Clause 102

Company Law Reform Bill [Lords] – in a Public Bill Committee at 2:30 pm on 22nd June 2006.

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Re-registration of private limited company as unlimited

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice)

I beg to move amendment No. 156, in clause 102, page 45, line 21, leave out from end ofline to ‘and' in line 22.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

With this it will be convenient to discuss amendment No. 66, in clause 102, page 45,line 27, leave out subsection (2).

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice)

This is a rerun of the debate in the House of Lords. I shall not read out what Lord Hodgson said, but shall instead quote what Lord McKenzie said and comment on it. Lord McKenzie said:

“The Bill reflects existing companies legislation in preventing this practice, and the Company Law Review considered carefully whether the bar should be maintained or removed. It concluded that it should be retained to prevent companies taking short-term advantage of a merely temporary change of status. The Company Law Review does not seem to have believed that this has placed any obstacle in the way of legitimate market developments; nor are the Government aware of any evidence to that effect. I therefore support the CLR’s conclusion that the bar should remain.

I should add that we are currently considering whether the condition in Clause 102(2)(b), which prevents a company beginning life as limited, re-registering as unlimited, then re-registering as limited and finally re-registering as unlimited again”— complicated stuff, this—

“is strictly necessary given that Clause 105(2) prevents a limited company which has re-registered as unlimited reverting to limited status.”

I hope that people are with me so far. Lord McKenzie continued:

“These highly technical issues are complicated by the need to consider possible multiple re-registrations under earlier legislation. We are considering whether any change is needed.”—[Official Report, House of Lords, 1 February 2006; Vol. 678,cc. GC140-141.]

It is appropriate for me to ask whether the Minister can provide an update on the Government’s thinking on the issue.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

The hon. Gentleman said that he would quote only Lord McKenzie. I shall quote the Opposition spokesperson in the House of Lords, Lord Hodgson of Astley Abbotts, who replied, “I surrender absolutely”.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice)

That may have related to the complicated nature of the answer as much as to its justification.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

The hon. Gentleman is right to suggest that in Grand Committee Lord Hodgson tabled a similar amendment. It was withdrawn, but it prompted us to look again at the conditions in subsection (2), and we put a marker down in Grand Committee that we intended to return to the issue. We subsequently amended the subsection on Report in the House of Lords to remove what amounted to a superfluous condition. If people can understand this one, they will be doing very well. The condition was that a private limited company could not re-register as unlimited if it had previously re-registered from unlimited to limited. Such a condition is unnecessary, as it is not possible for that eventuality to occur, given that clause 105(2), which is concerned with the re-registration of a company from unlimited private to limited, prevents a company that has previously re-registered as unlimited from reverting to limited status. However, we left in place the condition in the amended clause 102(2) which prevents a private limited company from re-registering as unlimited if the company has previously re-registered as limited. The amendments that we are debating would remove that subsection.

Subsection (2), as amended, carries forward the provisions of section 49(3) of the 1985 Act. Like its predecessor, it prevents companies from changing their status successively between limited and unlimited and back again. As the hon. Gentleman said, the issue was examined by the company law review, and it was concluded that it was necessary to keep the bar in place. The company law review did not accept that in practice the bar prevented legitimate market developments, nor are the Government aware of any evidence to that effect. That is why we support the review’s conclusion that the bar should remain in place.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice)

On the basis of the Minister’s comprehensive response and what happened on Report in the Lords, I too surrender absolutely and beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 102 ordered to stand part of the Bill.