Companies (Share Capital and Acquisition by Company of its Own Shares) Regulations 2009

The draft statutory instruments that we are to debate this afternoon are an important part of our implementation of the Companies Act 2006. The Act reformed and clarified company law in many areas and brought company legislation together in one place. The Act makes it easier to set up businesses, gives investors greater information and confidence, and promotes shareholder engagement and effective dialogue between business and investors. The Act has been implemented in stages, and these statutory instruments relate to provisions which are due to come into force in October 2009. This staged approach gave companies time to prepare, allowed us to implement changes in parallel with EU requirements and allowed Companies House to update its systems to support the new measures. The Companies (Share Capital and Acquisition by Company of its Own Shares) Regulations 2009 are the first of these regulations to be debated. These regulations amend three aspects of the Companies Act 2006 and they will be commenced on 1 October 2009. The first is to reduce from 21 to 14 days the minimum period of notice that a company can give its shareholders when it makes a rights issue. This change is being introduced in response to concerns that the time taken to raise capital by selling new shares could expose companies to market abuse and volatility. Fourteen days is the shortest minimum period allowed by the second company law directive. The second of the three changes is a minor change in the rights of creditors of a company when the company reduces its capital by applying to the court. The regulations will change the Companies Act 2006 so that it is explicit that a creditor who wants to object to the reduction will have to demonstrate that the reduction would create a real likelihood of his or her not being paid. This simply brings the 2006 Act into line with a corresponding change already made to the Companies Act 1985 last year. The third aspect of company law addressed by these regulations is the rules on the purchase by a company of its own shares, where there are two changes. The regulations will remove the current 10 per cent cap on a company holding its own shares, and they will extend the maximum period for which authorisation can be given for the company to purchase its own shares from 18 months to five years. Until 2003, when a company purchased its own shares, it had to cancel them. In 2003, the law was amended to allow a company to hold its own shares in treasury up to a maximum of 10 per cent of its share capital, in line with the maximum permitted by the second company law directive. That directive has now been amended to remove that limit, and these regulations would remove the limit from UK law, increasing the flexibility for companies to hold their own shares. The only significant dissent from these proposals when we last consulted was to this removal of the 10 per cent cap. One respondent argued that there was no evidence that any company needed this extra flexibility, and that there might be some risk of abuse. Other respondents supported the relaxation. We considered the objection carefully. Shareholders have a number of other protections in this area; their approval is needed for any purchase of own shares, and they have pre-emption rights when treasury shares are resold. Taking these into account, we decided that it made sense to give companies more flexibility by removing the arbitrary 10 per cent limit. No concerns were raised in respect of the other change in relation to purchase of own shares—the extension of the period for which authorisation can be given. In conclusion, I should make it clear that the amendments made by these draft regulations are minor adjustments to the rules on capital and shares but, at the margin, they will provide companies with some additional flexibility to manage their capital, without removing any necessary protection for creditors or shareholders. I beg to move.