Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2019

Motion to Approve

Moved by

That the draft Regulations laid before the House on 10 January be approved.

My Lords, the changes being made by this instrument relate to the Companies Act 2006 and supporting secondary legislation. In some cases, the changes will have no impact on business; they simply tidy up provisions in the legislation to reflect Brexit. Other provisions will have an impact on business. These provisions are mainly to ensure that certain EEA-based entities will be treated in the same way as other third country entities after exit day. This is an approach that has been taken in many statutory instruments that this House and the other place have considered over the last few months. These changes are made only when necessary to ensure that the UK does not breach the World Trade Organization’s most favoured nation rule upon exit.

I will set out these changes and the impact on companies, but first I would like to briefly highlight two provisions that remove access to EU-based processes and systems. The first is that this instrument revokes the Companies (Cross-Border Mergers) Regulations 2007. This allows the merger of two or more companies or partnerships based in at least two EEA member states. There have been approximately 400 cross-border mergers involving UK companies and a company in another EEA jurisdiction since 2010, around 50 a year. After exit, companies seeking a merger with another company outside of the UK will need to transfer assets and liabilities using contractual arrangements. This already happens now between UK and non-EEA companies, so many businesses will already be familiar with it.

The second provision is that after exit the UK will no longer be part of the Business Registers Interconnection System. This tool connects business registries across Europe. Much of the information that Companies House makes accessible on BRIS is openly available on the UK company register via GOV.UK. Many other member states do the same on their registers for business transparency reasons.

I turn now to how the provisions in this instrument deal with certain EEA entities and EEA—regulated markets. The main practical impacts are around filing changes. EEA companies that have registered with Companies House under the overseas companies regulations will need to provide additional information. This will align the information required from them with that required from non-EEA companies. The additional information is minor, such as the address of the registered office and the law under which a company is incorporated. The same group of companies will also be required to provide more detail in customer-facing material. This includes the location of the company’s head office, its legal form, liability status and whether it is subject to insolvency proceedings.

While these are minor administrative details, they are important for corporate transparency and very useful for the clients and customers of foreign companies with UK operations. These changes apply only to EEA companies that are already registered as overseas companies in the UK. We have provided companies with a three-month notice period to provide the additional information and Companies House will inform them of the requirements. The forms to update their details will be available on GOV.UK on exit day. Further changes affect UK companies which have an EEA corporate appointment—that is, a director or company secretary that itself is an EEA company. Any UK company with this type of appointment will need to provide Companies House with two pieces of additional information within three months of exit. This aligns the filing requirements for EEA and non-EEA corporate appointments.

My Lords, I thank the Minister for bringing this SI to the House. It is another episode in the unravelling process. I have four comments, along with one pro forma comment on consultation.

The Minister mentioned the Business Registers Interconnection System. My understanding is that that is already part of Companies House. Can the Minister assure your Lordships’ House that there is no change in the information available—in other words that the information that was available on BRIS remains available on the new Companies House system?

That takes me to my second point. There are a number of mentions of a role for the company registrar in this instrument, and a lot of them are time-limited over the three months post exit day. What level of capacity will be needed to handle what will be a surge of registration, inquiry and people wanting to know what to do? What level of information will go out to inform companies that they are required to do these things? Who will hold the buck for putting that information out there? It is not clear how companies will find out about this or whether there will be the capacity within Companies House to handle the three-month surge. I would like to know what kind of risk analysis has been done by the Government and what level of communication they are planning.

Thirdly, as the Minister set out there are a number of technical changes around cross holdings of shares between EEA and UK companies. It is not clear to me how many companies this would affect. What intelligence do the Government have on how many companies will be affected in this shareholding? Obviously, there is time for these companies to change that. Does that significantly change the shareholder profile of many companies in this country? If so, how? Does it have any effect overall on market liquidity? What kind of analysis of what this means has gone on?

The final substantive point is on cross-border mergers. The Minister mentioned those in his introduction. He did not explain what the implications are if there are cross-border mergers already under way now or at the time of exit. What regime are these cross-border mergers governed by?

My Lords, I want to pick up on consultation, the final point of the noble Lord, Lord Fox. A theme running through our consideration of all these statutory instruments is either non-existent or totally inadequate consultation, which in any other context would not be regarded as acceptable. Since these are changes in the law that affect significant parts of our economy and significant organisations, it is totally unacceptable that there was no proper consultation.

The blather in the Explanatory Memoranda, which varies by statutory instrument, amounts to the same thing: all this planning was done in secret. It is only at the last minute that this cascade of orders has been presented to the House. Because, I presume, the Government did not want to indicate to the EU that we were engaged in such intensive no-deal planning, there is a straightforward admission that practically no consultation has taken place at all.

The noble Lord, Lord Fox, asked what the level of consultation was. We are told in paragraph 10.1 of the Explanatory Memorandum:

“We have not been able to publicly consult in order to minimise sensitivities in advance of negotiations with the EU”.

But these negotiations had been going on for two and a half years when this order was laid before Parliament. Can the Minister tell us what the sensitivities were in advance of negotiations with the EU, which meant us being told that an entirely technical set of changes concerning access to Companies House databases could not be consulted upon with the relevant business communities? It seems to me that the only thing that is sensitive is not the content of these regulations but the very fact that the Government were engaging in no-deal planning. But it was hardly a secret that the Government were engaging in no-deal planning—it was widely known. After all, the Prime Minister told us that no deal would be better than a bad deal. The arguments are entirely implausible and unacceptable.

My Lords, the points made by the noble Lord, Lord Fox, and my noble friend Lord Adonis are very important and I hope that the Minister will be able to respond to them. I have a couple more questions to add that the Minister might wish to respond to when he sums up. To add to the comments made by my noble friend Lord Adonis about the consultation, will the Minister also confirm that, if the Law Society was the only body consulted, why were the CBI and the FSB and others not consulted and can he give adequate reasons for that?

Paragraph 7.22 of the Explanatory Memorandum refers to,

“permitted disclosures to credit reference agencies, credit institutions, financial institutions”,

and the current legislation giving “preferential treatment” to EEA agencies. I take the point made in the Explanatory Memorandum that there seems to be no particular reason for that, but will the Minister comment on whether that raises an issue about data protection adequacy? The Government are on record as saying that they want to ensure that movement of personal data between the UK and the EEA is uninterrupted. If a distinction is to be made in terms of access, does that not bear on adequacy? If so, will the Minister comment?

Secondly, paragraph 7.24 refers to political parties and expenditure. My understanding—I may be wrong and I look forward to the Minister’s comments—is that shareholder authorisation is required for donations to political parties, organisations and candidates by any companies established in the UK to ensure that their intentions in relation to those activities are transparent. I take the point that, if we are crashing out of the EU and becoming an independent body, there is a question about the relevance of payments made to political bodies operating in the EU, but that does not take the trick in relation to transparency. Surely, shareholders of UK companies should know whether their companies are making payments to political parties whether or not they are in the UK, particularly if they are operating in the EU. I would have thought that was of interest to shareholders.

My Lords, I thank all three noble Lords for their contributions. I was not surprised that there was comment about the consultation. I repeat that, as we made clear in the Explanatory Memorandum, we were unable formally to consult on the provisions in the statutory instrument. But as my honourable friend Kelly Tolhurst said in the other place:

“On consultation, as I outlined, we have consulted, worked with and used the expertise of Companies House to ensure that we are making the best provisions to enable UK companies to implement the regulations that we require for them to be legal if we leave the European Union without a deal”.—[Official Report, Commons, Delegated Legislation Committee, 4/2/19; col. 8.]

We extensively engaged with Companies House—I think it is the right place, initially—on the changes that will impact EEA and UK businesses. In addition, impacted businesses—I will get on to numbers in due course—were notified of many of the changes in this instrument through the publication of the Structuring Your Business If There’s No Brexit Deal technical notice published in October, including filing changes, the route of access to BRIS and the revocation of the cross-border merger regime.

The noble Lord, Lord Adonis, seems to think that we did not consult the CBI, the FSB and other similar bodies. I shall give him an assurance that applies not just to this order but to a range of other orders and orders that will cover other departments. The CBI, the FSB and others—I could go through a whole list of them—are in the department on a weekly basis seeing the Secretary of State. The noble Lord will find that they are also in the department on a regular basis seeing officials and making officials aware of their concerns. I can give a cast-iron guarantee that any concerns they have will have been noted and we will have been made aware of them. As I said, this applies not just to this order but to a range of orders. We are the Business Department. My right honourable friend the Secretary of State has made it clear that his door is always open to representative organisations, just as I made clear last week when dealing with the intellectual property regulations how recently I saw, for example, the ABPI and the BIA. Irrespective of Brexit or whatever, it is important to us to have regulations. The noble Lord, Lord Adonis, is an old hand and has been a Minister. He will have done that in the various departments in which he served, and he knows that those engagements go on with great regularity.

It was very helpful of the Minister to read out what is already in the Explanatory Memorandum. However, that was not my point; I was asking why the Government are making the change. If the regulations are there in the first place for reasons of transparency of political contributions, it does not really matter where they are.

As I said, we have to get the statute book in the right place in the event of no deal, and therefore that small change had to be made. I do not think that I need go any further than that, unless I have misunderstood the noble Lord. I will look carefully at what he has said and will possibly write to him.

The final point that I wanted to deal with related to cross-border mergers. The noble Lord, Lord Fox, asked what happens to mergers that are in progress now. Mergers between UK and EEA companies may not be recognised by the destination member state after exit. We informed stakeholders of the change via the Structuring Your Business If There’s No Brexit Deal technical notice, which was published in October and to which I referred earlier. In that, we told them what they ought to do and what advice the impacted companies ought to take.

I believe that I have answered all the points. I will write to the noble Lord, Lord Stevenson, if I have misunderstood him.

Motion agreed.