these arrangements.
Section 1284: Extension of Companies Acts to Northern Ireland
1707.This section provides that the Companies Acts extend Northern Ireland. The Companies Acts are defined in section 2 of the Act: in essence, they include the company law provisions of this Act, the remaining provisions of the 1985 Act, and Part 2 of the C(AICE) Act 2004 (which relates to community interest companies). Section 1284 also repeals the principal pieces of separate Northern Ireland companies legislation The other (non-company law) provisions of this Act extend to Northern Ireland by virtue of section 1299.
Sections 1285 to 1287: Extension of certain other GB enactments to Northern Ireland
1708.These sections similarly extend to Northern Ireland other GB legislation in various areas related to company law, and repeal the separate Northern Ireland legislation in these areas. This is the case in relation to:
SEs (European Public Limited-Liability Companies);
certain other forms of business organisation where the law is partly modelled on, and closely relates to, company law; namely limited liability partnerships, limited partnerships, open-ended investment companies, and European Economic Interest Groupings; and
business names.
Part 46: General Supplementary Provisions
Sections 1288 to 1292: Regulations and orders
1709.These sections provide how regulations and orders made under the Act are to be made.
1710.Section 1288 provides that, unless the provision in the Act creating the power states otherwise, all regulations and orders are to be made by statutory instrument.
1711.Most of the powers to make regulations or orders are exercisable by the Secretary of State and are to be made by statutory instrument. The Act also confers powers on the registrar of companies to make rules, which are not required to be made by statutory instrument (section 1117(3) requires appropriate publicity). Other non-statutory instrument powers are conferred on the Takeover Panel (see Part 28) and the Financial Services Authority (see Part 43, which inserts new sections into the FSMA).
1712.Virtually all the provisions of the Act conferring power to make regulations or orders by statutory instrument specify one or other of the following three types of Parliamentary procedure:
negative resolution procedure (defined in section 1289): the statutory instrument containing the regulations or order is laid before Parliament and must be revoked if either House passes a resolution against it within 40 Parliamentary days. An instrument subject to the negative procedure is normally laid at least 21 days before it is to come into effect to ensure scrutiny of the instrument before its provisions come into force;
affirmative resolution procedure (defined in section 1290): the statutory instrument containing the regulations or order is laid before Parliament in draft and can only be made when approved by affirmative resolution in each House. This means that they are always subject to debate in each House;
approval after being made (defined in section 1291): the statutory instrument containing the regulations or order is laid before Parliament after being made. It ceases to have effect after 28 Parliamentary days unless it is approved by resolution of each House during the 28 day period. Should the regulations or order cease to have effect at the end of the 28 days, anything done under them during the period remains effective and new regulations or a new order may be made.
1713.Section 1292(1) provides that regulations or orders may make different provision for different cases or circumstances, may include supplementary, incidental and consequential provision, and may make transitional provision and savings.
1714.Subsections (2) to (4) of section 1292 enable orders or regulations to be made combining provisions in relation to which different procedural requirements apply. A power to make regulations can be exercised by making an order, and a power to make an order can be exercised by making regulations. Provisions subject to the affirmative resolution procedure, provisions subject to the negative resolution procedure and provisions subject to no Parliamentary procedure at all may be included in a single instrument, and subsections (3) and (4) clarify which procedure applies when powers are combined.
Section 1293: Meaning of “enactment”
1715.This clause explains what the term “enactment” includes, when used in the Act, to make it clear that it goes beyond the definition in the Interpretation Act 1978 (c.30). Unless the context in which it is used dictates otherwise, “enactment” includes:
an enactment contained in subordinate legislation within the meaning of the Interpretation Act 1978 (c.30);
an enactment contained in, or in an instrument made under, an Act of the Scottish Parliament;
an enactment contained in, or in an instrument made under, Northern Ireland legislation within the meaning of the Interpretation Act 1978.
Section 1294: Power to make consequential amendments etc
1716.This section confers on the Secretary of State, and on the Treasury, order-making powers to amend enactments in consequence of any provision in the Act. Such amendments and repeals are additional to those made by any other provision of the Act. Orders under this section are subject to the affirmative resolution procedure.
1717.Orders may be made to amend, repeal or revoke any enactment that is:
passed or made before the passing of the Act;
contained in the Act or in subordinate legislation made under it;
passed or made before the end of Parliamentary session 2006-7.
1718.In particular, orders may make provision corresponding to that made in the Act in relation to companies, and may extend provision to other forms of organisation. The provisions of the Act may be applied with any adaptations or other modifications that appear to be necessary or expedient.
Section 1295: Repeals
1719.This section introduces Schedule 16, the repeal Schedule. The repeals include, in addition to purely consequential repeals, repeals of the restated provisions of the 1985 Act and repeals of enactments that are no longer of practical utility.
1720.Schedule 16 repeals a number of Parts and/or sections of a number of pieces of legislation, including most of the 1985 Act, most of the Companies Act 1989 and the whole of the Business Names Act 1985.
Section 1296: Power to make transitional provision and savings
1721.This section gives the Secretary of State and the Treasury order-making powers to make transitional provision and savings in connection with the commencement of any provision made in the Act. Orders are subject to the negative resolution procedure.
Section 1297: Continuity of the law
1722.This section provides that things done under the provisions in the 1985 Act that are repealed and replaced by the Act will continue to be legally effective. Similarly, references to the repealed provisions in enactments, instruments or documents are to be construed as including references to the corresponding new provision.
1723.Articles of association, company resolutions and contracts are all likely to refer to provisions of the Companies Acts or to rely for their effect on the way in which those provisions work. Except where a change is intended, those articles, resolutions and contracts should continue to have effect, not only with old references converted into new but also with their legal effect capable of continuing despite verbal differences between the old and the new.
1724.The section applies automatically in all cases in which it is capable of applying. It is in addition to any more specific transitional provisions, which may be included in commencement orders by use of the power in section 1296.
Part 47: Final Provisions
Section 1298: Short title
1725.This section sets out the short title of the Act.
Section 1299: Extent
1726.This section provides that, except where otherwise provided for or the context requires otherwise, the Act extends to the whole of the United Kingdom (in other words, including Northern Ireland, as provided for in Part 45 and discussed in the notes to that Part).
Section 1300: Commencement
1727.Subsection (1) provides for commencement on Royal Assent of Part 43 (except for a definition not yet in force) and of sections 1274 and 1276, so that the provisions on transparency obligations and related matters, those conferring a statutory immunity from liability in damages in relation to the oversight of the actuarial profession and those relating to the extension of provisions of the C(AICE) Act 2004 to Scotland and Northern Ireland came into force on that date (8 November 2006). It also provides for Parts 46 (general supplementary provisions) and this Part to come into force on Royal Assent, except for the repeals Schedule.
1728.Subsection (2) provides for the Secretary of State or the Treasury to appoint by order the timing of commencement of the other provisions of the Act.
