Corporate Law in the UK after Recent Reforms: The Good, the Bad and the Ugly
CURRENT LEGAL PROBLEMS, Vol. 63, pp 315-374, Oxford University Press, 2010
53 Pages Posted: 8 Jul 2010 Last revised: 18 Jan 2011
Date Written: July 1, 2010
The UK’s Companies Act 2006 (CA 2006) is the most all-encompassing piece of corporate legalisation that has ever come out of Parliament. It contains 47 Parts with 1,300 sections and is followed by 16 Schedules. There are also over 70 statutory instruments made under the CA 2006. It holds the somewhat dubious record of being the largest Act of Parliament ever enacted (certainly outside the tax area). It represents the first attempt since the 1850s (arguably, ever) to comprehensively re-examine and substantially modernize the whole of the existing UK legislation and significant parts of the case law on commercial companies.
That said, although the vast majority of companies in the UK are small private companies, company law had traditionally been written with public companies in mind. The provisions that apply to private companies were frequently expressed in UK legislation as a tailpiece to the provisions that apply to public companies. However, as much as 99.6% of the companies on the register in the UK in 2008/9 are, in fact, private companies. A target that the Labour government set itself was for the UK to become ‘the best place in the world to start and run a business’. In order to test this aspiration this paper will use the following scenario: An international investor from country X, whom we shall name ‘Mr. Bpit W Tdb’ (an acronym for the above statement) or Mr. Bpit for short, is contemplating starting up an IT software business and is looking for the ‘best place in the world to do business’. In order to assist Mr. Bpit in making up his mind, this paper will subject the analysis to the following ‘Triple Test’, as well as what I term ‘the wider considerations test’. The ‘Triple Test’ will put forward three simple questions. Firstly, how does the UK business environment in 2010 compare with other jurisdictions Mr. Bpit considers starting his business in? Secondly, how does the current business environment in the UK compare with the pre-2006 reforms? Finally, are recent reforms ‘good, bad or ugly’ for his IT software business? On this basis, this article will show that Mr. Bpit’s faces a three-fold disappointment. Firstly, what is good in the CA 2006 (i.e. most suitable or right for a particular purpose) is trivial and, at parts, quite bad (i.e. having negative and undesirable qualities). Secondly, what is bad is very bad for business, and quite ugly (i.e. likely to cause trouble, and threatening or ominous) too. And thirdly, the ugly truth is that reform has made very little difference (the CA 2006 is not ‘fit for purpose’) and has failed to focus on the real important challenges.
Part B tracks back the genesis of recent reforms from the Company Law Review reports of the late nineties till the adoption of the CA 2006 in Parliament and its fragmented and slow implementation, focusing, in particular, on deficiencies in the previous legislation, the approach taken to reform and the guiding principles for resolving the problems identified. Part C will then subject the CA 2006 to the ‘Triple Test’ as well as ‘the wider considerations test’ in order to assist Mr. Bpit’s quest to find whether the UK is, indeed, the ‘best place in the world’ in which to start up and run his IT software business. The ‘Triple Test’ will consist of three elements: easy access to corporate form, minimum interference with management, and appropriate investor protection (i.e. all necessary for a favourable corporate environment). The account of the substantive changes is necessarily selective and brief. The emphasis is on these areas also because of their central role in underpinning corporate governance structures and process. Part D will reveal ten ugly truths about the CA 2006 and the state of the UK corporate law after recent reforms. Part E will try to provide a post-mortem analysis and suggest a number of brief explanations on what went wrong. Finally, Part F draws some conclusions as well as provides some lessons and signposts for the future.
Keywords: refrom, companies act 2006, business, corporate law, corporate governance
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