What is being consulted on?
The Law Commission's proposals relating to formal requirements giving legal effect to deeds and certain other documents drawn up by and behalf of corporations.
Why are these changes needed?
To remove certain requirements in the drawing up of deeds and other documents, and to remove inconsistencies and anomalies in the present law.
Who will these proposals affect?
The proposed changes will affect:
companies
other corporations
legal advisers
What will be the financial impact of the changes?
There should be some savings for corporations in the business and voluntary sectors, and their legal advisers, from reduced requirements and clearer and more consistent law.
How will these proposals be taken forward, and when will they be implemented?
We intend that the proposed changes to legislation will be implemented by a Regulatory Reform Order made under the Regulatory Reform Act 2001. Subject to the outcome of this consultation, we propose that the changes are implemented during 2003.
Consultation
This consultation is being made in accordance with the requirements of the Regulatory Reform Act 2001 (summary at Annex A) and the terms of the Government's Code of Practice on Written Consultations (Annex E).
All responses should be received by 29 November 2002.
This consultation paper sets out proposals for reforming the legislation governing the execution of deeds and documents by and on behalf of corporations.
Changes are required to simplify and standardise formal requirements governing the execution of deeds and documents. The proposals will remove inconsistency between statutory provisions, and promote greater understanding and certainty in the business and voluntary sectors.
These proposals carry forward the recommendations of the Law Commission's Report no. 253, The Execution of Deeds and Documents by or on behalf of Bodies Corporate, which was published in August 1998. The Law Commission's consultation paper is available on the Law Commission's website at www.lawcom.gov.uk/library/lccp143/cp143.pdf, and the full Report is at www.lawcom.gov.uk/library/lc253/lc253.pdf. The Government's acceptance of the recommendations in that Report was announced in answer to a Parliamentary Question on 27 July 1999.
The reforms will principally affect corporations conducting transactions in the business and voluntary sectors. Streamlined procedures will increase the efficiency of business transactions and remove any doubts that may exist about the law. The changes will also affect legal practitioners providing advice on existing legislative provisions.
We propose to introduce the reform by means of a Regulatory Reform Order under the Regulatory Reform Act 2001. This consultation is being conducted in accordance with the provisions of section 5 of the Act. Views are invited on all aspects of the consultation paper, and a number of specific questions are set out at the end of the document.
Copies of the consultation paper are being sent to the following professional organisations and representative bodies, among others:
| Professional Bodies | Representative Bodies |
|---|---|
| Association of Chartered Certified Accountants | Association for Friendly Societies |
| Association of Charity Officers | Association of Larger Local Councils |
| General Council of the Bar | Association of London Government |
| Law Society | British Bankers Association |
| City of London Law Society | British Chamber of Commerce |
| Co-operative Law Association | Building Societies Association |
| Council for Licensed Conveyancers | Confederation of British Industry |
| Chartered Institute of Bankers | Consumers' Association |
| Insolvency Practitioners Association | Consumer Credit Association of the United Kingdom |
| Institute of Chartered Accountants in England and Wales | Consumer Credit Trade Association |
| Institute of Chartered Secretaries and Administrators | Co-operative Union |
| Institute of Legal Executives | Council of Mortgage Lenders |
| Royal Institute of British Architects | Credit Protection Association |
| Society of Licensed Conveyancers | Federation of Small Businesses |
| Society of Practitioners of Insolvency | Forum for Private Business |
| Society of Public Notaries | Financial Law Panel |
| Society of Scrivener Notaries | Institute of Directors |
| Local Government Association | |
| National Association of Citizens' Advice Bureaux | |
| National Consumers' Council | |
| Trade Union Congress |
| Government Bodies | Commercial Interests |
|---|---|
| Crown Estate Office | |
| Department of Trade and Industry | FTSE 100 companies |
| Duchy of Lancaster | |
| HM Land Registry | |
| National Assembly for Wales | |
| Scottish Executive |
A full list of consultees, which numbers about 280, can be obtained from:
or from the contact address given at 'How to Respond'.
Responses are also welcome from others, who have not received a copy of the consultation paper directly from the Lord Chancellor's Department.
A questionnaire relating to this consultation paper is at Annex D. Please send your response by 29 November 2002 to:
Deepa Patel
Lord Chancellor's Department
Civil Law Development Division
Room 3.05
Southside
105 Victoria Street
London SW1E 6QT
Tel: 020-7210 1231
Fax: 020-7210 1269
email: Deepa Patel
Representative groups are asked to provide a summary of the people and organisations they represent when they respond.
The Department may wish to publish responses to this consultation document in due course. Please ensure your response is marked clearly if you wish your response or name to be kept confidential. Confidential responses will be included in any statistical summary of numbers of comments received and views expressed.
Respondents should also note the disclosure provisions under the Regulatory Reform Act summarised in paragraphs 8-10 of Annex A and paragraphs 17-20 of Annex B.
Further copies of this consultation paper can be obtained from the Lord Chancellor's Department website, www.lcd.gov.uk/ or from Deepa Patel at the above address.
The proposals set out in this Consultation Paper reflect the recommendations of the Law Commission's Report, The Execution of Deeds and Documents by or on behalf of Bodies Corporate. The proposed Regulatory Reform Order will draw on the provisions of the draft Bill contained in the Law Commission's report, and no changes are proposed to its effect.
However, given the overlap between these proposals (especially those relating to the Companies Act 1985) and the Government's proposals for a new Companies Bill, there is a question about the manner of their implementation. This is discussed further at paragraph 16 below.
Before the Report was published, the Law Commission consulted a wide range of legal, academic and business interests. There was very clear support from respondents for legislative reform in this area. There was strong support for reform of the law to introduce greater certainty and uniformity in this area, and most respondents strongly supported the Law Commission's provisional recommendations.
In view of the extensive consultation and consideration already carried out by the Law Commission, this Consultation Paper does not include a detailed analysis of the existing law or the arguments for and against the options for reform. Instead, it concentrates on taking forward the Government's preferred option by way of a Regulatory Reform Order and the extent to which that proposal meets the statutory tests set out in the 2001 Act. If you have views on the acceptability of the preferred option or want to suggest alternative approaches to it, we would welcome them. You should feel free to comment on any particular aspect of the proposals.
Since the Law Commission published its report, there have been considerable advances in e-commerce. The background to those developments, and the approach we propose to take in relation to them, is discussed further at paragraph 20 below.
The proposed reforms will apply to England and Wales only. It would not remove or modify any of the legal functions of the National Assembly for Wales as transferred to it under the Government of Wales Act 1998 or any other subsequent legislation. Their views are being sought as statutory consultees given that the proposal extends to Wales.
Terms marked with an asterisk (*) are defined in the Glossary below.
There are three main Acts of Parliament affected by the proposed reforms:
the Law of Property Act 1925
the Companies Act 1985
the Law of Property (Miscellaneous Provisions) Act 1989.
When reference is made to one of these Acts, it will be by year only.
The law imposes formal requirements that must be met for deeds and some other documents to have legal effect. In the case of deeds, this is because they are used for particularly significant transactions (such as the creation and transfer of interests in land). In the case of execution of documents by corporations, it is because there must be a certain level of formality so that a person relying on such a document can be confident that the corporation (as a separate legal entity from its directors) has agreed to be bound by it.
The 1985 Act applies to the execution of documents by companies; the 1925 Act applies (for these purposes) to the execution of documents by corporations in the wider sense; and the 1989 Act applies generally to the execution of deeds (whether by corporations or by individuals). The resulting maze of statutory provisions is inconsistent, and sometimes imposes unnecessary restrictions on how corporations carry on their business. The proposed reforms aim to reduce the burden of meeting the formal requirements and to remove inconsistencies in the present law, particularly as between companies and other corporations.
The proposals are described below as if they were to take effect in the way intended by the Law Commission's draft Bill. However, in its White Paper Modernising Company Law (Cm 5553), published on 16 July 2002 (available on the DTI website at www.dti.gov.uk/companiesbill), the Government announced its intention to repeal the Companies Act 1985 and replace it with a new Companies Bill. This raises a question about the way in which these proposals might be given effect; this is discussed further at paragraph 16 below.
Since the Law Commission published its Report, there have been considerable advances in e-commerce. The background to those developments, and the approach we propose to take in relation to them, is discussed further at paragraph 20 below.
The way companies and corporations execute documents
Section 74 of the 1925 Act sets out the formalities on which a purchaser can rely when a deed* has been executed by or on behalf of a corporation*. Section 36A of the 1985 Act does the same in the narrower context of companies*, but applies both in relation to deeds and to other documents. The following proposals set out to eliminate that inconsistency; to make it easier for corporations to satisfy the formality requirements; and to make it easier for others to see that they have been satisfied.
Attestation by two directors. Section 74(1) of the 1925 Act requires that a deed executed* by a corporation must be sealed* and attested* by a director of the corporation and the company secretary (or a deputy). The specific requirement relating to the company secretary is an unnecessary burden. It is proposed that section 74(1) be amended to provide that the seal can be attested by any two directors, as well as by one director and the secretary.
Necessary protection, rights and freedoms: the Regulatory Reform Act 2001 (RRA) requires all proposals to satisfy certain legal tests - specifically, that the proposal does not remove any necessary protection, and that it does not prevent anyone from continuing to exercise any right or freedom which they might reasonably expect to enjoy (see Annex A). Additionally, any proposal to impose or re-impose a burden must satisfy tests of proportionality, fair balance and desirability.
This proposal falls within the power conferred under section 1(1)(a) of the RRA (the removal or reduction of burdens). We believe this proposal will not remove any necessary protection, as the requirement that the secretary must be one of those attesting the document does not provide any protection additional to that which is provided by the requirement that the document be attested by two directors. Consultees are invited to say if they disagree. Existing rights and freedoms would be preserved; individuals would have the same right as previously to attest instruments.
Corporate officers. The officers of companies or corporations are, generally, 'real people'; and it is clear what is required when an officer must sign a document. But it is not uncommon for a corporation to be, in its own right, an officer of another corporation (known as a 'corporate officer'); and the law is silent on what they must do in order to 'sign' a document as a director or secretary.
It is proposed that the 1925 and 1985 Acts be amended to provide that a corporate officer may 'sign' for the purposes of section 36A of the 1985 Act, or 'attest' for the purposes of section 74 of the 1925 Act, by the signature of a person authorised to do so on its behalf. This measure would clarify the legal position, and remove a potential restriction on the way corporate officers can operate. (The White Paper Modernising Company Law announces the Government's plans to prohibit corporate directors of companies, but this proposal would continue to apply to corporate secretaries of companies, and corporate officers of non-company corporations).
Necessary protection, rights and freedoms: This proposal falls within the power conferred under section 1(1)(a) of the RRA. We believe that no necessary protection is removed by clarifying and liberalising the way in which corporate officers carry out their responsibilities. No existing rights and freedoms are affected; corporate officers would be able to continue to act as they do now.
Separate signature. Section 36A of the 1985 Act does not make clear the responsibilities of directors when signing documents. It is proposed that a new provision be made to direct that a director or secretary of more than one company must sign separately for each company that is a party to the deed.
Burdens: This proposal falls within the power conferred under section 1(1)(c) of the RRA (imposing a new burden). It will impose a new, small burden in cases where a director or secretary of two companies will in future be required to sign a document twice (or more). This is justified by the need to make the law clearer and more consistent, and by the desirability of a clear and simple rule which recognises the concept of a deed and the underlying purpose of prescribed formalities. We believe this burden meets the statutory tests of proportionality (its overall impact will be minimal), a fair balance between the interests of those affected (the new burden will be balanced by an increase in clarity for the other contracting parties) and overall desirability (as explained above).
Necessary protection, rights and freedoms: this proposal does not remove any necessary protections, and does not remove any rights or freedoms except the right or freedom to sign a single time on behalf of more than one company, which we believe that individuals could not reasonably expect to enjoy.
Irrebuttable presumption of validity. Section 74(1) of the 1925 Act and section 36A of the 1985 Act provide that a purchaser may rely on the validity of a document executed by a corporation (1925 Act) or company (1985 Act) if it is executed in the specified way (the 'irrebuttable presumption* of validity'). The following proposals would extend and simplify that presumption.
The presumption in the 1925 Act only covers deeds; the one in the 1985 Act covers any document. It is proposed that the 1925 Act be amended to refer to an 'instrument' instead of a deed. This measure would relieve a burden on purchasers by extending the category of document covered by the irrebuttable presumption of validity.
Also, the wording of the two presumptions are slightly different (although they have the same legal effect). As the relevant sections are to be amended anyway, the opportunity will be taken to align the wording in the 1925 Act with that in the 1985 Act.
Necessary protection, rights and freedoms: This proposal falls within the power conferred under section 1(1)(d) of the RRA (the removal of inconsistencies and anomalies). this proposal increases the protection of those who contract with corporations, by extending the class of transaction in which they can rely on the irrebuttable presumption of validity. Any protections removed by this proposal cannot be described as necessary, as the 1985 Act already provides the extended irrebuttable presumption of validity to all instruments executed by companies. It does not affect the rights and freedoms of purchasers, corporations or companies.
The powers of third parties acting on behalf of parties to the document
There are several circumstances in which a third party can be involved in the execution of deeds or other documents. The law is not always clear about what the third party may do, or how he may do it. The circumstances affected by the proposals below are when the third party is:
a solicitor, licensed conveyancer or notary public (E)
acting under a power of attorney* (F)
a liquidator acting under the Insolvency Act 1986 (G)
Irrebuttable presumption of authority to deliver. Section 1(5) of the 1989 Act provides that a purchaser benefits from an irrebuttable presumption that a solicitor, licensed conveyancer or notary public has authority to deliver a deed on behalf of the party for whom they act - thereby avoiding the need to obtain independent confirmation of the authority. However, it restricts its provisions to transactions involving the creation or disposal of an interest in land. It is proposed that the Act be amended to remove the restriction and extend this 'irrebuttable presumption of authority' to transactions other than those involving interests in land. This measure would remove a burden on purchasers by extending the type of case in which a purchaser may rely on the presumption, allowing them to act entirely through the vendor's solicitors. It will also remove a burden on the person executing the deed, as they will no longer have to give separate authority to their legal adviser, authorising them to deliver the deed on their behalf.
Necessary protection, rights and freedoms: This proposal falls within the power conferred under section 1(1)(a) of the RRA. We believe that this proposal increases the protection of those who deal with people (or corporations) who act through their legal advisers. It does this by extending the class of transaction in which they can rely on the irrebuttable presumption that the solicitor, licensed conveyancer or notary public with whom they are dealing directly has the necessary authority to act on the other person's (or corporation's) behalf. It does not remove any necessary protections for those executing deeds; as now, they can retain control over the delivery of a deed, as the legal adviser cannot deliver the deed until the person executing it has put it in the hands of the legal adviser. It does not affect the rights and freedoms of those who wish to act through their legal advisers.
Powers of attorney. Section 1 of the 1989 Act requires a deed to be validly executed as a deed by the person making it or the parties to it, as the case may be. There is no reference to a deed being executed on behalf of such a person or party. The following proposals, as a coherent whole, are designed to permit the execution of deeds by an attorney or someone else acting on a corporation's behalf.
These measures would ease the present restrictions and complexities on who may execute a deed on behalf of a corporation. (References to 'the 1971 Act' are to the Powers of Attorney Act 1971, which governs the general law relating to powers of attorney.)
It is proposed that the 1989 Act be amended to include an explicit reference to execution by a person who is authorised to execute in the name of, or on behalf of, the maker or party to a deed.
Similarly, it is unclear that there is sufficient power under the 1971 Act for an attorney to act on behalf of a corporation. This is because execution of a document by an attorney is provided to be as effective as if done 'with the signature of the donor' of the power of attorney - but corporations do not execute by their own signature. It is proposed to amend section 7 of the 1971 Act to make it clear that an individual may validly execute a document as attorney for a corporation by meeting the requirements of the 1989 Act (as amended by these proposals).
Several consequential proposals flow from this.
The attorney may itself be a company, other corporation or natural person; and it is not clear which Act governs the formalities that corporate and non-corporate attorneys must follow in order to execute documents.
It is proposed that:
section 1 of the 1989 Act apply in the case of an instrument executed by an individual as attorney for another person, whether or not that person is also an individual.
section 36A of the 1985 Act apply in the case of an instrument executed by a company as attorney for another person, whether or not that person is also a company.
section 74 of the 1925 Act apply in the case of an instrument executed by a corporation as attorney for another person, whether or not that person is also a corporation.
Together, these will permit the attorney acting on behalf of a corporation to be either an individual, a company or a corporation, and clarify what formalities the attorney must follow in each case.
There is some confusion between the common law and section 7(1) of the 1971 Act concerning what an attorney should actually write when acting on behalf of a corporation (that is, whether he should write his own name or that of the corporation for whom he is acting). It is proposed that section 1 of the 1989 Act should be amended to provide expressly that 'signing' the deed includes an individual signing the name of the person or party on whose behalf he executes the document, as well as signing his own name.
It is proposed that section 7(3) of the 1971 Act should be repealed. It makes certain provisions on attorneys subject to any contrary 'statutory direction', but it is not clear that there are any contrary statutory directions. So its legal effect is unclear; it serves no useful purpose; and it is ignored in practice. This measure would clarify the legal position; to the extent that it changes the law, it would remove a restriction on execution by attorneys.
The 1989 Act provides that the witness to a signature on a deed must also attest the signature. But section 74(3) of the 1925 Act provides only that a person signing a conveyance as attorney for a corporation should do so 'in the presence of' a witness; and section 74(4) - which covers the case when a corporation is itself acting as an attorney - does not mention witnesses at all.
For the sake of clarity, it is proposed to amend sections 74(3) and 74(4) to make it clear that the 'witness and attestation' requirement in the 1989 Act applies in the situations covered by those sections.
Burdens: Except for the last of them, these proposals fall within the powers conferred under sections 1(1)(a) or 1(1)(d) of the RRA. The last falls within the power conferred under section 1(1)(c). It will impose a new, small burden in cases where a person acts as attorney for a company on a conveyance (the witness will have to attest the attorney's signature, rather than merely being present), or where a corporation is acting as an attorney (the corporation's actions as attorney will have to be attested by a witness). We understand that this already generally happens, so that this new burden will make no difference in practice. In any event, we believe the burden is justified by the need to make the law clearer and more consistent, and by the desirability of a clear and simple rule which recognises the concept of witnessing and the underlying purpose of prescribed formalities. We believe this burden meets the statutory tests of proportionality (its overall impact will be minimal), a fair balance between the interests of those affected (the new burden will be balanced by an increase in clarity for the other contracting parties) and overall desirability (as explained above). It does not remove any necessary protections, and does not remove any rights or freedoms which attorneys or those who act through them can reasonably expect to enjoy.
Necessary protection, rights and freedoms: these proposals increase the protection for those who deal with people (or corporations) acting through attorneys. This is because they clarify the law, making it easier for them to rely on the actions of the attorney as binding on the donor of the power of attorney. They do not affect the rights and freedoms of attorneys or those who wish to act through them.
Powers of liquidators. It is proposed to amend Schedule 4 of the Insolvency Act 1986 to resolve uncertainty about the powers of a liquidator to execute documents on behalf of a company if the company had no seal or if it had been lost. This measure would relieve a burden by clarifying the legal position and, to the extent that it changes the law, it would remove a restriction on the powers of liquidators.
Necessary protection, rights and freedoms: This proposal falls within the power conferred under section 1(1)(a) of the RRA. We believe that this proposal increases the protection for those who deal with liquidators acting on behalf of companies. This is because it clarifies the law making it easier for them to rely on the actions of the liqudator as binding on the company on whose behalf they act. It does not affect the rights and freedoms of those who act as liquidators, or of the corporations on whose behalf they act.
The delivery of deeds
For a document to be validly executed as a deed, it must be both 'executed' (that is, signed or sealed as appropriate) and 'delivered'. The provisions in the three Acts referring to execution and delivery are inconsistent.
The 'rule of execution'. There is some inconsistency between the three Acts in what is required to execute a document 'as a deed' - specifically, whether 'execution' includes 'delivery' of the deed. It is proposed to clarify the position by amending section 74 of the 1925 Act and section 36A of the 1985 Act to provide that 'execution as a deed' is by execution and delivery. This will standardise the 'rule of execution' in the three Acts.
Burdens: We believe that this proposal falls within the power conferred under section 1(1)(d) of the RRA. It might appear that this proposal imposes a burden on those who wish to act through a deed, by introducing an additional requirement of delivery. We believe that this is not the case. As noted in the glossary, 'delivery' merely signifies the demonstration of an intention that the deed take effect, rather than the burden of physical delivery of a document.
If this is not the case, the proposal falls within the power conferred under section 1(1)(c) of the RRA. We understand that general practice involves delivery (in this sense) already, so that this new burden will make no difference in practice. In any event, the burden is justified by the need to make the law clearer and more consistent, and by the desirability of a clear and simple rule which recognises the concept of delivery and the underlying purpose of prescribed formalities. We believe this burden meets the statutory tests of proportionality (its overall impact will be minimal), a fair balance between the interests of those affected (the new burden will be balanced by an increase in clarity for the other contracting parties) and overall desirability (as explained above).
Necessary protection, rights and freedoms: this proposal increases the protection for those who deal with people (or corporations) through a deed. This is because it clarifies and standardises the rule which determines when a deed becomes effective. It does not affect the rights and freedoms of those who act through deeds.
'Irrebuttable presumption of delivery'. Section 36A of the 1985 Act allows a purchaser to benefit from an 'irrebuttable presumption of delivery'. This means that when a deed is executed by a company, it will be conclusively presumed (as far as a purchaser is concerned) to have been delivered at the same time. (Section 74 of the 1925 Act contains no similar provision.)
However, the 1989 Act provides that the signing and delivering are two distinct stages; this allows a deed to be prepared and signed at some convenient time and date before it is intended to be delivered (and therefore take effect). This 'delayed delivery' scheme is plainly more flexible and more conducive to the efficient conduct of business. It is proposed, therefore, to repeal the irrebuttable presumption of delivery in the 1985 Act, and replace it with a presumption of delivery which can be rebutted by proving a contrary intention (that is, introducing a 'delayed delivery' scheme for companies). A similar 'rebuttable presumption of delivery' will be inserted into the 1925 Act.
Necessary protection, rights and freedoms: This proposal falls within the power conferred under section 1(1)(a) of the RRA. We believe that this proposal does not remove any necessary protections. The additional protection which the irrebuttable presumption of delivery gives to a purchaser from a company (over and above the protection given by a rebuttable presumption) is very slight and, given that it is already not available in dealings with individuals or corporations, it cannot be regarded as a necessary additional protection. On the other hand, the proposal increases protection by clarifying and standardising the rule on the presumption of delivery as between people, companies and corporations. It does not affect the rights and freedoms of those who act through deeds; on the contrary, it increases the freedom of companies and corporations to use deeds effectively by extending to them the 'delayed delivery' regime of the 1989 Act.
Other proposals designed to remove inconsistencies or ambiguities
The following proposals remove inconsistencies or ambiguities in the relevant Acts.
'Face-value requirement.' The 1989 Act applies a 'face-value requirement*' requirement to deeds. But it is not clear whether the presence of the seal on the instrument, by itself, satisfies the face-value requirement. This means that the distinction between a deed and a contract under seal (or other document to which a seal is affixed) is unclear. It is proposed that section 1 of the 1989 Act be amended to make clear that the presence of the seal shall not, by itself, meet the face-value requirement.
There is also a discrepancy in the description of the face-value requirement between the 1985 Act (which applies to deeds executed by companies) and the 1989 Act (which applies to deeds generally). It is proposed that this be resolved by removing the reference to the face-value requirement in Section 36A of the 1985 Act. This will clarify that the description in the 1989 Act applies to all deeds, including those executed by companies.
Necessary protection, rights and freedoms: These proposals fall within the power conferred under section 1(1)(d) of the RRA. We believe that they increase the protection for those who deal with people (or corporations) through a deed. This is because it clarifies the rule which determines when a deed satisfies the face-value requirement. They do not affect the rights and freedoms of those who act through deeds.
'Specialties'. It is proposed to clarify the definition of 'specialty*'. The word is used in a number of different senses - usually to mean 'an obligation entered into by contract under seal' or 'an obligation entered into by deed under seal' - but can sometimes refer to other obligations. It is proposed that except as otherwise provided by a statute, an instrument (or an obligation created or confirmed in an instrument) shall be a specialty only if the instrument is a deed.
Necessary protection, rights and freedoms: This proposal falls within the power conferred under section 1(1)(d) of the RRA. We believe that it does not remove any necessary protection for those who deal with people (or corporations) who use specialties, nor does it affect the rights and freedoms of those who wish to use them.
Relationship with the draft Companies Bill
The draft Bill prepared by the Law Commission would give effect to its proposals by making amendments to each of the 1925 Act, the 1985 Act and the 1989 Act. Since then, however, the Company Law Review has published its final Report, and the Government has published its first consultation paper on the implementation of that Report, Modernising Company Law.
The Government envisages the repeal of the 1985 Act in its entirety, and its replacement with a new Act. It would be sensible, therefore, to bear this in mind when deciding how to implement the proposals relating to the powers of companies. It would appear that there are four options:
make no amendments to the 1985 Act, leaving the necessary changes to be made in the later reform of company law;
amend the 1985 Act as proposed by the Law Commission, and preserve the amended sections when the rest of the Act is repealed;
amend the 1985 Act as proposed by the Law Commission, and then repeal and re-enact the amended sections in conjunction with the rest of the Act;
remove the sections from the 1985 Act altogether, and re-enact them (amended in line with these proposals) in either the 1925 Act or the 1989 Act.
Option a) would preserve the unnecessary ambiguities and distinctions between companies and other corporations in the legal framework; option b) would leave an anomalous position, with a small 'rump' of the 1985 Act remaining. Neither would appear to have much to recommend them. Option c) would, as now, keep the provisions relating to the execution of deeds and documents by companies in the same Act as other provisions of company law. Option d) would remove all provisions relating to the execution of deeds and documents by companies from the Companies Act, and would obviate the need for further disruption of these statutory provisions when Modernising Company Law is implemented.
Consultees, as users of the legislation, are invited to express and explain any preference between options c) and d), and within d), between incorporation in the 1925 Act and in the 1989 Act.
e-Commerce developments
It was beyond the remit of the Law Commission's Report to consider
changes to this area of the law to reflect technological advances. Since
the publication of the Report, there have been a number of developments,
including the EU Electronic Signatures and Electronic Commerce Directives
and the Electronic Communications Act 2000
(www.legislation.hmso.gov.uk/acts/acts2000/
20000007.htm). Section 8 of this Act allows the Government to modify
existing legislation to facilitate the use of electronic communications.
The Government's programme for amending the law under section 8 to facilitate
e-government and e-commerce is set out on the 'Modernising the Law for
the Information Age' (MOLIA) section of the website of the e-Envoy,
(www.e-envoy.gov.uk/egov/
online_now/modern.htm). In addition, the Law Commission has published
advice to Government
(www.lawcom.gov.uk/library/lcspecial-1/e-commerce.pdf)
on formal legal obstacles to electronic commerce.
Because these proposals were developed as a coherent whole, and because they remain relevant even in the context of technological advances, we propose in this Order to implement the Law Commission's recommendations as they are presented. If, in the light of the Law Commission's advice, views expressed by consultees and future legal and technical developments, further changes to the law appear necessary, we would propose to address them by section 8 orders or other appropriate means. Consultees are asked whether they agree with this approach.
Attestation
The witnessing of an act or event, for example witnessing the signature or sealing of a document.
Company
An association of persons formed for the purpose of some business or undertaking carried on in the name of the association and registered as such under the Companies Act 1985.
Corporation
A body which is recognised by law as having separate legal personality distinct from those of its members.
Deed
A written document which is executed with the necessary formality, and by which an interest, right or property passes or is confirmed, or an obligation binding on some person is created or confirmed.
Delivery
The final formality required for the execution of a deed, by which the maker demonstrates in some way that they intend the deed to take effect. It does not necessarily entail the physical delivery or transfer of the document, although that would demonstrate the necessary intention.
Execution
The way in which a corporation enters into a document by sealing it, or by the signature of its directors or other officers or agents, and gives it legal effect.
Face-value requirement
The requirement, first introduced by section 1(2)(a) of the Law of Property (Miscellaneous Provisions) Act 1989 that an instrument is not a deed unless it makes clear on its face that the maker or parties to the instrument intend it to be a deed.
Presumption
A conclusion or inference as to the truth of some fact in question.
Power of attorney
A document by which one person (the donor) gives another person (the attorney) the power to act on the donor's behalf and in the donor's name.
Seal (or 'common seal')
The seal adopted by a corporation and used for executing documents. The seal of a registered company must have the name of the company engraved upon it.
Specialty
Traditionally the term used to refer to a contract entered into under seal.
Each proposal for a Regulatory Reform Order must satisfy a number of legal tests. The questions in this document are designed to elicit the information that the Minister will need in order to satisfy the Committees that, among other things, the proposal satisfies these tests. In particular, the Regulatory Reform Act requires information on:
whether any of the proposals could remove any necessary protection;
whether any of the proposals could prevent any person from continuing to exercise any right or freedom which he might reasonably expect to continue to exercise and, if so, how he is to be enabled to continue to exercise that right or freedom;
whether any burdens are being imposed on any person in the carrying out of an activity;
whether any savings or increases in cost are estimated to result from the proposals and, if so,
the reasons why savings or increases in cost should be expected, and
if it is practicable to make an estimate of the amount, that amount and how it is calculated,
any benefits (other than savings in cost) which are expected to flow from the implementation of the proposals.
For this reason, we would particularly welcome your views on how each aspect of the proposed changes in this consultation document meets the following tests:
Necessary protection - the Minister making a Regulatory Reform Order must be of the opinion that it does not remove any necessary protection. This means that no order can be made unless the Minister is of the opinion that it would maintain any protections that the Minster considers to be necessary. Such protection relates to the checks and balances associated with a particular regulatory regime. The protection does not have to be statutory in nature and does not have to be for the purposes originally intended by Parliament. If the Minister considers a particular protection to be no longer necessary, he or she must provide the Parliamentary scrutiny committees with compelling evidence to support this view.
Rights and freedoms - an RRO cannot be made unless the Minister is satisfied that it does not prevent any person from continuing to exercise any right or freedom which they might reasonably expect to enjoy. This test recognises that there are certain rights that it would not be fair to take away from people under these procedures.
Other safeguards
In order to provide for the effective reform of regulatory regimes, RRO's can re-state existing burdens and create new burdens. But where that is the case stringent additional safeguards apply:
proportionality - If a new legal burden is being imposed, or an existing burden retained or increased, then the Minister must ensure that it is proportionate to the benefit it brings. This means, for example, that imposing a burden of several thousand pounds on charities for some negligible benefit would not pass the test.
fair balance - before proposing any RRO that has the effect of imposing legal burdens, the Minister must be of the opinion that a fair balance is being struck between the interests of the person affected by the Order and the interests of the wider public. In this context, fairness does not mean that everyone must benefit. What it does mean is that the benefit to society as a whole must be such as to justify the additional burden on a small group or the individual.
desirability - the Minister making the Regulatory Reform Order must be of the opinion that the extent to which it removes burdens or brings other benefits makes the Order as a whole desirable.
Consultation
The Act requires Departments to consult widely on regulatory reform proposals. It requires us to collect evidence on a number of issues from a wide range of consultees. A selection of the list of consultees, including the devolved administrations, to whom the document has been sent can be found in the Introduction to this document. A full listing is available on the Internet at:
Comments are invited from all interested parties, and not just from those to whom the document has been sent. A response form (with questionnaire) can be found at Annex D.
The Parliamentary Committees who will deal with orders under the Regulatory Reform Act have requested that a note explaining the Parliamentary process for orders to be made under the Act be annexed to all consultation papers so that consultees understand when and to whom they are able to put their views, should they wish to do so. This is set out in Annex B.
This consultation document follows the format recommended by the Cabinet Office for such proposals. The criteria applicable to all UK public consultations under the Cabinet Office Code of Practice on Consultation are set out in Annex E.
Disclosure of responses
Normal practice will be for details of representations received in response to this consultation document to be disclosed, or for respondents to be identified.
Please identify any information which you or any other person involved do not wish to be disclosed. Paragraphs 17-20 of Annex B explains the provisions of the Regulatory Reform Act in this case.
You should note that the Scrutiny Committees will be able to request sight of your representation as originally submitted. We envisage that, in the normal course of events, this provision will only be used rarely and on an exceptional basis.
Introduction
These reform proposals will require changes to primary legislation in order to give effect to them. The Minister could achieve these changes by introducing a Regulatory Reform Order under the Regulatory Reform Act 2001. Regulatory Reform Orders are subject to preliminary consultation and to extended Parliamentary scrutiny (by Committees in each House of Parliament) of any subsequently proposed Order. On that basis, the Minister invites comments on these reform proposals as measures that might be carried forward by a Regulatory Reform Order.
Regulatory reform proposals
This consultation document has been produced because the starting point for regulatory reform proposals is thorough and effective consultation with interested parties. In undertaking this preliminary consultation, the Minister is expected to seek out actively the views of those concerned, including those who may be adversely affected, and then to demonstrate to the Scrutiny Committees that he or she has addressed those concerns.
Following the consultation exercise, when the Minister lays proposals before Parliament under the Regulatory Reform Act, he or she must also lay a report for consideration by the Scrutiny Committees setting out a summary of:
the burden imposed by the existing law;
whether any of those burdens are proposed to be removed or reduced;
how the proposals otherwise further the other objects of the Regulatory Reform Act (re-enacting proportionate burdens, introducing new but proportionate burdens, removing inconsistencies and anomalies);
whether there is 'necessary protection' and how it is to be continued;
how any reasonable expectation of the exercise of rights or freedoms is affected (if at all) and how the exercise can be continued;
how new burdens (if any) are both proportionate and, taking the proposals as a whole, strike a fair balance between the public interest and the interests of the persons affected by the new burdens;
whether an Order that imposes burdens is desirable in terms either of the burdens it removes or the other benefits it brings;
whether any parts of the proposed Order are being designated as 'subordinate provisions', allowing them to be changed by less elaborate Parliamentary procedures in the future;
what cost savings or increases are expected, and why;
what other benefits there will be from the proposals;
details of the consultation process;
any representations received as a result of that consultation; and
the changes made as a result.
On the day the Minister lays the proposals and report, the period for Parliamentary consideration begins. It lasts for 60 days, excluding Parliamentary recesses of more than four days. If you want a copy of the proposals and the Minister's report, you will be able to get them either from the Government department concerned or by visiting the Cabinet Office's website at www.cabinet-office.gov.uk/regulation/act/index.htm.
Parliamentary scrutiny
Both Houses of Parliament scrutinise regulatory reform proposals and draft orders. This is done by the Scrutiny Committees.
Standing Orders in the Commons stipulate that the Committee there considers whether proposals:
appear to make an inappropriate use of delegated legislation;
remove or reduce a burden or the authorisation or requirement of a burden;
continue any necessary protection;
have been the subject of, and take appropriate account of, adequate consultation;
impose a charge on the public revenues or contain provisions requiring payments to be made to the Exchequer or any government department or to any local or public authority in consideration of any licence or consent or of any services to be rendered, or prescribe the amount of any such charge or payment;
purport to have retrospective effect;
give rise to doubts whether they are intra vires;
require elucidation, are not written in plain English, or appear to be defectively drafted; or
appear to be incompatible with any obligation resulting from membership of the European Union;
prevent any person from continuing to exercise any right or freedom which he might reasonably expect to continue to exercise;
satisfy the conditions of proportionality between burdens and benefits set out in sections 1 and 3 of the Act;
satisfy the test of desirability set out in section 3(2)(b) of the Act;
have been the subject of, and take appropriate account of, estimates of increases or reductions in costs or other benefits which may result from their implementation; or
include provisions to be designated in the draft order as subordinate provisions; and in the case of the latter consideration the committee shall report its opinion whether such a designation should be made, and to what parliamentary proceedings any subordinate provisions orders should be subject.
The Committee in the House of Lords will consider each proposal in terms of similar criteria, although these are not laid down in Standing Orders.
Each Committee might take oral or written evidence to help it decide these matters, and each Committee could then be expected to report:
whether the Minister should proceed to lay a draft order in the same terms as the original proposal, or
whether amendment is necessary, or
whether the order-making power should not be used (for example, because of the significance or sensitivity of the proposal).
Copies of Committee Reports, as Parliamentary papers, can be obtained through HMSO. They are also available on the Parliament website at:
http://www.parliament.uk/commons/selcom/drghome.htm for the Deregulation and Regulatory Reform Committee in the Commons; and
http://www.parliament.the-stationery-office.co.uk/pa/ld/lddereg.htm for the Delegated Powers and Regulatory Reform Committee in the Lords.
After the 60 days for Parliamentary consideration, the Minister can lay a draft order before both Houses, this time for the approval of Parliament.
Each of the Scrutiny Committees examines the draft order to see how far its views have been taken into account. They report, within 15 sitting days, whether the draft order should be approved or not, and it would then be for the relevant House itself to take its final decision.
The final draft order then has to be approved by both Houses of Parliament before becoming law.
How to make your views known
Responding to this consultation document is your first and main opportunity to make your views known to the relevant department as part of the consultation process. You should send your views to the person named in the consultation document (as described in How to Respond). When the Minister lays proposals before Parliament you are welcome to put your views before either or both of the Scrutiny Committees.
In the first instance, this should be in writing. The Committees will normally decide on the basis of written submissions whether to take oral evidence.
Your submission should be as concise as possible, and should focus on one or more of the criteria listed in paragraph 6 above.
The Scrutiny Committees appointed to scrutinise Regulatory Reform Orders can be contacted at:
| Delegated Powers and Regulatory Reform Committee House of Lords London SW1A 0PW Tel: 020-7219 3103 Fax: 020-7219 2571 email: DPDC@parliament.uk |
Deregulation and Regulatory Reform Committee House of Commons 7 Millbank London SW1P 3JA Tel: 020-7219 2830/2833/2837 Fax: 020-7219 2509 email: deregcom@parliament.uk |
Non-disclosure of responses
Section 7 of the Act provides what should happen when someone responding to the consultation exercise on a proposed order requests that their response should not be disclosed.
The name of the person who has made representations will always be disclosed to Parliament. If you ask for your representation not to be disclosed, the Minister should not disclose the content of that representation without your express consent and, if the representation relates to a third party, their consent too. Alternatively, the Minister may disclose the content of the representation in such a way as to preserve your anonymity and that of any third party involved.
Information about third parties
If you give information about a third party which the Minister believes may be damaging to the interests of that third party, the Minister does not have to pass on such information to Parliament if he does not believe it is true or he is unable to obtain the consent of the third party to disclosure. This applies whether or not you ask for your representation not to be disclosed.
The Scrutiny Committees may, however, be given access on request to all representations as originally submitted, as a safeguard against improper influence being brought to bear on Ministers in their formulation of regulatory reform orders.
Introduction
The Law Commission's Report No 253 The Executions of Deeds and Documents by Bodies Corporate recommended a number of amendments to the statutes regulating the formalities necessary to give legal effect to these instruments. This partial Regulatory Impact Assessment considers the likely impact of the proposals on businesses, charities and the voluntary sector.
The Law of Property Act 1925, the Companies Act 1985 and the Law of Property (Miscellaneous Provisions) Act 1989 governs the execution of deeds and documents by corporations, but they are inconsistent, sometimes unclear and in places, unnecessarily restrictive. The Law Commission's proposals seek to remove unnecessary restrictions on who can sign documents and attest companies' seals, and to remove inconsistencies between the law applicable to companies and other corporations.
Who will be affected?
The proposals will affect:
companies and their directors;
other corporations (which would include many charities) and their officers;
those entering into transactions with them; and
legal advisers of all the above.
Options
We consider that there are two options available in this area:
option 1 - adopt the Law Commission's recommendations; or
option 2 - make no change to the law.
Benefits
There are three categories of benefit arising from the proposals:
The rules about who needs to sign deeds and other formal instruments (or attest a company's seal) will be simpler, clearer and more flexible, potentially leading to some administrative savings for corporations. For example, any two directors of a company will be able to attest a seal, whereas now the company secretary or his deputy must be present to do so. Attorneys will be able to execute deeds on behalf of corporations. Also, companies will no longer face the irrebuttable presumption of delivery on execution. In practice, this means it will be possible to sign (or attest) an instrument before the date when it is intended to take effect.
The other parties to transactions with corporations will benefit from the broadening of two presumptions that allow them to rely on the validity of documents in the correct form without the need for further consideration or even investigation.
Purchasers can currently rely on a presumption that a deed that appears to have been duly executed is valid. This will be extended to other instruments executed by corporations.
Purchasers of land currently benefit from a presumption that a solicitor delivering a deed to behalf of a party has valid authority to do so. This will be extended to other categories of transaction.
Overall, the law in this area will be made simpler, clearer and more consistent, and in particular inconsistencies in the rules applicable to companies and other corporations will be removed. This could in principle lead to savings in the cost of legal advice. It might also reduce the chance of transactions being rendered invalid or having unintended effect due to misunderstanding the legal requirements.
Costs
There is only one proposal in this package that would in principle impose additional costs, although in practice the effect would be negligible. It arises when two or more parties to a single document or transaction are companies having directors in common. In those circumstances, it is proposed that the directors signing for those companies will have to sign separately for each company.
Risk assessment
If the Law Commission's recommendations are not taken forward by Regulatory Reform Order, then the inconsistencies and unnecessarily inflexible requirements of the existing law will remain in force.
As indicated above (paragraph 8 of 'The Proposals'), the law imposes formalities on the execution of deeds and documents by corporations for good reasons. There might be a theoretical risk that making it easier to meet those formalities might undermine those reasons. However, we do not believe that the Law Commission's carefully considered recommendations will have any such effect in practice.
Compliance
There are no compliance or implementation costs.
Small business
Small business will benefit from the simpler and clearer requirements that the amended law will impose on companies and other corporations.
Competition
There are no issues relating to competition arising from these proposals.
Conclusion
The Law Commission's proposals are to all intents wholly beneficial to those affected by this area of law. Although in principle they are relevant to millions of transactions, the number of cases where the effect of the changes will lead to identifiable savings is likely to be much smaller and the extent of any savings marginal. Given the nature of these proposals, we do not consider it either practicable or necessary to attempt to quantify the benefits.
We would welcome your views on whether this assessment accurately identifies all the benefits and costs arising from these proposals, and whether you agree that the degree of their impact makes detailed quantification impractical and unnecessary. If you disagree, we should be grateful for your views on how you would go about it, and for any quantitative information you can provide.
Please respond as set out above.
Name..................................................
Organisation:
Address:
Postcode:
Telephone:
Fax:
email:
If you are a representative group please give a summary of the people and organisations you represent
Deepa Patel
Lord Chancellor's Department
Civil Law Development Division
Room 3.05
Southside
105 Victoria Street
London SW1E 6QT
Tel: 020-7210 1231
Fax: 020-7210 1269
email: Deepa Patel
The Department may wish to publish responses to this consultation document in due course. Please ensure your response is marked clearly if you wish your response or name to be kept confidential.
Consultees are invited to give reasons for their answers where possible.
Do you agree that the Law Commission's recommendations about the execution of deeds and documents should be implemented?
Do you agree that these are suitable for implementation by Regulatory Reform Order?
In relation to Proposal A (attestation by two directors), do you agree that the proposal removes a burden; does not remove any necessary protections; and does not prevent anyone from continuing to exercise any right or freedom which they might reasonably expect to enjoy?
In relation to Proposal B (corporate officers), do you agree that the proposal removes a burden; does not remove any necessary protections; and does not prevent anyone from continuing to exercise any right or freedom which they might reasonably expect to enjoy?
In relation to Proposal C (separate signature), do you agree that the new burden created is proportionate, fairly balanced and desirable; that the proposal does not remove any necessary protections; and that it does not prevent anyone from continuing to exercise any right or freedom which they might reasonably expect to enjoy?
In relation to Proposal D (irrebuttable presumption of validity), do you agree that the proposal removes a burden; does not remove any necessary protections; and does not prevent anyone from continuing to exercise any right or freedom which they might reasonably expect to enjoy?
In relation to Proposal E (irrebuttable presumption of authority to deliver), do you agree that the proposal removes a burden; does not remove any necessary protections; and does not prevent anyone from continuing to exercise any right or freedom which they might reasonably expect to enjoy?
In relation to Proposal F (powers of attorney), do you agree that the new burden created is proportionate, fairly balanced and desirable; that the proposals do not remove any necessary protections; and that they do not prevent anyone from continuing to exercise any right or freedom which they might reasonably expect to enjoy?
In relation to Proposal G (powers of liquidators), do you agree that the proposal removes a burden; does not remove any necessary protections; and does not prevent anyone from continuing to exercise any right or freedom which they might reasonably expect to enjoy?
In relation to Proposal H (rule of execution), do you agree that the new burden created is proportionate, fairly balanced and desirable; that the proposal does not remove any necessary protections; and that it does not prevent anyone from continuing to exercise any right or freedom which they might reasonably expect to enjoy?
In relation to Proposal I (irrebuttable presumption of delivery), do you agree that the proposal removes a burden; does not remove any necessary protections; and does not prevent anyone from continuing to exercise any right or freedom which they might reasonably expect to enjoy?
In relation to Proposal J (face-value requirement), do you agree that the proposal does not remove any necessary protections or prevent anyone from continuing to exercise any right or freedom which they might reasonably expect to enjoy?
In relation to Proposal K (specialties), do you agree that the proposal does not remove any necessary protections or prevent anyone from continuing to exercise any right or freedom which they might reasonably expect to enjoy?
In relation to the interface between these proposals and the Company Law Review (discussed at paragraph 16 on page 19), would you favour option c) or option d)? If option d), would you favour the incorporation of the relevant provisions in the 1925 Act or the 1989 Act?
Do you agree that the recommendations should be implemented as discussed here, using other ways to address any issues raised by technological advances? Please feel free to indicate which issues you believe require further consideration in this context.
Do you agree that we have accurately identified all the benefits and costs arising from these proposals, and that the degree of their impact makes detailed quantification impractical and unnecessary? If not, please give your views on how you would go about it, and any quantitative information you can provide.
Do you have any other comments or observations?
Consultation Co-ordinator
If you have any complaints or comments about the consultation process, you should contact the Lord Chancellor's Department's consultation co-ordinator, Laurence Fiddler, on 020 7210 2622 or email him at Laurence Fiddler. Alternatively, you may wish to write to the address below:
Laurence Fiddler
Consultation Co-ordinator
5th Floor
Lord Chancellor's Department
Selborne House
54-60 Victoria Street
London SW1E 6QW
General Principles of Consultation
The criteria in the Code of Practice on Written Consultation issued by the Cabinet Office is as follows:
Timing of consultation should be built into the planning process for a policy or service from the start, so that it has the best prospect of improving the proposals concerned, and so that sufficient time is left for it at each stage.
It should be clear who is being consulted, about what questions, in what timescale and for what purpose.
A consultation document should be as simple and concise as possible. It should include a summary, in two pages at most, of the main questions it seeks views on. It should make it as easy as possible for readers to respond, make contact or complain.
Documents should be made widely available, with the fullest use of electronic means (though not to the exclusion of others), and effectively drawn to the attention of all interested groups and individuals.
Sufficient time should be allowed for considered responses from all groups with an interest. Twelve weeks should be the standard minimum period for a consultation.
Responses should be carefully and open-mindedly analysed, and the results made widely available, with an account of the views expressed, and reasons for decisions finally taken.
Departments should monitor and evaluate consultations, designating a consultation co-ordinator who will ensure the lessons are disseminated.