COMPANY LAW REFORM - FURTHER DRAFT CLAUSES
RESPONSE ON BEHALF OF THE CHARITY LAW ASSOCIATION
INTRODUCTION
This response is sent on behalf of the Charity Law Association, by the Working Party which responded to the first set of draft clauses earlier this year. The members of the Working Party are:
Francesca Quint (barrister) 11 Old Square (Chair)
Neasa Coen (solicitor) Stone King
Jo Coleman (solicitor) Farrer & Co
Elizabeth Davis (partner) Blake Lapthorn Linnells
Malcolm Lynch (partner) Wrigleys
Andrew Studd (partner) Bates Wells & Braithwaite
Ben Maitland (trainee solicitor) Bates Wells & Braithwaite (Secretary).
There is relatively little in the new draft clauses which interacts with charity law or requires specialist comments from charity lawyers, and we have not commented in any detail on Parts N, O, P, R or S.
As we commented originally, the use of plain language and the increased flexibility and reduction in bureaucracy is most welcome. This is relevant in that many charities are run by volunteers without legal or commercial experience and the proposed reforms will make life much easier for them.
PART L
In particular the provisions of Part L are especially helpful in providing greater flexibility available to the Registrar in the filing of documents (see for example draft clause L13(2)), the informal correction of documents sent to the Registrar (draft clause L14), the giving of notice (draft clause L48) and the new ways of communicating with Companies House, including the emphasis on electronic communication.
PART M
The new exemption for all charitable companies from the requirement to include the word ‘Limited’ in a company’s name (draft clause M8, and see also draft clauses M9 and M10, which continue existing exemptions) are a welcome simplification. The provisions enabling a company’s name to be changed otherwise than by special resolution (draft clause M26) and enabling a conditional change of name to be effected by special resolution (draft Clause M28), are very helpful. The other provisions on company names are admirably clear, but one possibility which might streamline the arrangements would be to give the Charity Commission concurrent powers with the Secretary of State to require inappropriate names to be changed in the case of charitable companies. The Commission already has extensive powers in this respect under s 6 of the Charities Act 1993 and the Charities (Misleading Names) Regulations 1993), which extend to charitable companies, and we suggest that some thought be given to this.
PART Q
Part Q deals with the audit of companies’ accounts and contains some express references to charities. It is useful to have all the relevant provisions in one Part but it has to be said that, at least to the reader who is not an accountant at least, the new provisions appear needlessly complex. The exemption for small companies (as defined on Part G), which otherwise applies to companies with a turnover of up to £5.6m (see draft clause Q3), applies to charitable companies only where the gross income does not exceed £90,000. If the company is a group company, the group turnover cannot be more than £840,000 if the company in question is a charity, but may be up to £6.72m gross (draft clause Q5) otherwise. Draft clauses Q8 to Q13 restate the provisions which currently exempt charitable companies from the requirement to have their accounts audited (unless this is required by 10% of the members or by members holding 10% of the issued share capital (see draft clause Q2)). Where the company qualifies as a ‘small company’ this particular exemption applies if its balance sheet does not exceed £1.4m and its gross income is between £90,000 and £250,000. An accountant’s report will be acceptable in such cases in place of an audit, but under draft clause Q12 the accountant must belong to one of the qualifying bodies, which do not include CIPFA.
7. These provisions should be revisited whether or not the Charities Bill becomes law before the proposed Company Law Reform Bill. Under clause 30 of the Charities Bill the £250,000 upper limit is to be increased to £500,000 and the balance sheet figure of £1.4m to £2.8m. This will necessitate a change to draft clause Q8 if the Charities Bill is passed. Where the charity is a ‘group company’, however, the figure of £840,000 gross for the group turnover is the revised amount which has yet to take effect under the new Charities Act, whereas the current limit is £420,000 gross. It seems therefore that draft clause 10 may need to be amended if the Charities Bill does not become law before the proposed Company Law Reform Bill.
9 September 2005 Francesca Quint (Chair)
11 Old Square, Lincoln’s Inn London WC2A
