European Law and Corporate Governance

Trade and Industry written statement – made on 10th March 2005.

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Photo of Jacqui Smith Jacqui Smith Minister of State (Industry and the Regions and Deputy Minister for Women), Department of Trade and Industry

I have today placed in the Libraries of both Houses copies of a consultation document entitled "European Company Law and Corporate Governance—Directive Proposals on Company Reporting, Capital Maintenance and Transfer of the Registered Office of a Company". This document is available on the DTI website at:

http://www.dti.gov.uk/cld/current.htm.

The consultation period ends on 3 June 2005.

The consultation covers three proposals which form part of the European Commission's Action Plan on Company Law and Corporate Governance published in May 2003. The Commission has formally published two of the proposals. These are a Directive amending the Fourth and Seventh Accounting Directives and a Directive amending the Second Company Law Directive on Capital Maintenance. The commission is expected to publish shortly the third proposal, a directive on the cross border transfer of the registered office of a company.

By covering all three proposals in one single consultation we hope to give stakeholders the opportunity not only to consider all proposals at the same time but to understand how they relate to the overall framework of modernising company law and corporate governance in the EU.

Amendments to the Fourth and Seventh Accounting Directives

This proposal seeks to enhance confidence in financial statements and annual accounts published by European companies. It would introduce an annual Corporate Governance statement for publicly traded companies, tighten up accounting disclosure requirements and clarify the collective responsibility of directors towards the company for the annual report and accounts The Government support the broad principles behind the directive and believes that light touch common standards for disclosure should contribute to EU market confidence, encourage cross-border investment and facilitate cross-border access to capital. It is of the view that the requirements of the directive are broadly consistent with existing UK law and practice.

The consultation seeks views on the extent to which the proposed disclosure requirements will place additional burdens on companies and whether they will be of value to users of company accounts. It also asks for views on the nature of the information the Commission is proposing be contained in the Corporate Governance Statement.

Amendments to the Second Company Law Directive (Capital Maintenance)

This proposal seeks to simplify the Second Company Law Directive so that it is easier for public limited liability companies to take measures affecting the size, structure and ownership of their capital. It contains provisions to simplify procedures for valuation of non-cash consideration for allocation of shares, acquisition of own shares, financial assistance and waiving of pre-emption rights. It also aims to enhance standardised creditor protection for reductions of capital and introduces "squeeze-out" and "sell-out" rights of majority and minority shareholders respectively. The Government support the objective of streamlining measures to reduce burdens for business behind this proposal but has reservations about the real deregulatory benefits it will bring in practice.

The consultation seeks views on a number of issues to determine whether the changes in the proposal will have a significant beneficial impact for companies wanting to change their capital structures. It raises a number of areas where the proposals could lead to uncertainty on whether and how certain provisions will apply. It also seeks views on the proposed introduction of "squeeze-out" and "sell-out" rights in situations other than takeovers.

Additionally, later this year the Commission intends to start a study to look at more radical reform of the capital maintenance regime and the Government invite views on the overall merits of reform of this nature.

Proposal for a Directive on the Cross Border Transfer of Registered Office

This proposal will establish a legal framework for companies registered in the EU to transfer their registered office from one Member State to another without having to be wound up. In Great Britain both public and private companies registered under the Companies Act 1985 would be able to utilise the proposed transfer structure. The Government support the measure as one which should extend the opportunities for corporate restructuring across the EU.

This consultation is based on the proposals contained in the Commission's e-consultation carried out in spring 2004. It explores whether the overall proposal will be useful to UK companies and seeks views on the details of the procedures to be followed.