Procedures for Reformation of Company Law and Classification of Nature of Company Law to be implement once form a company UK

22 Oct

A default set of rules has to be followed by an England company register. This set of rules is termed as Company laws. These laws govern the internal and external conduct of companies. These rules that are to be followed by British company register may differ from country to country.

Reformation process of Company Law

With the passage of time, there is an increase in the number of companies. Different problems emerge with the establishment of every new company. Hence the same law cannot be found easily applicable on all the cases in the same manner. There is a great diversity in the problems faced by the newly established or old companies. Therefore, there is a need of continuous reformation in the laws developed for the governance of companies.

Company Law cannot be considered as final at any stage. There is always a requirement to bring amendments and improvements in it. It may be done to modernise the laws or to remove any defect in the provisions of any previous law.

Establishment of Committees

It has remained a common strategy in the past era to appoint a committee whose task would be to check the company laws of that time and see what changes could be brought in it. The committee used to get appointed by the government. After the observation was made, the next step used to be to devise an act of amendment. Later the amended act would be incorporated with the previous act to collect all the rulings in one document. The committee would be formed after almost every 20 years. The latest committee to be formed was the “Jenkins Committee” which presented its report in 1962. However, the process of amendment had changed by that time, as no act of amendment was made except for some bills. This method of forming committees for the development of law was renounced.

Bodkin Committee

Other than the committees mentioned in the section above, there were time to time appointments of committees which served the sole purpose of analysing any particular discipline’s laws. One of such committees was Bodkin Committee in 1937. The task given to this committee was to work on the laws of share pushing. The reports presented by these committees are a storage of some valuable information, although the data is now outdated. Yet it throws some light on the fact that there have been many issues regarding business that have since years needed some solution.

Reformation techniques in 1980s

After the abolishment of past method of formation of committee for bringing any improvements in the law, the reformation process was undertaken by the government. A consultative document would be created, after gathering the comments and views of different members of public and relevant structures. After the publication of that document, the legislation would be brought in to practice. The improvements were required in the statute because it was necessary to implement the directives given by the EU. The changes in the basic version of any legislation, were brought by statutory instrument. The improvements in the law would be incorporated as additional rulings to the previous version. Hence, the basic version remained same but was qualified with the newly created rules.

Reformation techniques in 1990s

It was in 1990s when the DTI decided to appoint successive working bodies, that would take any particular topic under consideration, analyse the reforms that could be brought possibly in the law. Henceforth, a document would be made and shared with the public in general to gather their views about the reforms to be made. Although there were certain situations where the laws could be amended via an act of amendment, this was usually done by statutory instrument. The rest of the proposed amendments would be kept suspended until the Parliament could find out time for a bill. The DTI would at some instants suggest the disciplines of law related to companies to be taken under consideration by the Law Commissions. The duties of law commissions were to analyse the topics of law and gather detailed information about them and publish documents that suggested improvements in the law. However, it is a bitter fact that these suggestions would face suspension unless there was a requirement felt to bring in a new enactment regarding the laws of any particular topic.

Company Law Review

As there was no clear method for the revision of company laws and their amendment, the task of bringing improvements in statutes regarding companies had been an untidy one. There was a desperate need of properly ordered system by which this task could be achieved. It was in 1998 that the formation of Company Law Review took place.

This review proved helpful in the determination of reformation method. A consultation paper was issued by the secretary of state of that era, Mrs. Margaret Beckett. It targeted the review of framework of company, its foundation as well as a detailed view of every part of company law. The paper emphasised on the following points:

  • Lucidity of the review
  • Simplification of the review
  • Constancy of the procedure
  • Prognostication
  • Translucency

The project involved diversity. Many people from different backgrounds were a part of the review. The people worked in different groups on different aspects of company laws. There was group named “The Steering Group” that headed all the groups working on this project. The members of the Steering Group included persons who acted as agents of the DTI, commerce and the judicial team. There were people representing academics and the professions as well in this group. There was another group for the task of consultation. It involved 40 members. Apart from all these, there were certain other persons who provided assistance in research and data about the transoceanic judicature. Since the formation of first ever limited liability companies and other changes made in 1850s, this review was entitled to be the most in depth analysis of laws.

Conversion of results of review into Legislation

The next step was to convert the results attained from the review into proper legislation. The task required great effort. The reason was that there existed so many laws that affected the laws of companies in one way or the other. Considering all of them was tough. However, redrafting the results saved from the flaws of legislation that may arise collectively. The statutory instrument affected many laws of collaborative reform from 1970s due to acts like European Communities Act 1972 as well as the Deregulation and Contracting Out Act 1994.  Certain subsidiary laws were allowed under these acts to amend the fundamental legislation without undergoing any parliamentary process. This allowance benefits the government of UK to implement the directives of EU without taking an appointment from the parliament and wasting time in the procedure required by the parliament. Nevertheless, this ease brings a drawback along with it. The law to be implemented cannot be scrutinised in the parliament unlike the normal bills. Another drawback that follows it is the restricted impact of the amendment made in the law. Any changes made will not have a greater effect than allowed by the act that authorises the changes. So the amendments relevant to other parts of the company law will remain unaffected by the statutory instrument. Hence, these drawbacks led to an untidier and confused legislation of firms.

Future Reforms of Companies Act 2006

Although it is known fact that the previously mentioned procedure of reforms is flawed, yet it will have to be undergone for the reformation of any provision of Companies Act 2006. It was recommended by the Company Law Review to appoint a commission for the task of company laws’ reporting. CLR further suggested that this commission could submit yearly reports to the secretary of state which would then confer the commission upon the proposal of subsidiary legislation per paragraphs 5.21-5.37, volume 1 of Final Report. However, this recommendation did not get any approval by the government. The government was of the view that it had already taken such a step in the form of appointment of CLR as mentioned in White paper, Cm 5553-I, 2002, part 2, paragraphs 5.25-5.27.

The government in White Paper of 2005 recommended to bring any reforms after the enactment of Companies Act 2006, via the process of reformation outlined by Regulatory Reform Act of 2001.  The recommended procedure incorporated the advice of Secretary of State, the analysis of the reform by the two Houses and resolutions of both the houses approving the reform. This proposal gained huge support initially, however, it was rejected later due to its inappropriateness for such large and contentious changes.

Reason for creating Company Law

It has remained a topic of debate that what is the real purpose of company laws and why they are to be implemented when form a company UK. One group of debaters believes that the sole purpose of companies law is to allow the companies to deal with their matters in the way that suits them, and allow least interference of the state in the matters of companies. This belief is characterised as principle of contractual freedom. Another group is of the view that due to the fears of misuse of limited liability and power of massive economy belonging to large corporate groups, it becomes mandatory to implement strict regulatory rules. As a substitute, any law of similar nature can be used to provide a company, the authority of instrument for social engineering. It may also incorporate laws relating to environment and employment.

Classification of Nature of Company Law

As a consequence of the extensive debate on the definition of company law, the company law has been divided into three classes. They are the following:

  • Permissive laws
  • Presumptive laws
  • Mandatory laws

The laws followed in the United States are of the permissive nature. The ones followed in Germany may be rightly classified as prescriptive laws. Finally, those imposed in the United Kingdom in the nineteenth century were enabling, and those implemented in the twentieth century were more inclined towards regulatory nature. It has been tried to create a balance between the enabling and regulatory nature of the laws but overall balance in Companies Act 2006 remains vague. Companies Act 2006 is the latest version that has to be followed as a default law for any company formation of Great Britain, hence the current companies’ laws after a British company register are unclear in their understanding with regards to their nature.

Reforms in Companies Acts over years

The Companies Act has many versions, dated back to 1844. It was followed by 1855 act. A notable modification was in the 1855 act resulting in the 1985 version of Companies Act. It was an act incorporated for consolidation of major parts of past Companies Acts. It includes rulings regarding company formation and registration, company names, alteration of the status of companies, capital issues, share capital, companies purchasing their own shares, accounts and audits etc. This version was succeeded by the 1989 version of Companies Act. This act was introduced to provide new provisions for the laws related to charges of registration procedure of companies and also brought changes in other laws related to the company. The latest version of Companies law is the 2006 version which replaces or restates most of the provisions given by 1985 and 1989 versions.

As it can be inferred from the article that the nature of company laws is an important factor in governing the conduct of any company. And this nature has varied over years for the companies’ formation of Great Britain.

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