Community Interest Company Regulations 2005

My Lords, I thank the noble Lords, Lord Hodgson and Lord Newby, for their welcome to the regulations, and for their questions, which I shall try to deal with as fully as I can. I shall deal first with the question asked by the noble Lord, Lord Newby, which was about the role of the regulator in the statement. The objective is that the statement will not be unduly onerous; to make it so would defeat the thrust of the regulations and the legislation. It will be a matter for the regulator, in light of experience in each case. In some circumstances, a more rigorous expectation and examination may be required, but practice will doubtless lead us in the right direction on that. The provision is not intended to be restrictive and onerous in a manner that would preclude enterprises using that opportunity. Let me see whether I can deal with the questions raised by the noble Lord, Lord Hodgson. The costs that he quoted from my right honourable friend in the other place—the set-up cost being £515,000, with annual running costs of around £420,000—are our current estimates. The Explanatory Note figures were estimated at the beginning of 2004 but the regulatory impact assessment—it was more recent, in October 2004—was closer. It is with those figures that the costs are broadly in line. I hope that that clarifies the matter. The essential difference between a CIO and a CIC is that identified by the noble Lord—that one is a charity and one is not. A charity is subject to more rigorous regulation, and has the benefit of a tax exemption to go with it. The purpose of the regulations is to provide another vehicle—not a mandatory vehicle—for social enterprises and, in particular, for them to choose which they want. Moving on to the question about the definition of the asset lock, the fact that one of the destinations of a distribution of assets from a CIC is a charity, as well as a CIC, is simply broadening the opportunities for the movement of assets from that enterprise. The fact that it is included in the definition does not seem to me to mean that we treat the two as being the same. A question was asked about the role of the regulator in looking at political activity. Again, it is a matter for the regulator to take forward. At the end of the day, the regulator will have sanctions, including the appointment or removal of directors, the investment of property in the official property holder and, as a last resort, it could have the CIC wound up. So sanctions are there but, obviously, the objective of the process is for the regulator to engage along the way, if he thinks that the entity is strained beyond that which is incidental and reasonable. Regarding territorial engagement, English CICs can operate in Scotland, like other English companies, and Scottish CICs can register at the Companies House office in Edinburgh. I hope that that deals with the point. The noble Lord asked why payment of dividends required either an ordinary or a special resolution. It probably depends upon the nature of the shareholding in the entity. The key point is that it does not provide for interim dividends. It is important to ensure that the cap on dividends is effective. The proposals before us, regarding spread on debt and equity, were based upon research and considerable discussions with the social enterprise sector and others to gauge what would be a reasonable spread in practice. In both instances, they try to strike that balance between recognising that capital should be available to those enterprises, without going all the way to generating the sort of returns that a normal profit-making company would wish to see. Regarding par versus paid up value, the cap applies to the paid up value of the shares, not the par value. That would often be the case, but it would depend upon premiums. Regarding dividend resolutions, the model articles of association specify an ordinary resolution for declaring dividends and we expect that most would choose that. But if a company wants to specify a higher threshold, it will be able to do so. I have tried to answer each of the questions. If I have missed any, I hope that the noble Lord would accept that I shall look at the record in Hansard and follow up in writing, but, if he wishes to come back on any point, I shall try to deal with it. On Question, Motion agreed to.