Business law set for overhaul

Thursday, 3 November 2005 12:00 AM

Company law will be simplified and improved under new proposals announced by the government today.

The company reform bill places deregulation at its heart, with the government claiming the new proposals could save businesses up to £250 million a year.

The existing law would be substantially re-written to make it more user-friendly and a raft of measures would be introduced, including simpler rules for those wishing to start up their own companies.

Much of the new bill is targeted at small businesses with the law restructured to make it easier for them to understand regulations, and the existing requirement of a company secretary would be done away with.

Other proposals include making the duties of company directors clearer and emphasising their responsibility not just to shareholders, but to consumers too.

Shareholders would be given the right to sue directors, and investors would be made to disclose voting at annual general meetings.

Announcing the news, trade and industry secretary Alan Johnson said: "An effective framework of company law and corporate governance will promote enterprise and help stimulate investment in the UK.

"We have focused throughout on making the law more accessible and 'thinking small first'. The bill makes an important contribution to our better regulation agenda."

The measures represented a significant step forward in ensuring that company law remained up to date and accessible for everyone, he added.

The Institute of Directors (IoD) gave its backing to the bill, saying "it has been a long time coming".

Director general Miles Templeman particularly welcomed the proposal to allow shareholders to hold directors to account.

"Shareholders who suffer from the negligent actions of executives should have the right to pursue the individual for compensation," he said.

But the Association of British Insurers (ABI), while applauding some of the new proposals, said the disclosure of voting by shareholders was an unnecessary amendment.

Director of investment affairs David Montagnon said: "The government is taking reserve powers to make this mandatory, but there would be large compliance costs.

"These are not justified when more and more institutions, led by insurance companies, are disclosing voluntarily."

And shadow trade and industry secretary David Willetts criticised the new bill for adding "new obligations to companies some of which are poorly defined and could leave normal commercial decisions open to legal challenge".

"We are concerned that some of the clauses could cause serious problems for British business [and] we will work with outside experts to improve the bill," he added.

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