Company Law Reform in the UK

Abstract

The UK has embarked on a fundamental review of company law. The first stage of the process was completed in July 2001 and reform proposals are now being considered by the government. Modernisation of company law is part of a drive to facilitate enterprise and enhance the attractiveness of the UK as a location in which to do business. This paper, which was first prepared for the 9th Singapore Conference on International Business Law, considers how well the proposed new legal framework measures up as a regulatory product that will be attractive to business and foster business competitiveness. Proposals in three areas are examined closely: simplification so as to promote business creation and growth; corporate governance and directors' duties; and the institutional framework of regulation. I suggest that if the simplification proposals are implemented in their current form UK company law will become much clearer and more comprehensible. Greater clarity should ensure some competitive advantages. In the area of corporate governance and directors' duties, the strong, continuing preference for detailed legal rules suggests that policymakers are sceptical about the ability of the market to put in place effective corporate governance controls without significant state intervention. Whether the preference for detailed rues supported by tough (often criminal) sanctions strikes the right balance between managerial freedom and investor protection is open to question. With regard to the institutional framework of regulation, my assessment of the proposals to expand the regulatory responsibilities of accounting bodies so as also to cover general company law is that these seem likely to promote a shift away from self-regulation towards greater public institutionalisation of corporate regulation, a result that sits uneasily with the presumption against state intervention which was adopted as a guiding principle at the outset of the reform initiative.