European Company Law and Corporate Governance - ACT Response to DTI

Comments on behalf of the ACT on Directive Proposals on Company Reporting, Capital
Maintenance and Transfer of the Registered Office of a Company

Government’s overall approach

We note that the current proposals on capital maintenance are in the nature of interim solutions and that in the long run the Commission will be considering more radical approaches such as a solvency approach. The UK legal and accounting definitions of distributable reserves and capital have evolved over time into a position which is complicated, such that flexibility in the management of capital is lacking (cf the British Institute of International and Comparative Law Report on capital maintenance: solvency tests for dividends published 17 June 2004).

The ACT considers that a solvency based approach would be worth studying and evaluating and we look forward to reviewing any new work in this area.

We agree with the general approach that the European Commission Action Plan on Company Law and Corporate Governance should be a living document and kept under constant review, but at the same time care is need to avoid excessive fine tuning and too frequent amendments.

We agree with the five overall objectives and the need to ensure that any changes further these objectives and are proportionate. The objectives being:

• Enhancing financial stability and market confidence.
• Extending investment opportunities across borders.
• Removing barriers to the efficient operation of markets, improving access to capital for companies.
• Making it easier for companies to set up cross-border operations.
• Creating trust in our companies and markets that will attract international investment and those seeking capital from around the world.

Accepting the Governments approach set out in 2.2 we believe that harmonization at the EU level should be “minimum harmonization” and not “maximum harmonization”. The need to be sure in every case that legislation is necessary as well as proportionate set out at the end of 2.2 is important.